EXHIBIT 10.58
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
January 31, 2003, among Viragen, Inc., a Delaware corporation (the "Company"),
and the purchasers identified on the signature pages hereto (each, including
its successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") and Rule 506 promulgated thereunder, the Company
desires to issue and sell to the Purchasers, and the Purchasers, severally and
not jointly, desire to purchase from the Company, securities of the Company as
more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in
this Agreement: (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Debenture (as defined herein), and
(b) the following terms have the meanings indicated in this Section 1.1:
"Actual Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable
in the future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of all
Warrants and Debentures, ignoring any conversion or exercise limits
set forth therein, and assuming that: (a) any previously unconverted
Debentures are held until the second anniversary of the Closing Date
or, if earlier, until maturity, and all interest thereon is accreted
to the principal amount of Debentures, and (b) the Closing Bid Price
at all times on and after the date of determination equals 100% of the
actual Closing Bid Price on the Trading Day immediately prior to the
date of determination.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter
authorized, having the right to participate in the distribution of
earnings and assets of the Company.
"Capital Shares Equivalents" shall mean any securities,
rights, or obligations that
are convertible into or exchangeable for or give any right to
subscribe for or purchase, directly or indirectly, any Capital Shares
of the Company or any warrants, options or other rights to subscribe
for or purchase, directly or indirectly, Capital Shares or any such
convertible or exchangeable securities.
"Closing" means the Closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Bid Price" means on any particular date (a) the
closing bid price per share of Common Stock on such date on the
Principal Market or the OTC Bulletin Board (as reported by Bloomberg
L.P. at 4:15 PM (New York time), or (b) if there is no such price on
such date, then the closing bid price on the Principal Market or the
OTC Bulletin Board on the date nearest preceding such date (as
reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
bid price for regular session trading on such day), or (c) if the
shares of Common Stock are not then reported on the Principal Market
or the OTC Bulletin Board, then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the
Purchasers, or (c) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined
by an appraiser selected in good faith by the Purchasers of a majority
in interest of the principal amount of Debentures then outstanding.
"Closing Date" means the date of the Closing.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $0.01 per share, and any securities into which such common stock
may hereinafter been reclassified into.
"Company Counsel" means Xxxxxx and Xxxx P.A., outside counsel
to the Company.
"Debentures" means the Secured Convertible Debentures due 2
years from their date of issuance, unless otherwise set forth therein,
issued by the Company to the Purchasers hereunder, in the form of
Exhibit A.
"Disclosure Schedules" shall have the meaning ascribed to
such term in Section 3.1.
"Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit F hereto executed and delivered
contemporaneously with this Agreement.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" shall have the meaning ascribed to such term in
Section 3.1(h).
"Liens" shall have the meaning ascribed to such term in
Section 3.1(a).
"Losses" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including without
limitation costs of preparation and reasonable attorneys' fees.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company,
"Principal Market" shall initially mean the American Stock
Exchange, and shall include the New York Stock Exchange, the NASDAQ
National Market, the OTC Bulletin Board or the NASDAQ Small-Cap
Market, whichever is at the time the principal trading exchange or
market for the Common Stock, based upon share volume.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchasers' Counsel" means Xxxxxxx Xxxxxxxxx LLP with
offices at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Closing Date, among the Company and the
Purchasers, in the form of Exhibit B.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Required Minimum" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents,
including any Underlying Shares issuable upon exercise or conversion
in full of all Warrants and Debentures, ignoring any conversion or
exercise limits set forth therein, and assuming that (a) any
previously unconverted Debentures are held until the second
anniversary of the Closing Date or, if earlier, until maturity, and
all interest thereon is accreted to principal, and (b) the Closing Bid
Price at all times on and after the date of determination equals 75%
of the actual Closing Bid Price on the Trading Day immediately prior
to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or
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regulation hereafter adopted by the Commission having substantially
the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the
Underlying Shares and the shares of Common Stock issuable at the
Closing to the Purchasers pursuant to Section 2.2(a)(viii).
"Securities Act" means the Securities Act of 1933, as
amended.
"Security Agreement" shall mean the Bond and Floating Charge
and all documents to be delivered in connection therewith pursuant to
Section 2.2(a)(v).
"Standard Liquidated Damages" shall have the meaning set
forth in Section 4.15.
"Subscription Amount" shall mean, as to each Purchaser, the
amount to be paid for Debentures purchased hereunder as specified
below such Purchaser's name on the signature page of this Agreement,
in United States Dollars.
"Subsidiary" means any subsidiary of the Company that is
required to be listed in Schedule 3.1(a).
"Trading Day" shall mean any day during which the Principal
Market shall be open for business.
"Transaction Documents" means this Agreement, the Debentures,
the Warrants, the Escrow Agreement, the Security Agreement, the
Registration Rights Agreement, the Instructions to Transfer Agent, the
Subsidiary Guarantee required by Section 2.2(a)(vii) and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Debentures and upon exercise of the Warrants.
"Underlying Shares Registration Statement" or "Registration
Statement" means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of
the Underlying Shares and shares issuable at the Closing by the
Purchasers.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit C delivered to the Purchasers at the
Closing, the terms of each Warrant which are set forth in Section
2.2(a)(ii).
