Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 10,
2003, by and among Hemispherx Biopharma, Inc., a Delaware corporation, with
headquarters located at One Penn Center, 0000 XXX Xxxxxxxxx, Xxxxx 000,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Company"), and the investors listed on
the Schedule of Buyers attached hereto (individually, a "Buyer" and
collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act").
B. The Company has authorized the issuance of $5,426,000 principal amount
of its 6% Senior Secured Convertible Debentures due July 31, 2005 (collectively,
the "Debentures"), which shall be convertible into shares of the Company's
common stock, par value $0.001 per share (the "Common Stock") (as converted, the
"Conversion Shares"), in accordance with the terms of the Debentures.
C. The Buyers severally wish to purchase, upon the terms and conditions
stated in this Agreement, (i) the Debentures on the Closing Date (as defined
below), such Debentures to be in the form attached hereto as Exhibit A, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers for the purchase price opposite such Buyer's name on the Schedule of
Buyers and (ii) warrants (the "Warrants") to purchase shares of Common Stock (as
exercised collectively, the "Warrant Shares"), such Warrants to be substantially
in the form attached hereto as Exhibit B, in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers.
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide the Buyers with
the benefit of certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws, on the
terms and subject to the conditions set forth therein.
E. The location of defined terms in this Agreement is set forth on the
Index of Terms attached hereto.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. Purchase of Debentures and Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to
each Buyer, and each Buyer severally agrees to purchase from the Company, the
respective principal amount of Debentures, together with the related Warrants,
for the purchase price set forth opposite such Buyer's name on the Schedule of
Buyers (the "Closing").
b. The Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City time, on the date hereof (or such
later date as is mutually agreed to by the Company and the applicable Buyer or
Buyers) subject to the satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7. The Closing shall occur on the Closing Date at the offices of
Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. "Business
Day" means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.
c. Delivery and Payment. (i) On the Closing Date, the Company shall
deliver to each Buyer Debentures (in the denominations as such Buyer shall
reasonably request) representing the principal amount of Debentures which such
Buyer is purchasing hereunder, along, with warrants representing the related
Warrants, duly executed on behalf of the Company and registered in the name of
such Buyer.
(ii) On the Closing Date, each Buyer shall set aside in a separate
segregated account (the "Segregated Account") an amount equal to such Buyer's
total purchase price for such Buyer's portion of Debentures and Warrants as set
forth on the Schedule of Buyers (such "Buyer's Purchase Price").
(iii) Payment of such Buyer's Purchase Price shall be made by wire
transfer of immediately available funds from such Buyer's Segregated Account in
accordance with the Company's written wire instructions, less any amount
withheld at the Closing for expenses pursuant to Section 4(k) in the following
manner:
(A) On the Closing Date, each Buyer shall pay the amount
set forth opposite such Buyer's name on the Schedule of Buyers under
the heading "First Payment Amount."
(B) Provided that no Default or Event of Default (each
as defined in the Debentures), or event that with notice or lapse of
time would constitute a Default or Event of Default, has occurred
and is continuing on the third Business Day after satisfaction of
the covenant set forth in Section 4(t) below, each Buyer shall pay
the amount set forth opposite such Buyer's name on the Schedule of
Buyer's under the heading "Second Payment Amount."
The dates of the payments pursuant to the foregoing clauses (A) and
(B) are referred to herein as a "Payment Date".
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Debentures and the Warrants, (ii) upon conversion of the Debentures owned by it,
will acquire the Conversion
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Shares then issuable, (iii) upon issuance, will acquire the Interest Shares and
Repayment Shares, if any (each as defined in the Debentures), and (iv) upon
exercise of the Warrants held by it, will acquire the Warrant Shares issuable
upon exercise thereof (the Debentures, the Conversion Shares, the Interest
Shares, the Repayment Shares, the Warrants and the Warrant Shares collectively
are referred to herein as the "Securities") for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by making the representations
herein, such Buyer does not agree to hold any of the Securities for any minimum
or other specific term and reserves the right to dispose of the Securities at
any time, provided further, however, that such disposition shall be in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D under the
1933 Act and was not organized for the specific purpose of acquiring the
Securities.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein and in the
applicable Debenture or Warrant in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Securities.
d. Information. Such Buyer (i) has been furnished with or has
had full access to all of the information that it considers necessary or
appropriate to make an informed investment decision with respect to the
Debentures, the Warrants, the Conversion Shares and the Warrant Shares and that
it has requested from the Company, (ii) has had an opportunity to discuss with
management of the Company the business and financial affairs of the Company and
to obtain information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to it or to which it had access, (iii) can bear the
economic risk of a total loss of its investment in the Debentures and the
Warrants and (iv) has such knowledge and experience in business and financial
matters so as to enable it to understand the risks of and form an investment
decision with respect to its investment in the Debentures, the Warrants, the
Conversion Shares and the Warrant Shares and to protect its interest in
connection with such investment. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in this Agreement.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
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f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, or (B) such Buyer shall have delivered to
the Company an opinion of counsel in a form reasonably satisfactory to the
Company, to the effect that such Securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from such
registration, (ii) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144") may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder. The
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities and such pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities and no Investor effecting
a pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document, including, without limitation, this Section
2(f); provided that in order to make any sale, transfer or assignment of
Securities, such Investor and its pledgee makes such disposition in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
g. Legends. Such Buyer understands that the Debentures and
Warrants, except as set forth below, shall bear a restrictive legend and that
the Debentures shall bear a tax legend in substantially the following forms (and
a stop-transfer order may be placed against transfer of such Debentures and
Warrants):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
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THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF
APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT
("OID") RULES TO THIS DEBENTURE. THIS DEBENTURE HAS AN ISSUE
PRICE OF $4,547,530.60, AN AGGREGATE AMOUNT OF OID OF
$878,469.40, AN ISSUE DATE OF JULY 10, 2003 AND A YIELD TO
MATURITY OF 16.19%.
Such Buyer further understands that until such time as the
Conversion Shares, the Interest Shares, the Repayment Shares and the Warrant
Shares have been sold pursuant to the registration statement contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares, the Interest Shares, the Repayment Shares and the Warrant
Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY
MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE
OR OTHERWISE UNLESS (I) A REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE ACT IS IN EFFECT OR (II) THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, WHICH IS SATISFACTORY TO THE
COMPANY, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT. THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE
SECURITIES.
The legends set forth above, other than the tax legend, shall be removed and the
Company shall issue the relevant securities without such legend to the holder of
the Securities upon which it is stamped, if, (i) such Securities are registered
for resale under the 1933 Act and are transferred or sold pursuant to such
registration or (ii) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, reasonably satisfactory to the Company,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act.
h. Authorization; Enforcement; Validity. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
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i. Residency. Such Buyer is a resident of that country or
state specified in its address on the Schedule of Buyers.
j. No Conflicts The execution and performance of this
Agreement and the Registration Rights Agreement do not conflict with any
agreement to which such Buyer is a party or is bound thereby, any court order or
judgment addressed to such Buyer, or the constituent documents of such Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that as of
the date hereof, except as expressly set forth on the Schedule of Exceptions
attached hereto:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns 30% or more of the capital stock or
other equity or similar interests or owns capital stock or holds an equity or
similar interest which ownership entitles the Company to elect 30% or more of
the board of directors or similar governing body of such entity) are
corporations, partnerships or limited liability companies duly organized and
validly existing in good standing (to the extent such concepts are applicable)
under the laws of the jurisdiction in which they are incorporated or organized,
and have the requisite corporate, limited liability company or partnership power
and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation, partnership or limited liability company to do business and
is in good standing (to the extent such concepts are applicable) in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect"means any
material adverse effect on the business, properties, assets, operations, results
of operations, prospects or condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). A complete list
of Subsidiaries is set forth on Schedule 3(a).
