EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
November 10, 2004 among Generex Biotechnology Corporation, a Delaware
corporation (the "Company"), and each purchaser identified on the signature
pages hereto (each, including its successors and assigns, a "Purchaser" and
collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Additional Investment Right" means the Additional Investment
Rights as described in Section 2.2(a)(iv), in the form of Exhibit F
attached hereto.
"Additional Investment Right Securities" means the Debentures
and Warrants issuable upon exercise of the Additional Investment Right.
"Additional Investment Right Shares" means the shares of
Common Stock issuable upon conversion of the Additional Investment
Right Securities.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser
will be deemed to be an Affiliate of such Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchasers' obligations to pay the Subscription Amount and (ii) the
Company's obligations to deliver the Securities have been satisfied or
waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.001 per share, and any securities into which such common stock
shall hereinafter have been reclassified into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Xxxxxx Xxxxxxx Xxxxxx & Xxxxxxx, LLC.
"Conversion Price" shall have the meaning ascribed to such
term in the Debentures.
"Custodial Agent" shall have the meaning set forth in the
Custodial Agreement.
"Custodial Agreement" means the Custodial and Security
Agreement in substantially the form of Exhibit G hereto executed and
delivered contemporaneously with this Agreement.
"Debentures" means, the 6% Secured Convertible Debentures due,
subject to the terms therein, 15 months after their date of issuance,
issued by the Company to the Purchasers hereunder, in the form of
Exhibit A attached hereto.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or Common Stock Equivalents to employees, officers, directors or
consultants of the Company pursuant to any stock or option plan duly
adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities
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upon the exercise of or conversion of any securities issued hereunder,
convertible securities, options or warrants issued and outstanding on
the date of this Agreement, provided that such securities have not been
amended since the date of this Agreement to increase the number of such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company and
in which the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities and (d)
solely for purposes of Section 4.13 of this Agreement, to the extent
that the inclusion of one or more Purchasers in a Subsequent Financing
pursuant to such section would result in a violation of the rules of
the primary Trading Market on which the Common Stock is then trading;
provided that the Company is advised of such potential violation by
such Trading Market after the Company has used its reasonable best
efforts to argue for the inclusion of such Purchaser.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.13.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.13.
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"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers,
in the form of Exhibit B attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures (including Underlying Shares issuable as
payment of interest), ignoring any conversion or exercise limits set
forth therein, and assuming that the Conversion Price is at all times
on and after the date of determination 75% of the then Conversion Price
on the Trading Day immediately prior to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the Warrant
Shares and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Approval" means such approval as may be required
by the applicable rules and regulations of the Trading Market (or any
successor entity) from the shareholders of the Company with respect to
the transactions contemplated by the Transaction Documents, including
the issuance of all of the Underlying Shares and shares of Common Stock
issuable upon exercise of the Warrants in excess of 19.99% of the
issued and outstanding Common Stock on the Closing Date.
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for Debentures and Warrants purchased
hereunder as specified below such Purchaser's name on the signature
page of this Agreement and next to the heading "Subscription Amount,"
in United States Dollars and in immediately available funds.
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"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.13.
"Subsidiary" means, for purposes of Section 3.1, any
subsidiary of the Company as set forth in the SEC Reports, and for all
other purposes under the Transaction Documents, any subsidiary of the
Company as set forth in the SEC Reports and any future direct or
indirect subsidiary of the Company.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Registration Rights Agreement, the Additional
Investment Rights, and the Custodial Agreement and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.
"Underlying Shares" means the Additional Investment Right
Shares, the Warrant Shares, shares of Common Stock issuable upon
conversion of the Debentures and issued and issuable in lieu of the
cash payment of interest on the Debentures.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
bid price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average bid price of the Common Stock for such date
(or the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (c) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in
good faith by the Purchasers and reasonably acceptable to the Company.
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"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C attached hereto delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable 6 months and 1 day from their date
of issuance and have a term of exercise equal to five (5) years.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, $4,000,000
principal amount of the Debentures. Each Purchaser shall deliver via wire
transfer immediately available funds equal to their Subscription Amount and the
Company shall deliver to each Purchaser their respective Debenture and Warrants
as determined pursuant to Section 2.2(a) and the other items set forth in
Section 2.2 issuable at the Closing. Upon satisfaction of the conditions set
forth in Section 2.2, the Closing shall occur at the offices of FW, or such
other location as the parties shall mutually agree.