ARTICLE II
PURCHASE AND SALE
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2.1 Closing. Within 5 Trading Days of the date hereof, upon the
terms and subject to the conditions set forth herein, the Company agrees to
sell, and the Purchasers agree to purchase, severally and not jointly, the
Debentures. Each Purchaser shall deliver to the Escrow Agent via wire transfer
or a certified check immediately available funds equal to their Subscription
Amount (except as provided for below in the case of Palisades Equity Fund L.P.)
and the Company shall deliver to the Escrow Agent the Debentures evidencing a
principal amount equal to 115% of such Purchaser's Subscription Amount and the
other items set forth in Section 2.2 issuable at the Closing. Upon satisfaction
of the conditions set forth in Section 2.2, the Closing shall occur at the
offices of the Escrow Agent, or such other location as the parties shall
mutually agree.
2.2 Conditions to Closing.
(a) At or prior to the Closing, the Company shall
deliver or cause to be delivered to the Escrow Agent the following:
(i) Debentures with a principal amount equal to
115% of the Subscription Amount, registered in the name of
such Purchaser;
(ii) a Warrant registered in the name of each
Purchaser to purchase up to 4 shares of Common Stock for each
$1 of principal amount of Debenture issued hereunder to such
Purchaser, with a term of 3 years and an exercise price of
$0.0625 per Warrant Share, subject to adjustment therein;
(iii) the legal opinion of Company Counsel, in
the form of Exhibit D attached hereto, addressed to the
Purchasers;
(iv) the Escrow Agreement duly executed by the
Company;
(v) the Bond and Floating Charge in the form
annexed hereto as Exhibit G duly executed by Viragen
(Scotland) Ltd. which is to be a second ranking charge and
all other documents and instruments required to grant a
floating charge with no competing or adverse entries against
Viragen (Scotland) Ltd., other than the Bond and Floating
Charge granting a first ranking charge to Palisades Equity
Fund L.P., Bristol Investment Fund, Ltd. and Alpha Capital
AG, in Scottish form to the Purchasers;
(vi) the Registration Rights Agreement duly
executed by the Company;
(vii) the Subsidiary Guarantee duly executed by
the Subsidiaries in the form annexed hereto as Exhibit H;
(viii) as additional consideration to the
Purchasers to induce the Purchasers to purchase the
Debentures and Warrants, a certificate representing 2 shares
of Common Stock for each $1 of principal amount of Debenture
issued hereunder to such Purchaser;
(ix) the Transfer Agent Instructions executed by
the Company and
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delivered to and acknowledged by the Company's transfer agent
in the form annexed hereto as Exhibit E; and
(x) duly executed agreements of each director
and officer of the Company that holds shares of Common Stock
in the form of Exhibit I attached hereto.
(b) At or prior to the Closing, each Purchaser shall
deliver or cause to be delivered to the Escrow Agent the following:
(i) the Subscription Amount indicated below
such Purchaser's name on the signature page of this
Agreement, in United States dollars and in immediately
available funds, by wire transfer (except with respect to
Palisades Equity Fund L.P. which shall tender payment by
surrendering the principal amount of a promissory note made
by the Company in lieu of an equal amount of cash
consideration);
(ii) the Escrow Agreement duly executed by such
Purchaser;
(iii) an Intercreditor Agreement, duly executed
by each Purchaser, in form and substance reasonably
acceptable to all the Purchaser; and
(iv) the Registration Rights Agreement duly
executed by such Purchaser.
(c) All representations and warranties of the other
party contained herein shall remain true and correct as of the Closing
Date.
(d) There shall have been no Material Adverse Effect (as
defined in Section 3.1(b)) with respect to the Company since the date
hereof.
(e) From the date hereof to the Closing Date, trading in
the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to the
Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have
been established on securities whose trades are reported by such
service, or on the Principal Market, nor shall a banking moratorium
have been declared either by the United States or New York State
authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity
of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment
of the Purchasers, makes it impracticable or inadvisable to purchase
the Debentures at the Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set
forth under the corresponding section of the disclosure schedules attached
hereto (the "Disclosure Schedules"), the Company hereby makes the following
representations and warranties to the Purchasers:
(a) Subsidiaries. The Company has no direct or indirect
subsidiaries. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and
clear of any lien, charge, security interest, encumbrance, right of
first refusal or other restriction (collectively, "Liens"), and all
the issued and outstanding shares of capital stock of each Subsidiary
are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.
(b) Organization and Qualification. Each of the Company
and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable),
with the requisite power and authority to own and use its properties
and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to do business and is
in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate: (i) adversely affect the
legality, validity or enforceability of any Transaction Document, (ii)
have or result in or be reasonably likely to have or result in a
material adverse effect on the results of operations, assets,
prospects, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iii) adversely
impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Documents (any of (i), (ii)
or (iii), a "Material Adverse Effect").
(c) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations hereunder or
thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized
by all necessary action on the part of the Company and no further
consent or action is required by the Company. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and general principles of equity.