b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Debentures, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions, the Security
Agreement, the Collateral Agency Agreement, dated as of the date hereof, among
the Buyers and acknowledged by the Company, the Account Control Agreement, the
Mortgages, each deposit account control agreement and security account control
agreement entered into among, or amended among, the Company, the Agent (as
defined) and the depositary bank named therein (collectively, the "Bank
Agreements") and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement
(collectively, the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby,
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including, without limitation, the issuance of the Debentures, the reservation
for issuance and the issuance of the Conversion Shares issuable upon conversion
thereof, the reservation for issuance and the issuance of Interest Shares and
Repayment Shares in accordance with the terms of the Debentures, the issuance of
the Warrants and the reservation for issuance and the issuance of the Warrant
Shares issuable upon exercise of the Warrants, have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
of the Company's Board of Directors or stockholders (except to the extent that
stockholder approval may be required pursuant to the rules of the AMEX for the
issuance of a number of Conversion Shares, Interest Shares, Repayment Shares and
Warrant Shares greater in the aggregate than 19.99% of the number of shares of
Common Stock outstanding immediately prior to the Closing Date (the "19.99%
Rule")). The Transaction Documents executed on the date hereof have been and the
other Transaction Documents when executed by the Company in accordance with
their terms will be duly executed and delivered by the Company and constitute
and will constitute the valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of July 10, 2003, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, of which as
of such date, 35,757,288 shares are issued and outstanding and 270,387 shares
are reserved for issuance pursuant to the Company's stock option and purchase
plans (including pursuant to options outstanding as of such date as well as
options granted thereafter). All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c) or in the section titled "Capitalization" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002, (A)
no shares of the Company's capital stock are subject to preemptive rights or any
other similar rights (arising under Delaware law, the Company's Certificate of
Incorporation or By-laws or any agreement or instrument to which the Company is
a party) or any liens or encumbrances granted or created by the Company; (B)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries (other than
any such options, warrants, scrip, rights, calls, commitments, securities,
understandings and arrangement outstanding under plans disclosed in the SEC
Documents); (C) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (D) there are no
amounts outstanding under, and there will be no amounts due upon termination of,
any credit agreement or credit facility; (E) there are no financing statements
securing obligations in any amounts greater than $100,000, singly, or $250,000
in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (F) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(G) there are no
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outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (H) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; (I) the Company does not have any
stock appreciation rights or "phantom" stock plans or agreements or any similar
plan or agreement; (J) to the Company's knowledge, (i) no current or former
officer or director who individually owns 1% or more of the Company's
outstanding capital stock or (ii) other beneficial owner of 5% or more of the
Company's outstanding capital stock, has pledged shares of the Company's capital
stock in connection with a margin account or other loan secured by such capital
stock; and (K) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents (as defined herein)
but not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company's or its Subsidiaries' respective businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole. The Company
has made available to each Buyer that has requested it true and correct copies
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "Certificate of Incorporation"), and the Company's By-laws,
as amended and as in effect on the date hereof (the "By-laws"), and the terms of
all securities convertible into or exercisable or exchangeable for Common Stock
and the material rights of the holders thereof in respect thereto except for
stock options granted under any benefit plan or stock option plan of the Company
approved by the Board of Directors of the Company.
d. Issuance of Securities. The Securities are duly authorized
and, upon issuance in accordance with the terms of the applicable Transaction
Documents, shall be (i) validly issued, fully paid and non-assessable and (ii)
free from all taxes, liens and charges with respect to the issuance thereof
(other than any such taxes, liens and charges created by any Buyer or assignee
or transferee), and, except as set forth in Schedule 3(c), shall not be subject
to pre-emptive rights or other similar rights of shareholders of the Company. As
of the Closing, at least 4,552,935 shares of Common Stock (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(f) below) will have
been duly authorized and reserved for issuance upon conversion of the
Debentures, exercise of the Warrants and the issuance of the Interest Shares and
the Repayment Shares issuable over the full term of the Debentures (assuming the
Company paid the maximum amount of interest permitted to be paid in Interest
Shares over the full term of the Debentures). Upon conversion or issuance in
accordance with the Debentures or the Warrants, as applicable, the Conversion
Shares, the Interest Shares, the Repayment Shares and the Warrant Shares, as the
case may be, will be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof (other than any
such taxes, liens and charges created by any Buyer or any assignee or
transferee), with the holders being entitled to all rights accorded to a holder
of Common Stock. Based, in part, on reliance on the representations and
warranties of each of the Buyers in the Transaction Documents, the issuance by
the Company of the Securities is exempt from registration under the 1933 Act.
e. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without limitation,
the reservation for
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issuance and issuance of the Conversion Shares, the Interest Shares, the
Repayment Shares and the Warrant Shares) will not (i) result in a violation of
the Certificate of Incorporation or the By-laws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party (except
for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect); or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, By-laws or their organizational charter or
by-laws, respectively. Neither the Company nor any of its Subsidiaries is in
violation of any term of or in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except where
such violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
Except as specifically contemplated by this Agreement, as required under the
1933 Act, as required by Blue Sky filings or as required by the 19.99% Rule, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are currently unaware of any
facts or circumstances which might give rise to any of the foregoing events set
forth in this paragraph. The Company is not in violation of the listing
requirements of the Principal Market, and has no actual knowledge of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since January 1, 2001,
other than a Form 8-K/A with respect to the transactions contemplated by the
Interferon Asset Agreement, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to or on the date hereof and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of the date of filing of such SEC Documents, each such SEC
Document, as it may have been subsequently amended by filings made by the
Company with the SEC prior to the date hereof, complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Document. None of the SEC
Documents, as of the date filed and as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, contained
any untrue
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statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). The Company is not
aware of any fact or circumstance that would result or reasonably be likely to
result in the Company receiving a "going concern" opinion or qualification from
its independent auditor's with respect to the Company's financial position for
the year ended December 31, 2002. To the best of the Company's knowledge, no
other written information provided by or on behalf of the Company to the Buyers
which is not included in the SEC Documents, including, without limitation,
information referred to in Section 2(d), contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries nor
any of their officers, directors, employees or agents have provided the Buyers
with any material, nonpublic information. As of the date hereof, other than the
need to file updated financial statements in the Company's Annual Report on Form
10-K for the year ended December 31, 2002, the Company meets the requirements
for use of Form S-1 for registration of the resale of Registrable Securities (as
defined in the Registration Rights Agreement) and does not have any knowledge or
reason to believe that it does not meet such requirements or any actual
knowledge of any fact which would reasonably result in its not meeting such
requirements. As of the date hereof, the Company does not meet the requirements
for use of Form S-3 for registration of the resale of Registrable Securities
other than pursuant to the S-3 registration statement filed with the SEC in
January 2003, which registration statement the Company believes, but cannot
assure, will be eligible for registration of the resale of the Registrable
Securities. The Company is not required to file and will not be required to file
any agreement, note, lease, mortgage, deed or other instrument entered into
prior to the date hereof and to which the Company is a party or by which the
Company is bound which has not been previously filed as an exhibit to its
reports filed with the SEC under the 1934 Act. Except for the issuance of the
Debentures and the Warrants contemplated by this Agreement and the transactions
contemplated therein, no event, liability, development or circumstance has
occurred or exists, or is currently contemplated to occur, with respect to the
Company or its Subsidiaries or their respective business, properties, operations
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws and which has not been publicly disclosed.