2.2 Deliveries.
a) On the Closing Date, the Company shall deliver or cause to be
delivered to the Custodial Agent the following:
(i) this Agreement duly executed by the Company;
(ii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the
name of such Purchaser;
(iii) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock
equal to 100% of such Purchaser's Subscription Amount
divided by the Conversion Price, with an exercise
price equal to $0.91 subject to adjustment therein;
(iv) on the Closing Date, a copy of an Additional
Investment Right, registered in the name of such
Purchaser, pursuant to which such Purchaser shall
have the right to purchase up to an additional
principal amount of Debentures equal to such
Purchaser's Subscription Amount along with additional
Warrants to purchase up to a number of shares of
Common Stock equal to 100% of the shares issuable
upon conversion of the Debentures so purchased;
(v) the written voting agreement, in the form of Exhibit
E attached hereto, of all of the officers, directors
and shareholders holding more than 10% of the issued
and outstanding shares of Common Stock on the date
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hereof to vote all Common Stock owned by each of such
officers, directors and shareholders as of the record
date for the annual meeting of shareholders of the
Company in favor of Shareholder Approval amounting
to, in the aggregate, at least 20% of the issued and
outstanding Common Stock;
(vi) the Registration Rights Agreement duly executed by
the Company;
(vii) the Custodial Agreement duly executed by the Company;
and
(viii) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto.
b) On the Closing Date, each Purchaser shall deliver or cause to
be delivered to the Custodial Agent the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer
to the account as specified in writing by the
Company;
(iii) the Custodial Agreement duly executed by such
Purchaser; and
(iv) the Registration Rights Agreement duly executed by
such Purchaser.
2.3 Closing Conditions.
a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and
on the Closing Date of the representations and
warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to
the Closing Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set forth
in Section 2.2(b) of this Agreement.
b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following
conditions being met:
(i) the accuracy in all material respects on the Closing
Date of the representations and warranties of the
Company contained herein;
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(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the
Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(v) From the date hereof to the Closing Date, trading in
the Common Stock shall not have been suspended by the
Commission (except for any suspension of trading of
limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading
in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or
limited, or minimum prices shall not have been
established on securities whose trades are reported
by such service, or on any Trading Market, nor shall
a banking moratorium have been declared either by the
United States or New York State authorities nor shall
there have occurred any material outbreak or
escalation of hostilities or other national or
international calamity of such magnitude in its
effect on, or any material adverse change in, any
financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the
Debentures at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company as of the date hereof are set forth in the SEC Reports.
The capital stock or other equity interests of each Subsidiary owned by
the Company are owned free and clear of any Liens, and all the issued
and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and
similar rights to subscribe for or purchase securities. If the Company
has no subsidiaries, then references in the Transaction Documents to
the Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
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jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Documents, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's ability to perform in any material
respect on a timely basis its obligations under any Transaction
Documents (any of (i), (ii) or (iii), a "Material Adverse Effect") and
no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith
other than in connection with the Required Approvals. Each Transaction
Documents has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of creditors' rights generally and (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other
equitable remedies.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated thereby do not and will
not: (i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property
or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction,
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decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.6, (ii) the filing with the Commission
of the Registration Statement, (iii) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the
Debentures and Warrants and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby, (iv) the
filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws and (vi) Shareholder
Approval (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the
Transaction Documents. The Company has reserved from its duly
authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof. The Company has not, and to the knowledge
of the Company, no Affiliate of the Company has sold, offered for sale
or solicited offers to buy or otherwise negotiated in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the sale of
the Securities to the Purchasers, or that would be integrated with the
offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.
(g) Capitalization. The capitalization of the Company is as
described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such
filing other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will
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not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities. Other than the
Shareholder Approval and the approval of the NASDAQ Stock Market, Inc.,
no further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and
sale of the Securities. Other than as contemplated by the Transaction
Documents, there are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company's capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred
to herein as the "SEC Reports") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as
in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A)
trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required
to be reflected in the Company's financial statements pursuant to GAAP
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or required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting, (iv) other than
as set forth in the SEC Reports, the Company has not declared or made
any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock and (v) other than as set
forth in the SEC Reports, the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of
information.
(j) Litigation. Other than as set forth in the SEC Reports,
there is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state,
county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) would, if there were an unfavorable decision, have or reasonably
be expected to result in a Material Adverse Effect. Neither the Company
nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach
of fiduciary duty. There has not been, and to the knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business except in each
case as could not have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could not
have or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
12
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
Other than as set forth in the SEC Reports, neither the Company nor any
Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon
the rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property
Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To the
best of Company's knowledge, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
13
director, trustee or partner, in each case in excess of $60,000 other
than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in material compliance with all provisions of the Xxxxxxxx-Xxxxx Act
of 2002 which are applicable to it as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in
the Company's internal controls (as such term is defined in Item 307(b)
of Regulation S-K under the Exchange Act) or, to the Company's
knowledge, in other factors that could significantly affect the
Company's internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions
are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due
in connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchasers as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
14
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements.
(x) Application of Takeover Protections. The Company and its
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchasers will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company.
All disclosure provided to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct in all material respects with respect to
such representations and warranties and do not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section
3.2 hereof.
15
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company, nor any of its 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 this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the securities
of the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i)
the Company's fair saleable value of its assets exceeds the amount that
will be required to be paid on or in respect of the Company's existing
debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably
small capital to carry on its business for the current fiscal year as
now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements
and capital availability thereof; and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive, were
it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on
or in respect of its debt when such amounts are required to be paid.
The Company does not intend to incur debts beyond its ability to pay
such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that
it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments.
For the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(bb) Form S-3 Eligibility. The Company is eligible to register
the resale of the Underlying Shares for resale by the Purchaser on Form
S-3 promulgated under the Securities Act.
(cc) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
16
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(dd) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(ee) Foreign Corrupt Practices. Neither the Company, nor to
the knowledge of the Company, any agent or other person acting on
behalf of the Company, has (i) directly or indirectly, used any corrupt
funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic government
officials or employees or to any foreign or domestic political parties
or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law, or
(iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended
(ff) Accountants. The Company's accountants are BDO Dunwoody,
LLP. To the Company's knowledge, such accountants, who the Company
expects will express their opinion with respect to the financial
statements to be included in the Company's Annual Report on Form 10-K
for the year ending July 31, 2004 are a registered public accounting
firm as required by the Securities Act.
(gg) Seniority. As of the Closing Date, no indebtedness or
other equity of the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
(hh) 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 accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(ii) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of an arm's length
purchaser with respect to the Transaction Documents and the
transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any
Purchaser or any of their respective representatives or agents in
17
connection with this Agreement and the transactions contemplated hereby
is merely incidental to the Purchasers' purchase of the Securities. The
Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction
Documents to which it is a party has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms,
except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Purchaser Representation. Such Purchaser understands that
the Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part
thereof, has no present intention of distributing any of such
Securities and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws). Such
Purchaser is acquiring the Securities hereunder in the ordinary course
of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be either: (i) an "accredited investor" as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
"qualified institutional buyer" as defined in Rule 144A(a) under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.
18
(d) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Access to Information. Such Purchaser acknowledges that it
has reviewed such materials it deems necessary to make an informed
investment decision and has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and
conditions of the offering of the Debentures and the merits and risks
of investing in the Securities; (ii) access to information about the
Company and the Subsidiaries and their respective financial condition,
results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or
counsel shall modify, amend or affect such Purchaser's right to rely on
the truth, accuracy and completeness of such materials it has reviewed
and the Company's representations and warranties contained in the
Transaction Documents.