g. Absence of Certain Changes. Except as disclosed in the SEC
Documents available on the XXXXX system, there has been no change or development
that has had or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. The Company has not taken any steps,
and does not currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or any of its
10
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so. Except as disclosed in the
SEC Documents available on the XXXXX system, since December 31, 2000, (i) the
Company has not declared or paid any dividends, and (ii) as of the date hereof,
has not sold any assets, individually or in the aggregate, in excess of $100,000
outside of the ordinary course of business or had capital expenditures,
individually or in the aggregate, in excess of $200,000.
h. Absence of Litigation. Except as disclosed in the section
titled "Legal Proceedings" in (i) the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 or (ii) any of the Company's SEC Documents
filed since the filing of such Form 10-K, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened in writing against the Company or
any of the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, that would
reasonably be expected to result in judgments against the Company or any of its
Subsidiaries in an amount, individually or in the aggregate, in excess of
$250,000.
i. No Integrated Offering. 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 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated, nor will the Company or any of its Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
j. Employment Matters; ERISA Matters. (i) Neither the Company
nor any of its Subsidiaries is involved in any material union labor dispute nor,
to the knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. None of the Company's or its Subsidiaries' U.S. employees is a
member of a union which relates to such employee's relationship with the
Company. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. No executive officer (as defined in Rule 501(f)
of the 0000 Xxx) has notified the Company in writing that such officer intends
to leave the Company or otherwise terminate such officer's employment with the
Company.
(ii) The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
k. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use (i) all
trademarks, trade names, trade dress, service marks, service xxxx registrations,
service names, patents, patent rights, copyrights, inventions,
11
technology licenses, approvals, governmental authorizations, trade secrets, and
other intellectual property rights (collectively, "Intellectual Property")
necessary to conduct their respective businesses as now conducted and as
currently contemplated to be conducted other than businesses that the Company
has not as of the date hereof launched, except where the failure to own, possess
or protect such rights would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. None of the
Company's or its Subsidiaries' Intellectual Property rights have expired or
terminated, or are expected to expire or terminate within two years from the
date of this Agreement, except where such expiration or termination would not,
either individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Except as would not reasonably be expected to result in
a Material Adverse Effect, the Company and its Subsidiaries do not have any
knowledge of any infringement by the Company or its Subsidiaries of Intellectual
Property rights of others, or of any development of similar or identical trade
secrets or technical information by others and except as would not reasonably be
expected to result in a Material Adverse Effect, there is no claim, action or
proceeding being made by or brought against, or to the knowledge of the Company,
currently threatened in writing by or against, the Company or its Subsidiaries
regarding the Intellectual Property rights of or the use of any Intellectual
Property by the Company or its Subsidiaries or any third party. The Company and
its Subsidiaries have taken all reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property.
l. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries taken as a whole, in each case free and
clear of all liens, encumbrances and defects except such as (i) constitute
purchase money security interests, (ii) are described in Schedule 3(l) or (iii)
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and any of its Subsidiaries. Any real property and facilities
held under lease by the Company and any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and facilities by the Company and its Subsidiaries.
m. Environmental Laws. The Company and its Subsidiaries (A)
are in compliance with any and all Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (C) are in
compliance with all terms and conditions of any such permit, license or
approval, except in each case where the failure of the Company and its
Subsidiaries would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. The term "Environmental Laws"
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
12
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
n. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Except as set forth on Schedule 3(n), neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
o. Regulatory Permits. Except for Permits (as defined below)
the absence of which would not, either individually or in the aggregate, result
in a Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as currently conducted (the "Permits"), and neither the Company nor
any such Subsidiary has received any written notice of proceedings relating to
the revocation or modification of any such Permit.
p. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is currently expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement which in the judgment of the Company's
officers has or is currently expected to have a Material Adverse Effect.
q. Tax Status. Except as could not reasonably be expected to
have a Material Adverse Effect, the Company and each of its Subsidiaries (i) has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges due with respect
to the periods covered by such returns, reports and declarations, except those
being contested in good faith and for which the Company has made appropriate
reserves on its books, and (iii) has paid or set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations (referred to in clause
(i) above) apply. There are no unpaid taxes that are individually or in the
aggregate material in amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on
Schedule 3(r) and in the SEC Documents, and other than the grant of stock
options described on Schedule 3(c), none of the officers, directors, employees
of the Company is presently a party to any transaction with the Company or any
of its Subsidiaries (other than in connection with the provision of services as
employees, officers and directors, payment of ordinary course business expenses
for employees, and other expenditures on behalf of employees in an aggregate
amount for all employees not in excess of $500,000), including any contract,
agreement or other arrangement
13
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
s. 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 Certificate of Incorporation, the laws of the
state of its incorporation or the laws of any other state which is or could
become applicable to the Buyers as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyers' ownership of the Securities.
t. Foreign Corrupt Practices. Neither the Company nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company or any Subsidiary used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
4. COVENANTS.
a. Best Efforts. Each party shall use its reasonable best
efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Buyers on or prior to
each of the Closing Dates (to the extent such action is required by applicable
law). The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following each Closing Date.
c. Reporting Status. Other than pursuant to a Change of
Control (as defined in the Debentures), until the earlier of (i) the date which
is one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares, the
Interest Shares, the Repayment Shares and the Warrant Shares
14
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) and (ii) the date on which (A) the Investors shall have sold
all the Conversion Shares, the Interest Shares, the Repayment Shares and the
Warrant Shares and (B) none of the Debentures or Warrants is outstanding (the
"Reporting Period"), the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures and the Warrants to fund the acquisition of certain
assets of Seller (as defined Section 4(t)(i) below) and for general corporate
purposes.
e. Financial Information. The Company agrees to send the
following to each Investor during the Reporting Period: (i) within ten (10) days
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments thereto filed
pursuant to the 1933 Act, provided that if any such report is filed with the SEC
through XXXXX and is available to the Buyers via XXXXX then no such deliveries
shall be required; (ii) using its reasonable efforts, on the same day as the
release thereof, facsimile copies of all press releases issued by the Company
relating to the Company's quarterly operating results and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
f. Reservation of Shares. Prior to the date on which payments
have been made pursuant to Section 25 of the Debentures in an amount equal to
the entire Outstanding Principal Amount (as defined in the Debentures), together
with accrued and unpaid interest on all Debentures outstanding the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 135% of the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares upon conversion of
all of the Debentures, the Warrant Shares upon exercise of all of the Warrants
(without regard to any limitations on conversions or exercise) and the maximum
number of Interest Shares issuable over the full term of the Debentures
(assuming the Company paid the maximum amount of interest permitted to be paid
in Interest Shares over the full term of the Debentures), and after such time
100% of the number of shares of Common Stock needed to provide for the issuance
of the Conversion Shares upon conversion of all of the Debentures and of the
Warrant Shares upon exercise of all of the Warrants (without regard to any
limitations on conversions or exercise).
g. Listing. The Company timely shall satisfy the condition set
forth in clause (2) of Section 7(a)(ii) and also shall promptly secure the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and, shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. So long as
any Securities are outstanding, the Company shall maintain the Common Stock's
authorization for quotation on listing on The New York Stock Exchange, Inc. (the
"NYSE"), the American Stock Exchange,
15
Inc. ("AMEX") or The Nasdaq Stock Market, Inc. ("NASDAQ") (as applicable, the
"Principal Market"). The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(g).