(g) Limited Ownership. The purchase by such Purchaser of the
Securities issuable to it at the Closing (including the underlying
shares of Common Stock that would be issuable in respect of such
Securities and including any Securities issuable under the terms of the
Additional Investment Rights issued or issuable to such Purchaser) will
not result in such Investor (individually or together with other Person
with whom such Purchaser has identified, or will have identified,
itself as part of a "group" in a public filing made with the Commission
involving the Company's securities) acquiring, or obtaining the right
to acquire, in excess of 19.999% of the Common Stock or the voting
power of the Company on a post transaction basis that assumes that the
Closing shall have occurred. Such Purchaser does not presently intend
to, alone or together with others, make a public filing with the
Commission to disclose that it has (or that it together with such other
Persons have) acquired, or obtained the right to acquire, as a result
of the Closing (when added to any other securities of the Company that
it or they then own or have the right to acquire), in excess of 19.999%
of the Common Stock or the voting power of the Company on a post
transaction basis that assumes that the Closing shall have occurred.
19
(h) Independent Investment Decision. Such Purchaser has
independently evaluated the merits of its decision to purchase
Securities pursuant to this Agreement, such decision has been
independently made by such Purchaser and such Investor confirms that it
has only relied on the advice of its own business and/or legal counsel
and not on the advice of any other Purchaser's business and/or legal
counsel in making such decision. Such Purchaser understands that its
investment in the Securities involves a high degree of risk. Such
Purchaser has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with
respect to its acquisition of the securities.
(i) Reliance on Exemptions. Such Purchaser understands that
the Securities are being offered and sold to it in reliance on
Regulation D and that the Company is relying upon the truth and
accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such
Investor set forth herein in order to determine the availability of
Regulation D and the eligibility of such Purchaser to acquire such
Securities.
(j) No Governmental Review. Such Purchaser understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness of suitability of the
investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.
(k) Residency. Such Purchaser certifies that it resides or has
a bona fide place of business at the address set forth below such
Purchaser's name on its signature page to this Agreement.
The Company acknowledges and agrees that each Purchaser does
not make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement and the
Registration Rights Agreement.
20
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of
the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. At the applicable Purchaser's expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
(c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)
hereof): (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
pursuant to Rule 144, or (iii) if such Underlying Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
21
opinion to the Company's transfer agent promptly after the Effective
Date if required by the Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Debenture or
Warrant is converted or exercised (as applicable) at a time when there
is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Underlying Shares, as applicable, issued
with a restrictive legend (such third Trading Day, the "Legend Removal
Date"), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive
and other legends. The Company may not make any notation on its records
or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to this Section 4.1(c), $10 per Trading
Day (increasing to $20 per Trading Day 5 Trading Days after such
damages have begun to accrue) for each Trading Day after the Legend
Removal Date until such certificate is delivered without a legend.
Nothing herein shall limit such Purchaser's right to pursue actual
damages for the Company's failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Company's reliance that the Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
(f) Until the one year anniversary of the Effective Date, the
Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent
of the Purchasers holding a majority in principal amount outstanding of
the Debentures.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that, other than as otherwise set forth in the
Transaction Documents, its obligations under the Transaction Documents,
including without limitation its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not
22
subject to any right of set off, counterclaim, delay or reduction, regardless of
the effect of any such dilution or any claim the Company may have against any
Purchaser and regardless of the dilutive effect that such issuance may have on
the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The Warrants, including the
form of Notice of Exercise included in the Warrants and the Debentures,
including the form of Notice of Conversion included in the Debentures set forth
the totality of the procedures required of the Purchasers in order to exercise
the Warrants or convert the Debentures. No additional legal opinion or other
information or instructions shall be required of the Purchasers to exercise
their Warrants or convert their Debentures. The Company shall honor exercises of
the Warrants and conversions of the Debentures and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release disclosing the material terms of the transactions contemplated hereby
and by 4:30 p.m Eastern time on such date, file a Current Report on Form 8-K,
attaching such press release and the Transaction Documents thereto, each
reasonably acceptable to each Purchaser. The Company and each Purchaser shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of
such public statement or communication. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market, without the prior written consent of such Purchaser, except
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(i) as required by federal securities law in connection with the registration
statement contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.8 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 executed a written agreement regarding the confidentiality and use of
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.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company
other than a Purchaser (except as a result of sales, pledges, margin sales and
similar transactions by such Purchaser to or with any current stockholder),
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
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claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representation, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
(c) The Company shall, if applicable: (i) in the time and
manner required by the Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the Trading
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Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Trading Market or another Trading Market. In addition, the
Company shall hold a special meeting of shareholders (which may also be
at the annual meeting of shareholders) at the earliest practical date
after the date the number of shares of Common Stock issuable pursuant
to this Agreement exceeds 15% of the issued and outstanding shares of
Common Stock on the Closing Date for the purpose of obtaining
Shareholder Approval, with the recommendation of the Company's Board of
Directors that such proposal be approved, and the Company shall solicit
proxies from its shareholders in connection therewith in the same
manner as all other management proposals in such proxy statement and
all management-appointed proxyholders shall vote their proxies in favor
of such proposal.
4.13 Participation in Future Financing. From the date hereof until the
date the Debentures (including any Debentures issuable upon exercise of an
Additional Investment Right) or Additional Investment Rights of the applicable
Purchaser are no longer outstanding, upon any financing by the Company or any of
its Subsidiaries of Common Stock or Common Stock Equivalents (a "Subsequent
Financing"), each Purchaser shall have the right to purchase up to 100% of the
Subsequent Financing (the "Participation Maximum"). At least 5 Trading Days
prior to the closing of the Subsequent Financing, the Company shall deliver to
each Purchaser a written notice of its intention to effect a Subsequent
Financing ("Pre-Notice"), which Pre-Notice shall ask such Purchaser if it wants
to review the details of such financing (such additional notice, a "Subsequent
Financing Notice"). Upon the request of a Purchaser, and only upon a request by
such Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 1 Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto. If by 5:30 p.m. (New
York City time) on the 5th Trading Day after all of the Purchasers have received
the Pre-Notice, notifications by the Purchasers of their willingness to
participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the Participation Maximum, then the
Company may effect the remaining portion of such Participation Maximum on the
terms and to the Persons set forth in the Subsequent Financing Notice. If the
Company receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not elect to
participate. The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth above in this Section 4.13, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 Trading Days after
the date of the initial Subsequent Financing Notice. In the event the Company
receives responses to Subsequent Financing Notices from Purchasers seeking to
purchase more than the aggregate amount of the Participation Maximum, each such
Purchaser shall have the right to purchase their Pro Rata Portion (as defined
below) of the Participation Maximum. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of Securities purchased by a participating Purchaser and (y)
the sum of the aggregate Subscription Amount of all participating Purchasers.
26
Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of
(i) an Exempt Issuance or (ii) issuances of up to, in the aggregate, 1,500,000
shares of Common Stock or Common Stock Equivalents (subject to adjustment for
reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of this
Agreement) to consultants of the Company in any 12 month period pursuant to any
stock or option plan duly adopted by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 75 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, the 75 day
period set forth in this Section 4.14 shall be extended for the number
of Trading Days during such period in which (y) trading in the Common
Stock is suspended by any Trading Market, or (z) following the
Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by
the Purchasers for the resale of the Underlying Shares. In addition to
the limitations set forth herein, from the date hereof until such time
as no Purchaser holds any of the Debentures (including any Debentures
issuable upon exercise of an Additional Investment Right) or Additional
Investment Rights, the Company shall be prohibited from effecting or
entering into an agreement to effect any Subsequent Financing involving
a "Variable Rate Transaction" or an "MFN Transaction" (each as defined
below). The term "Variable Rate Transaction" shall mean a transaction
in which the Company issues or sells (i) any debt or equity securities
that are convertible into, exchangeable or exercisable for, or include
the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares
of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock. The term
"MFN Transaction" shall mean a transaction in which the Company issues
or sells any securities in a capital raising transaction or series of
related transactions which grants to an investor the right to receive
additional shares based upon future transactions of the Company on
terms more favorable than those granted to such investor in such
offering. Notwithstanding the foregoing, this Section 4.14(a) shall not
apply in respect of (i) an Exempt Issuance or (ii) issuances of up to,
in the aggregate, 1,500,000 shares of Common Stock or Common Stock
Equivalents (subject to adjustment for reverse and forward stock
splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this
Agreement) to consultants of the Company in any 12 month period
pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose.
27
(b) Unless Shareholder Approval has been obtained and deemed
effective, the Company shall not make any issuance whatsoever of Common
Stock or Common Stock Equivalents for an effective per share purchase
price of less than the then Set Price of the Debentures or then
Exercise Price of the Warrants (including any resets or adjustments
less than such price). Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance,
which remedy shall be in addition to any right to collect damages.