h. Filing of Form 8-K. At or before 8:30 a.m., New York City
time, on the Business Day following the Closing Date, the Company shall file a
Current Report on Form 8-K with the SEC describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement, the form of Debenture,. the form of
Warrants and the Registration Rights Agreement in the form required by the 1934
Act (with such exhibits, a "Form 8-K")). At or before 8:30 a.m., New York City
time, on the Business Day following each Payment Date, if any, the Company shall
file a Form 8-K with the SEC describing the transaction consummated on such
Payment Date. From and after the initial filing of the Form 8-K with the SEC,
unless required pursuant to Section 3(h) of the Registration Rights Agreement,
no Buyer shall be in possession of any material, nonpublic information received
from the Company or any of its officers, directors, employees or agents, that is
not disclosed in the Form 8-K. Unless required pursuant to Section 3(h) of the
Registration Rights Agreement, the Company shall not, and shall cause each of
its officers, directors, employees and agents, not to, provide any Buyer with
any material nonpublic information regarding the Company from and after the
filing of the Form 8-K with the SEC without the express written consent of such
Buyer. In the event of a breach of the foregoing covenant by the Company or any
of its or its officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Buyer shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic information without the
prior approval by the Company or any of its officers, directors, employees or
agents. No Buyer shall have any liability to the Company or any of its officers,
directors, employees, stockholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Buyer shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby, other than as set forth in Section 9(j) hereof.
i. Proxy Statement. If the Company at any time determines that
in connection with the issuance of the Securities, Stockholder Approval is
required by the Principal Market in connection with the 19.99% Rule, the Company
shall provide each stockholder entitled to vote at the next meeting of
stockholders of the Company, which meeting shall occur on or before ninety days
from the date of such determination (the "Stockholder Meeting Deadline"), a
proxy statement, which has been previously reviewed by the Buyers and a counsel
of their choice, soliciting each such stockholder's affirmative vote at such
stockholder meeting for approval of the Company's issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market (such
affirmative approval being referred to herein as the "Stockholder Approval"),
and the Company shall use its reasonable best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal.
j. Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged in compliance with applicable securities laws
by an Investor in connection with a bona fide margin agreement or other loan
secured by the Securities. The
16
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) of this Agreement;
provided that in order to make any sale, transfer or assignment of Securities,
such Investor and its pledgee makes such disposition in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act. The
Company hereby agrees to execute and deliver such reasonable documentation as a
pledgee of the Securities may reasonably request in connection with a pledge of
the Securities to such pledgee by an Investor.
k. Expenses. Subject to Section 9(l) below, at the Closing,
the Company shall reimburse the Buyers for the Buyers' reasonable, documented
fees and expenses (including legal expenses) incurred in connection with the
consummation of the transactions contemplated by this Agreement, up to a maximum
of $15,000 (in addition to any other expense amounts previously paid to the
Buyers), which reasonable, documented amount shall be withheld by the Buyers
from its purchase price to be paid at the Closing. In addition, Portside Growth
& Opportunity Fund shall withhold from the amounts set forth opposite its name
on the Schedule of Buyers $210,000 from the First Payment Amount and $105,000
from the Second Payment Amount, in each case to pay the fees of the placement
agent engaged by the Company in connection with the transactions contemplated
hereby.
l. Additional Debentures. For so long as any Buyer
beneficially owns any Debentures, the Company shall not issue any other
securities that would cause a breach or default under the Debentures.
m. Tax Matters.
(i) For United States Federal income tax purposes, the
Company and each Buyer agree (A) to treat the Debentures as
indebtedness, (B) that $165,009.86 of the aggregate purchase price
for the securities issued by the Company to the Buyers hereunder is
attributable to the purchase of the Warrants, and (C) to treat the
Debentures as having been issued for an aggregate purchase price of
$5,260,990.14.
(ii) The Company shall be permitted to withhold from any
amounts payable to a Buyer, a Debenture holder, a Warrant holder or
a holder of Common Stock any taxes required by law to be withheld
from such amount. If the Company shall be required to withhold or
deduct any tax, levy or other governmental charge, excluding (A) net
income taxes, franchise taxes, or taxes imposed on or measured by
net income (or overall gross receipts, to the extent such tax is
imposed in lieu of a tax on net income by a jurisdiction that does
not impose any tax based on or measured by net income) on any Buyer
or Debenture holder by the jurisdiction in which such Buyer or
Debenture holder is organized or any other jurisdiction in which
such Buyer or Debenture holder would be subject to tax without
regard to the transactions contemplated hereby, and (B) U.S. Federal
withholding taxes (unless such U.S. Federal withholding taxes would
not be imposed but for a change in or amendment to the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury
Regulations or any other administrative authority thereunder or any
tax treaty or the release or promulgation of any judicial
17
decision relating thereto, in each case, on or after the later of
(x) the date of this Agreement or (y) the date such Debenture holder
becomes a party hereto (each, a "Change in Law")) (all such
non-excluded taxes, levies or other governmental charges, "Taxes")
from any payment of interest, or any accrual of original issue
discount, for U.S. Federal income tax purposes made hereunder or
under any Debenture to or for the benefit of any Buyer or any
Debenture holder, then (A) the amount payable shall be increased by
the amount necessary so that after making all required deductions
and withholdings (including deductions and withholdings with respect
to additional amounts payable under this Section 4(m)) such Buyer or
such Debenture holder shall receive an amount equal to the amount it
would have received if no such deduction or withholding of Taxes had
been required, (B) the Company shall make such deduction or
withholding and (C) the Company shall pay the full amount deducted
to the appropriate governmental authority in accordance with
applicable law. If any Buyer or any Debenture holder is organized
under the laws of a jurisdiction other than the United States, any
State thereof or the District of Columbia (each a "Non-U.S.
Debenture Holder"), it shall deliver to the Company two copies of
either (A) U.S. Internal Revenue Service Form W-8BEN (claiming
complete exemption from U.S. Federal withholding tax under an income
tax treaty), or any successor form; (B) U.S. Internal Revenue
Service Form W-8ECI (claiming complete exemption from U.S. Federal
withholding tax because the income is effectively connected with a
U.S. trade or business), or any successor form; (C) in the case of a
Non-U.S. Debenture Holder claiming exemption from U.S. Federal
withholding tax under Section 871(h) or 881(c) of the Code, with
respect to payments of "portfolio interest," U.S. Internal Revenue
Service Form W-8BEN (certifying as to beneficial ownership), or any
successor form, and a certificate in form and substance reasonably
acceptable to the Company representing that such Non-U.S. Debenture
Holder is not a "bank" for purposes of Section 881(c) of the Code,
is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Company and is not a "controlled
foreign corporation" related to the Company (within the meaning of
Section 864(d)(4) of the Code); or (D) other applicable form,
certificate or document prescribed by the U.S. Internal Revenue
Service certifying as to such Non-U.S. Debenture Holder's
entitlement to a complete exemption from U.S. Federal withholding
tax, as applicable, in all cases such forms and other documents
being properly completed and duly executed by such Non-U.S.
Debenture Holder claiming complete exemption from U.S. Federal
withholding tax on payments of interest (or of original issue
discount) for U.S. Federal income tax purposes by the Company under
the Debentures. Each Buyer, each Warrant holder and each holder of
common stock that is organized under the laws of a jurisdiction
other than the United States, any State thereof or the District of
Columbia (each a "Non-U.S. Equity Holder") also shall deliver to the
Company, to the extent legally able to do so, with respect to
payments of dividends for U.S. Federal income tax purposes by the
Company, if applicable, two copies of either (A) U.S. Internal
Revenue Service Form W-8BEN (claiming a reduction of U.S. Federal
withholding tax under an applicable income tax treaty, if any), or
any successor form, (B) U.S. Internal Revenue Service Form W-8ECI
(claiming complete exemption from U.S. Federal withholding tax
because the income is effectively connected with a U.S. trade or
business), or any successor form, or (C) other applicable form,
certificate or document prescribed by the U.S. Internal Revenue
Service certifying as to such Non-U.S. Equity Holder's entitlement
to an
18
exemption from, or a reduction of, U.S. Federal withholding tax on
payments of dividends for U.S. Federal income tax purposes by the
Company, as applicable, in all cases such forms and other documents
being properly completed and duly executed by such Non-U.S. Equity
Holder. In addition, each Buyer, each Debenture holder, each Warrant
holder, and each holder of Common Stock that is not otherwise exempt
from "back-up withholding" shall deliver to the Company two properly
completed and duly executed copies of either (A) U.S. Internal
Revenue Service Form W-8BEN, or any successor form, (B) U.S.
Internal Revenue Service Form W-8ECI, or any successor form, (C)
U.S. Internal Revenue Service Form W-9, or any successor form, or
(D) other applicable form, certificate or document prescribed by the
U.S. Internal Revenue Service, as applicable, in each case
indicating that such Buyer, Debenture holder, Warrant holder, or
holder of Common Stock is not subject to "back-up withholding" for
U.S. Federal income tax purposes. The forms and other documents
required to be delivered pursuant to this Section 4(m)(ii) shall be
delivered (A) on or prior to the Closing Date and (B) from time to
time thereafter if within ten (10) Business Days after receipt of a
written request therefor by the Company. In addition, each Buyer,
each Debenture holder, each Warrant holder and each holder of Common
Stock shall promptly notify the Company at any time it determines
that it is no longer in a position to provide any previously
delivered (or requested) form, document or certificate to the
Company, including as a result in whole or in part from a Change in
Law; provided, however, that the failure to provide such notice
shall not affect any Buyer's or Debenture holder's right to any
additional amounts hereunder.
(iii) Notwithstanding anything to the contrary in
Section 4(m)(ii) above, the Company shall not be required to pay any
additional amount to any Buyer or any Debenture holder pursuant to
the preceding paragraph to the extent the Tax in respect of which
such additional amount would otherwise be payable would not have
been imposed but for the failure of such Buyer or Debenture holder
to comply with its obligations under such paragraph; provided,
however, that the failure to provide the applicable form, document
or certificate pursuant to the preceding paragraph as provided in
the notice required by the preceding paragraph resulting in whole or
in part from a Change in Law shall not affect such Buyer's or
Debenture holder's right to any additional amounts hereunder.
n. Violations of Law. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
o. Corporate Existence. So long as a Buyer beneficially owns
any Securities, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the Transaction Documents and (ii)
such surviving or successor entity or its parent into whose stock the Debentures
and Warrants will be convertible or exercisable is a publicly traded corporation
whose common stock is listed for trading on or quoted on AMEX, NYSE or NASDAQ.
19
p. Short Positions. Each Buyer agrees that on any Business Day
prior to the time such Buyer no longer holds any Debentures, such Buyer shall
not maintain a Net Short Position. For purposes hereof, "Net Short Position"
shall mean that the aggregate number of shares of Common Stock held in a short
position by such Buyer exceeds the sum of (1) the number of Conversion Shares,
Warrant Shares and Interest Shares then issuable (without regard to any
limitations on conversions or exercise) to such Buyer, (2) the number of
conversion shares, warrant shares and interest shares then issuable (without
regard to any limitations on conversions or exercise) to such Buyer in
connection with the securities issued to such Buyer pursuant to the Securities
Purchase Agreement, dated as of March 12, 2003, between the Company and such
Buyer (the "March Securities"), and (3) the number of warrant shares then
issuable (without regard to any limitations on exercise) to such Buyer pursuant
to that certain Warrant To Purchase Common Stock issued by the Company to such
Buyer on June 25, 2003.
q. Letter of Credit. Pursuant to this subsection, the Company
shall cause to be issued and delivered to Portside Growth & Opportunity Fund, as
collateral agent for the Buyers (in such capacity, together with any successor
in such capacity, the "Agent"), four (4) irrevocable standby letters of credit
in the stated amount of $250,000 each ($1,000,000 in the aggregate),
substantially in the form of Exhibit D hereto and otherwise reasonably
satisfactory to the Buyers (together with any letter of credit issued in
exchange therefor or in replacement thereof, each a "Letter of Credit"), naming
the Agent as beneficiary and issued by a bank with a Minimum Rating and
otherwise acceptable to the Agent in its reasonable discretion; provided,
however, that prior identical letters of credit in the stated amount of
$1,000,000 in the aggregate issued to the Agent may be used instead subject to
such amendments as the Agent may reasonably require. As used herein, "Minimum
Rating" shall mean one of the two highest long-term debt ratings, without regard
to qualification by symbols, such as "+" and "-", or by numerical notations,
such as "1", "2" and "3" (or if no long-term debt rating is available, one of
the two highest long-term deposit ratings) obtainable from either Standard &
Poor's Ratings Services ("S&P") or Xxxxx'x Investors Service, Inc. ("Moody's")
(or if at any time neither S&P nor Moody's shall issue such ratings, then from
another nationally recognized rating service). The Buyers agree to pay at the
Closing for all reasonable and customary fees in connection with the Letter of
Credit provided, that such fees do not exceed $20,000. Each Letter of Credit
shall be delivered within seven (7) days following the Closing. The Company
shall have the right, at any time and from time to time, to cause to be issued
and delivered to the Agent a replacement for any Letter of Credit previously
issued and delivered, provided, that such replacement is substantially in the
form of the Letter of Credit being exchanged or replaced therefor and is
otherwise acceptable to the Agent in its sole discretion. Upon delivery of a
replacement Letter of Credit, the Agent shall immediately deliver the original
Letter of Credit being exchanged therefor. The Letters of Credit shall not be
drawn upon by the Buyers unless the obligations of the Company pursuant to the
Transaction Documents are not otherwise satisfied pursuant to the terms of the
Transaction Documents.
r. Cash Collateral Account. Simultaneously with the Closing
hereunder, the Company shall establish with a bank acceptable to the Agent (the
"Cash Collateral Bank") a deposit account (together with all monies on deposit
in such deposit account and all certificates and instruments, if any,
representing or evidencing such deposit account, the "Cash Collateral Account"),
and shall cause the Cash Collateral Bank to enter into an Account Control
Agreement with the Agent, substantially in the form of Exhibit E (as amended
from time to time, the
20
"Account Control Agreement"); provided, however, that prior account control
agreements entered into by the Company for the benefit of the Agent may be used
instead subject to such amendments as the Agent may reasonably require. The Cash
Collateral Account shall at all times be under the dominion and control of the
Agent. The Company shall deliver to the Agent (for the benefit of the Buyers)
any opinion that the Agent may reasonably request in connection with the Account
Control Agreement.