Notwithstanding the foregoing, this Section 4.14(b) shall not apply in
respect of an Exempt Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. Further, the
Company shall not make any payment of principal or interest on the Debentures in
amounts which are disproportionate to the respective principal amounts
outstanding on the Debentures at any applicable time. For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Debenture holders as a class and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before November __ ___, 2004; provided that no such termination will affect
the right of any party to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to
reimburse Omicron Master Trust ("Omicron") up to $35,000, for its actual,
reasonable, out-of-pocket legal fees and expenses, of which the Company paid
$15,000 prior to the Closing. Accordingly, in lieu of the foregoing payments,
the aggregate amount that Omicron is to pay for the Debentures and the Warrants
at the Closing shall be reduced by $20,000. The Company shall deliver, prior to
the Closing, a completed and executed copy of the Closing Statement, attached
hereto as Annex A. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
any Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
28
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:00 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:00 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
29
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Documents and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
30
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Documents or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Documents. Notwithstanding any provision to the contrary contained in any
Transaction Documents, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
31
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any 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 any Transaction Documents. Nothing contained herein or in any
Transaction Documents, and no action taken by any Purchaser pursuant thereto,
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. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other 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. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent any of
the Purchasers but only Omicron. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
(Signature Pages Follow)
32
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
GENEREX BIOTECHNOLOGY CORPORATION Address for Notice:
-------------------
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Executive Vice President
and General Counsel
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
33
[PURCHASER SIGNATURE PAGES TO GNBT SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: Cranshire Capital, L.P.
-----------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxxxxx X. Xxxxx
------------------------
Name of Authorized Signatory: Xxxxxxxx X. Xxxxx
-------------------------------------------------
Title of Authorized Signatory: President of General Partner
------------------------------------------------
Email Address of Authorized Entity:
-------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Residency of Investing Entity:
Subscription Amount: $1,000,000
Warrant Shares: 1,219,512
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
34
[PURCHASER SIGNATURE PAGES TO GNBT SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: Iroquois Capital, L.P.
-----------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxxx Xxxxxxxxx
------------------------
Name of Authorized Signatory: Xxxxxx Xxxxxxxxx
-------------------------------------------------
Title of Authorized Signatory: Partner
------------------------------------------------
Email Address of Authorized Entity:
-------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Residency of Investing Entity:
Subscription Amount: $1,000,000
Warrant Shares: 1,219,512
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
35
[PURCHASER SIGNATURE PAGES TO GNBT SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: Omicron Master Trust
-----------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ Xxxxx Xxxxxxxxx
------------------------
Name of Authorized Signatory: Xxxxx Xxxxxxxxx
-------------------------------------------------
Title of Authorized Signatory: Managing Partner
------------------------------------------------
Email Address of Authorized Entity:
-------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Residency of Investing Entity:
Subscription Amount: $1,000,000
Warrant Shares: 1,219,512
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
36
[PURCHASER SIGNATURE PAGES TO GNBT SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Investing Entity: Smithfield Fiduciary LLC
-----------------------------------------------------
Signature of Authorized Signatory of Investing Entity: /s/ Xxxx X. Chill
------------------------
Name of Authorized Signatory: Xxxx X. Chill
-------------------------------------------------
Title of Authorized Signatory:
------------------------------------------------
Email Address of Authorized Entity:
-------------------------------------------
Address for Notice of Investing Entity:
Address for Delivery of Securities for Investing Entity (if not same as above):
Residency of Investing Entity:
Subscription Amount: $1,000,000
Warrant Shares: 1,219,512
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
37
ANNEX A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $5,000,000 of Debentures, Additional
Investment Rights and Warrants from Generex Biotechnology Corporation (the
"Company"). All funds will be wired into a trust account maintained by
____________, counsel to the Company. All funds will be disbursed in accordance
with this Closing Statement.
DISBURSEMENT DATE: [_______
________________________________________________________________________________
I. PURCHASE PRICE
GROSS PROCEEDS TO BE RECEIVED IN TRUST $
II. DISBURSEMENTS
$
[$25,000 for placement agent legal fees] $
$
$
$
TOTAL AMOUNT DISBURSED: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
38