s. Perfected First Security Interest- Personal Property. The
Company shall execute and deliver to the Agent the Security Agreement at
Closing, substantially in the form of Exhibit F hereto (as amended and/or
restated from time to time, the "Security Agreement"), pursuant to which the
Company shall grant to the Agent, for the benefit of the Buyers, a perfected,
first priority security interest in all of its now owned and hereafter acquired
personal property other than intellectual property (the "Personal Property
Collateral"); provided, however, that a prior security agreement entered into by
the Company for the benefit of the Agent may be used instead subject to such
amendments as the Agent may reasonably require. The Company shall also shall
take such other action and execute, acknowledge and deliver such other
agreements, instruments or other documents as the Agent may require from time to
time in order (i) to carry out more effectively the purposes of the Security
Agreement, (ii) to subject to valid and perfected first priority liens any of
the Personal Property Collateral, (iii) to establish and maintain the validity
and effectiveness of the Security Agreement or such other agreements,
instruments or other documents and the validity, perfection and priority of the
liens intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer and confirm unto each of the Agent and the Buyers the rights
now or hereafter intended to be granted to it under the Security Agreement
(including, without limitation, by (w) executing any amendment to the Security
Agreement as may be reasonably requested by the Buyers, (x) by causing insurance
certificates satisfactory to the Buyers naming the Buyers as "loss payee" or
"additional insured" on all of the Company's property and liability insurance to
be issued, (y) by using its reasonable commercial efforts to obtain landlord
waivers reasonably satisfactory to the Buyers in connection with the Company's
leasehold premises where Personal Property Collateral is located and (z) by
cooperating with the Buyers to finalize and execute a perfection certificate to
include, among other things, information relating to the acquisition of certain
Interferon assets.). In furtherance of the foregoing, to the maximum extent
permitted by applicable law, the Company (i) authorizes the Agent to execute any
such agreements, instruments or other documents in the Company's name and to
file such agreements, instruments or other documents in any appropriate filing
office, (ii) authorizes the Agent to file any financing statement required
hereunder or under the Security Agreement, and any continuation statement or
amendment with respect thereto, in any appropriate filing office without the
signature of the Company, and (iii) ratifies the filing of any financing
statement, and any continuation statement or amendment with respect thereto,
filed without the signature of the Company prior to the date hereof.
t. Perfected First Security Interest - Real Property. Within
90 days of the Closing Date, the Company shall:
(i) execute and deliver to the Agent a mortgage, deed of
trust or deed to secure debt for each real property location (the
"Properties") acquired by the Company from the Interferon Sciences,
Inc. (the "Seller"), each in recordable form and containing such
terms, covenants and provisions and in all other respects reasonably
21
acceptable to the Agent in its sole discretion (as amended from time
to time, each a "Mortgage" and collectively, the "Mortgages"),
pursuant to which the Company shall grant to the Agent, for the
benefit of the Buyers, a perfected first priority security interest
and mortgage lien in the Properties and all improvements located
thereon (the "Real Property Collateral"; together with the Personal
Property Collateral, collectively, the "Collateral");
(ii) furnish to the Agent the following, each in form
and substance reasonably satisfactory to the Agent:
(A) evidence of the recording of each
Mortgage referred to in clause (i) above in such office or
offices as may be necessary or, in the reasonable opinion of
the Agent, desirable to create and perfect a valid and
enforceable first priority lien on the property purported to
be covered thereby or to otherwise protect the rights of the
Agent and the Buyers thereunder;
(B) an ALTA form of mortgage loan title
insurance policy, in form and substance reasonably
satisfactory to the Agent, issued by or on behalf of a title
insurance company reasonably satisfactory to the Agent,
insuring the mortgage lien created by each Mortgage for an
amount not less than $1,500,000, subject only to such
exceptions to title as the Agent may reasonably accept and
approve and with such endorsements and affirmative insurance
as the Agent may reasonably require, and otherwise on terms
satisfactory to the Agent (a "Title Insurance Policy");
(C) an ALTA survey of each Property,
certified to the Agent and to the issuer of the applicable
Title Insurance Policy by a licensed land surveyor reasonably
satisfactory to the Agent (a "Survey");
(D) a satisfactory ASTM 1527-00 Phase I
Environmental Site Assessment ("Phase I ESA") for each
Property (and, if reasonably requested by the Agent based upon
the results of such Phase I ESA, an ASTM 1527-00 Phase II
Environmental Site Assessment ("Phase II ESA") for such
Property), each in form and substance and by an independent
firm satisfactory to the Agent;
(E) an opinion of counsel for the Company as
to such matters regarding each Mortgage (including the due
authorization, execution and delivery of the Mortgage, the
validity and enforceability of the Mortgage and its compliance
with the law of the jurisdiction in which the relevant
Property is located) as the Agent may reasonably require; and
(F) such other instruments and documents,
including estoppel certificates, permits, licenses, approvals,
violation reports, plans and engineering studies, regarding
each such Property as the Agent may require; and
(iii) take such other action and execute, acknowledge
and deliver such other agreements, instruments or other documents as
the Agent may
22
reasonably require from time to time in order to (A) carry out more
effectively the purposes of each Mortgage, (B) subject to valid and
perfected first priority liens any of the Real Property Collateral,
(C) establish and maintain the validity and effectiveness of each
Mortgage or such other agreements, instruments or other documents
and the validity, perfection and priority of the liens intended to
be created thereby, and (D) better assure, convey, grant, assign,
transfer and confirm unto each of the Agent and the Buyers the
rights intended to be granted to it under each Mortgage. In
furtherance of the foregoing, to the maximum extent permitted by
applicable law, the Company (x) authorizes the Agent to execute any
such agreements, instruments or other documents in the Company's
name and to file or record such agreements, instruments or other
documents in any appropriate filing or recording office, (y)
authorizes the Agent to file any financing statement required
hereunder or under any Mortgage, and any continuation statement or
amendment with respect thereto, in any appropriate filing office
without the signature of the Company, and (z) ratifies the filing of
any financing statement, and any continuation statement or amendment
with respect thereto, filed without the signature of the Company
prior to the date hereof.
u. Acquisition of Interferon Sciences, Inc. The Company shall
acquire certain assets of the Seller pursuant to certain valid and binding
purchase and sale agreements, executed copies (together with all exhibits and
schedules thereto) of which are attached hereto as Exhibit G-1 (the "Interferon
Inventory and License Agreement") and Exhibit G-2 (the "Interferon Asset
Agreement" and together with the Interferon Inventory and License Agreement, the
"Interferon Agreements"), within ninety (90) days of the Closing. The Company
shall not make or permit to be made any amendment or modification to either
Interferon Agreement or the transactions contemplated thereby without Buyers'
prior written consent. All of the consideration (including, without limitation,
all shares of Common Stock (whether issued or issuable to Seller or otherwise as
set forth in the Interferon Agreements), the satisfaction of certain
obligations, royalties, fees for employees and for services, the assumption of
payables) to be paid by the Company in connection with the Interferon Agreements
is as set forth on Schedule 4(u) hereof.
v. Certain Accounts. The Company represents and warrants to
each Buyer that Schedule 4(v) hereto sets forth a full and complete list of
every bank and other financial institution at which the Company presently has an
account (each, an "Existing Account"). The Company represents and warrants to
each Buyer that (1) the Company has deposited or otherwise transferred any and
all funds, including (without any limitation) those funds released from any
Existing Account that does not become a Permitted Account (as defined) pursuant
hereto, to the First Union National Bank Account Nos. 20000009652305,
2100043128724 and/or 4166-9926 (the "First Union Accounts"), and (2) the Company
has caused each Existing Account denoted with an asterisk on Schedule 4(v) to be
a Permitted Account, and the Company shall use its best commercial efforts to
obtain the signature of each depository institution reasonably requested by any
Buyer to sign a Bank Agreement in connection with such Existing Account becoming
a Permitted Account and shall deliver to the Agent (for the benefit of the
Buyers) any opinion that the Agent may reasonably request in connection with the
applicable Bank Agreement. In addition, the Company shall take the following
actions with respect to the Existing Accounts:
23
(i) The Company shall immediately deposit any funds
released from time to time from the First Union/Wachovia Investments
Account No. 4167-7452 into an account for which the Agent has
executed a Bank Agreement reasonably satisfactory to the Buyers (any
such account being a "Permitted Account");
(ii) The Company shall not deposit or otherwise transfer
any funds into any foreign account without the prior written consent
of the Buyers; provided, however, that the Company may make such
deposits or transfers to such foreign accounts in connection with
ordinary course business expenses to the extent that the aggregate
balance in all such foreign accounts does not exceed $25,000; and
(iii) The Company shall not deposit or otherwise
transfer any funds to any account that is not a Permitted Account;
provided, however, that the Company may make such deposits or
transfers to an Existing Account that is not a Permitted Account to
the extent that the balance in any such Existing Account does not
exceed $5,000.
Immediately upon the occurrence of a default or Event of Default or
event that with notice or lapse of time would constitute a Default or Event of
default, the company agrees that the Agent under the Account Control Agreement
or any Bank Agreement shall be authorized to send one or more "notices of
exclusive control" (as defined in the Account Control Agreement or relevant Bank
Agreement) (or an analogous notice described in the Account Control Agreement or
relevant Bank Agreement) to the depositary bank(s) party thereto prohibiting
such bank(s) from accepting any further instructions from the Company in
connection with any property held in any account therein.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agents, and any subsequent transfer agent, to issue certificates or credit
shares to the applicable balance accounts at DTC, registered in the name of each
Buyer or its respective nominee(s), for the Conversion Shares and Warrant Shares
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants, as applicable and in
accordance with their respective terms (the "Irrevocable Transfer Agent
Instructions"), a form of which is attached as Exhibit H hereto. Prior to
transfer or sale pursuant to a registration statement or Rule 144 under the 1933
Act of the Conversion Shares and the Warrant Shares, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction inconsistent with the Irrevocable Transfer
Agent Instructions referred to in this Section 5 and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares, the
Warrant Shares the Interest Shares and the Repayment Shares, prior to
registration of the Conversion Shares and the Warrant Shares under the 0000 Xxx)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement, the Debentures, the Warrants and the
Registration Rights Agreement. If a Buyer provides the Company with an opinion
of counsel, in generally acceptable form, to the effect that a public sale,
assignment or transfer of Securities may be made without registration under the
1933 Act or that the Securities can be sold pursuant to Rule 144
24
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares, the Warrant Shares, the
Interest Shares and the Repayment Shares, promptly instruct its transfer agent
to issue one or more certificates, or credit shares to one or more balance
accounts at DTC, in such name and in such denominations as specified by such
Buyer and without any restrictive legend. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. The obligation of the Company to issue and sell the Debentures
and the Warrants to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the purchase
price (less any amounts withheld pursuant to Section 4(k)) for the
Debentures and the Warrants being purchased by such Buyer at the Closing,
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true
and correct in all material respects (except to the extent that any of
such representations and warranties is already qualified as to materiality
in Section 2 above, in which case such representations and warranties
shall be true and correct without further qualification) as of the date
when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date (which
shall be true and correct as of such date)), and such Buyer shall have
performed, satisfied and complied with in all material respects the
covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by such Buyer at or prior to
the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. The obligation of each Buyer hereunder to purchase the Debentures
and the Warrants from the Company at the Closing is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions, provided
that these conditions are for each
25
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:
(i) The Company shall have executed each of the Transaction
Documents and delivered the same to such Buyer.
(ii) (1) The Common Stock (x) shall be designated for quotation or
listed on the Principal Market and (y) shall not have been suspended by
the SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market have been threatened
either (A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum listing maintenance requirements of the Principal
Market; and (2) not later than 10 days following the Closing Date, the
Conversion Shares issuable upon conversion of the Debentures (without
regard to any limitations on conversions), the Warrant Shares issuable
upon exercise of the Warrants (without regard to any limitations on
exercises) shall be listed (subject to official notice of issuance) on the
Principal Market and the maximum number of Interest Shares and Repayment
Shares issuable over the full term of the Debentures (assuming the Company
paid the maximum amount of interest permitted to be paid in Interest
Shares over the full term of the Debentures) shall be approved for listing
on the Principal Market.
(iii) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any
of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific
date (which shall be true and correct as of such date)) and the Company
shall have performed, satisfied and complied with in all material respects
the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or
prior to the Closing Date.
(iv) The Company shall have delivered to such Buyer the opinion of
Xxxxxx X. Xxxxxxxxx, Esq. counsel to the Company, dated as of the Closing
Date, in the form of Exhibit I attached hereto.
(v) The Company shall have executed and delivered to such Buyer the
Debentures and the Warrants (in such denominations as such Buyer shall
reasonably request) being purchased by such Buyer at the Closing.
(vi) As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Debentures, the exercise of the Warrants,
and the payment of interest in the form of Interest Shares (assuming the
Company paid the maximum amount of interest permitted to be paid in
Interest Shares over the full term of the Debentures) 4,552,935 shares of
its Common Stock.
26
(vii) The Company shall have delivered the Irrevocable Transfer
Agent Instructions, in the form of Exhibit H attached hereto, to the
Company's transfer agent.
(viii) The Company shall have delivered to such Buyer a secretary's
certificate, dated as of the Closing Date, certifying as to (A) adoption
of the form of resolutions of the Board of Directors of the Company
consistent with Section 3(b) above (the "Resolutions"), (B) the
Certificate of Incorporation and (C) the By-laws, each as in effect at the
Closing.
(ix) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of
the Securities pursuant to this Agreement in compliance with such laws.
(x) The Bank Agreement(s) relating to the First Union Accounts (the
"First Union Bank Agreements") shall have been executed and delivered to
the Agent (for the benefit of the Buyers); provided, however, that a prior
bank agreement entered into by First Union and the Company for the benefit
of the Agent may be used instead subject to such amendments as the Agent
may reasonably require.
(xi) The Company shall have provided evidence satisfactory to such
Buyer that (1) 3,000,000 of the shares reserved for issuance upon exercise
of warrants and options held by Xx. Xxxxxxx X. Xxxxxx and (2) 200,000 of
the shares reserved for issuance upon exercise of certain warrants held by
Cardinal Capital, in each case have been released and reserved instead in
connection with the issuance of the Conversion Shares and Warrant Shares
pursuant to the Transaction Documents.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer, each holder of Debentures and Warrants and each affiliate of any Buyer
holding Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements, but
excluding amounts covered by Section 4(m)(ii) hereof (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of or arising out of, or
relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or (b) any breach of
any covenant, agreement or obligation of the Company contained in the
Transaction Documents, (c) the exercise or enforcement of any of the rights of
the Buyers under the Pledge and Security Agreement or the foreclosure, sale,
liquidation or other disposition of, or realization upon, the Collateral
including, without limitation, the transfer of the Collateral to the Buyers, or
(d) any cause of action, suit or claim brought or made against such Indemnitee
(other than a
27
cause of action, suit or claim which is (x) brought or made by the Company and
(y) is not a shareholder derivative suit) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (ii) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities or
(iii) the status of such Buyer, such holder of Debentures and Warrants and any
such affiliate of any Buyer holding Securities as an investor in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including, without limitation, those procedures with respect
to the settlement of claims and the Company's rights to assume the defense of
claims.
9. MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
28
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least 60% of the outstanding principal
amount of the Debentures or Conversion Shares, as applicable. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Debentures then outstanding. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration also is offered
to all of the parties to the Transaction Documents or holders of the Conversion
Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Hemispherx Biopharma, Inc.
One Penn Center
0000 XXX Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
With copies to:
Xxxxxx X. Xxxxxxxxx, Esq.
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
29
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
0 Xxxxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttal evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities; provided, however, that such
successor or assignee shall deliver the forms specified in Section 4(m)(ii) as
if it were a "Buyer." The Company shall not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the holders of at
least 60% of the outstanding principal amount of the Debentures, including by
merger or consolidation. A Buyer may assign some or all of its rights and
obligations hereunder without the consent of the Company; provided, however,
that the transferee has agreed in writing to be bound by the applicable
provisions of this Agreement and provided, further, that such assignment shall
be in connection with a transfer of all or a portion of the Debentures and
Warrants held by such Buyer and subject to the terms and conditions of the
Warrants and Debentures, as applicable. Any such assignment shall only be
effective upon the Company's receipt of written notice thereof. Any Buyer shall
be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by the Securities and the pledge of Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) of this Agreement; provided that in
order to make any sale, transfer or assignment of Securities, such Investor and
its pledgee makes such disposition in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
30
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive until
such time as no Debentures remain outstanding. Each Buyer shall be responsible
only for its own representations, warranties, agreements and covenants
hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to (i) file
a Form 8-K, substantially in the form attached hereto as Exhibit J, after the
Closing, (ii) make any press release or other public disclosure of information
that previously has been publicly disclosed (other than pursuant to a breach of
this paragraph), and (iii) make any press release or other public disclosure
with respect to such transactions in the form as is required by applicable law
and regulations.
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse any
nonbreaching Buyer for the expenses described in Section 4(k) above.
m. Placement Agent. The Company acknowledges that it has engaged one
or more placement agents in connection with the sale of the Debentures and the
Warrants and that the total amount of compensation of each such agent has been
disclosed in writing to each Buyer. Other than fees paid by Buyers, the Company
shall be responsible for the payment of any placement agent's fees, financial
advisory fees, or brokers' commissions (other than for persons engaged by any
Buyer or its investment advisor) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.
31
n. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under this Agreement, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security. The Company also
acknowledges that the Buyers can keep as security for the Company's obligations
under the Securities all funds advanced by the Company as defeasance payments
under the March Securities.
p. Payment Set Aside. To the extent that the Company makes a payment
or payments to any Buyer hereunder or pursuant to any of the other Transaction
Documents, or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
q. Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Buyer under any of the Transaction Documents are several and
not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other Buyer
under any of the Transaction Documents. Nothing contained herein or in any other
Agreement, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transactions
contemplated hereby and the other Transaction Documents with the advice of its
own counsel and advisors. Each Buyer shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Document, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
[signature page follows]
32
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY:
HEMISPHERX BIOPHARMA, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------
Name:
Title:
BUYERS:
PORTSIDE GROWTH & OPPORTUNITY FUND
By: /s/ Xxxxxx Xxxxxxx
-----------------------------------------
Name: Xxxxxx Xxxxxxx
-----------------------------------------
Title: General Counsel
-----------------------------------------
XXXXXXXX, L.P. By: Xxxxxxxx Capital Management, Inc.
By: /s/ Xxxx Xxxxxx
-----------------------------------------
Name: Xxxx Xxxxxx
-----------------------------------------
Title: Director
-----------------------------------------
SCHEDULE OF BUYERS
Debentures and Warrants:
Aggregate
Principal Purchase
Amount Price of First Second
Investor Address of Debentures and Number of Payment Payment
Investor Name and Facsimile Number Debentures Warrants Warrants Amount Amount
------------- -------------------- ---------- -------- -------- ------ ------
Portside c/o Ramius Capital Group, L.L.C. $2,713,000 $2,325,000 253,551 $1,550,000 $775,000
Growth & 000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxx Xxx Xxxx, XX 00000
Fund Attention: Xxxxxxx Xxxxx
Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
Xxxxxxxx L.P. c/o Xxxxxx Xxxxxx, LP
000 Xxxx Xxxxxx $2,713,000 $2,325,000 253,551 $1,550,000 $775,000
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Xxxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
Investor's Representatives'
Address
Investor Name and Facsimile Number
------------- --------------------
Portside Xxxxxxx Xxxx & Xxxxx LLP
Growth & 000 Xxxxx Xxxxxx
Xxxxxxxxxxx Xxx Xxxx, XX 00000
Fund Attn: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxxxx X.X. Xxxx, Weiss, Rifkind, Xxxxxxx &
Xxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS............................ 1
2. BUYER'S REPRESENTATIONS AND WARRANTIES.................................. 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 6
4. COVENANTS.............................................................. 14
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL......................... 25
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE...................... 25
8. INDEMNIFICATION........................................................ 27
9. MISCELLANEOUS.......................................................... 28
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(l) - Title
Schedule 3(n) - Insurance
Schedule 3(r) - Transactions with Affiliates
Schedule 4(u) - Consideration pursuant to Interferon Agreements
Schedule 4(v) - Certain Accounts
EXHIBITS
--------
Exhibit A - Form of Debentures
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Letter of Credit
Exhibit E - Form of Account Control Agreement
Exhibit F - Form of Security Agreement
Exhibit G-1 - Interferon Inventory and License Agreement
Exhibit G-2 - Interferon Asset Agreement
Exhibit H - Form of Irrevocable Transfer Agent Instructions
Exhibit I - Form of Legal Opinion
Exhibit J - Form of Current Report on 8-K
INDEX OF DEFINED TERMS
19.99% Rule....................................................................7
1933 Act.......................................................................1
1934 Act......................................................................10
Account Control Agreement.....................................................20
Agent.........................................................................20
Agreement......................................................................1
AMEX..........................................................................16
Business Day...................................................................2
Buyer..........................................................................1
Buyer's Purchase Price.........................................................2
Bylaws.........................................................................8
Cash Collateral Account.......................................................20
Cash Collateral Bank..........................................................20
Certificate of Incorporation...................................................8
Change in Law.................................................................18
Closing........................................................................2
Closing Date...................................................................2
Code..........................................................................17
Collateral....................................................................21
Common Stock...................................................................1
Company........................................................................1
Conversion Shares..............................................................1
Debentures.....................................................................1
Environmental Laws............................................................12
Form 8-K......................................................................16
Hazardous Materials...........................................................13
Indemnified Liabilities.......................................................27
Indemnitees...................................................................27
Intellectual Property.........................................................12
Interferon Agreements.........................................................23
Interferon Asset Agreement....................................................23
Interferon Inventory and License Agreement....................................23
Irrevocable Transfer Agent Instructions.......................................24
Letter of Credit..............................................................20
Material Adverse Effect........................................................6
Minimum Rating................................................................20
Moody's.......................................................................20
Mortgage......................................................................21
Mortgages.....................................................................21
NASDAQ........................................................................16
Non-U.S. Debenture Holder.....................................................18
Non-U.S. Equity Holder........................................................18
NYSE..........................................................................16
Payment Date...................................................................3
Permits.......................................................................13
Personal Property Collateral..................................................21
Phase I ESA...................................................................22
Phase II ESA..................................................................22
Principal Market..............................................................16
Properties....................................................................21
Real Property Collateral......................................................21
Registration Rights Agreement..................................................1
Regulation D...................................................................1
Reporting Period..............................................................15
Resolutions...................................................................26
S&P...........................................................................20
SEC............................................................................1
SEC Documents.................................................................10
Securities.....................................................................3
Security Agreement............................................................20
Segregated Account.............................................................2
Seller........................................................................21
Stockholder Approval..........................................................16
Stockholder Meeting Deadline..................................................16
Subsidiaries...................................................................6
Survey........................................................................22
Taxes.........................................................................18
Title Insurance Policy........................................................22
Transaction Documents..........................................................7
Warrant Shares.................................................................1
Warrants.......................................................................1
SECURITIES PURCHASE AGREEMENT
by and among
HEMISPHERX BIOPHARMA, INC.
and
THE INVESTORS LISTED HEREIN
Dated as of
July 10, 2003