Neither the Company nor any Subsidiary is in
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violation of any of the provisions of its respective certificate or
articles of incorporation, by-laws or other organizational or charter
documents.
(d) No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated thereby
do not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) subject to obtaining the Required Approvals (as defined below),
conflict with, or constitute a default (or an event that 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 (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court
or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is
bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not, individually or in the aggregate, have or
result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company
nor any Subsidiary is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filings required under Section 4.8, (ii)
the filing with the Commission of the Underlying Shares Registration
Statement, (iii) the application(s) to each applicable Principal
Market for the listing of the Underlying Shares and shares issuable at
the Closing for trading thereon in the time and manner required
thereby, and (iv) applicable Blue Sky filings (collectively, the
"Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and non assessable, free and clear of all Liens. The
Company has reserved from its duly authorized capital stock a number
of shares of Common Stock for issuance of the Underlying Shares and
shares of Common Stock issuable at the Closing at least equal to the
Required Minimum on the date hereof. The Company acknowledges and
agrees that the Purchasers are acquiring the Debentures for an
original issue discount to the principal amount of the Debentures.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in the Disclosure Schedules attached hereto. No securities of
the Company are entitled to preemptive or similar rights, and no
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction
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Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock. The issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
(h) SEC Reports; Financial Statements. The Company has
filed all reports required to be filed by it under the Securities Act
and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the
foregoing materials being collectively referred to herein as the "SEC
Reports") on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has delivered to the
Purchasers a copy of all SEC Reports filed within the 10 days
preceding the date hereof. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply
in all material respects with applicable accounting requirements and
the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved ("GAAP"),
except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as
of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest
audited financial statements included within the SEC Reports, except
as specifically disclosed in the SEC Reports: (i) there has been no
event, occurrence or development that has had or that could result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii)
the Company has not altered its method of accounting or the identity
of its auditors, (iv) the Company has not declared or
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made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase
or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option or similar plans.
(j) Litigation. There is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company,
any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which: (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of
fiduciary duty. The Company does not have pending before the
Commission any request for confidential treatment of information.
There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by
the Company or any Subsidiary under the Exchange Act or the Securities
Act.
(k) Compliance. Neither the Company nor any Subsidiary:
(i) is in default under or in violation of (and no event has occurred
that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that it
is in default under or that it is in violation of, any indenture, loan
or credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body,
or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, except in each case as could
not, individually or in the aggregate, have or result in a Material
Adverse Effect.
(l) Labor Relations. No material labor dispute exists
or, to the knowledge of the Company, is imminent with respect to any
of the employees of the Company.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could
not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect ("Material Permits"), and
neither the Company nor any Subsidiary has
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received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries
have good and marketable title in fee simple to all real property
owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property
and facilities held under lease by the Company and the Subsidiaries
are held by them under valid, subsisting and enforceable leases of
which the Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the
Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are
necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so
have could have a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any
Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights.
(p) Insurance. The Company and the Subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are
engaged. A list of the Company's insurance contracts and policies are
set forth on the Disclosure Schedules. The Company has delivered to
the Purchasers, prior to the Closing, such contracts and policies. To
the best of Company's knowledge, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. None of
the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to
any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
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Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee or partner.
(r) Internal Accounting Controls. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(s) Solvency/Indebtedness. Based on the financial
condition of the Company as of the Closing Date: (i) the Company's
fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company's existing debts
and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the
business conducted by the Company, and projected capital requirements
and capital availability thereof; and (iii) the current cash flow of
the Company, together with the proceeds the Company would receive,
were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts
on or in respect of its debt when such amounts are required to be
paid. The Company does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it
to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date. The SEC Documents and Schedule 3.1(s)
attached hereto set forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $25,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the
notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(t) Certain Fees. No brokerage or finder's fees or
commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions
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contemplated by this Agreement, and the Company has not taken any
action that would cause any Purchaser to be liable for any such fees
or commissions. The Company agrees that the Purchasers shall have no
obligation with respect to any fees or with respect to any claims made
by or on behalf of any Person for fees of the type contemplated by
this Section with the transactions contemplated by this Agreement.
(u) Private Placement. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
3.2(b)-(f), the offer, issuance and sale of the Securities to the
Purchasers as contemplated hereby are exempt from the registration
requirements of the Securities Act. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of
the Principal Market and no shareholder approval is required for the
Company to fulfill its obligations under the Transaction Documents.
(v) Listing and Maintenance Requirements. The Company
has not, in the 12 months preceding the date hereof, received notice
from any Principal Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Principal Market.
The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
(w) Registration Rights. The Company has not granted or
agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered
with the Commission or any other governmental authority that have not
been satisfied.
(x) Application of Takeover Protections. The Company and
its Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the
Company's Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including without limitation as a result of
the Company's issuance of the Securities and the Purchasers' ownership
of the Securities.
(y) Seniority. As of the date of this Agreement, no
indebtedness of the Company is senior to the Debentures in right of
payment, whether with respect to interest or upon liquidation or
dissolution, or otherwise, other than indebtedness secured by purchase
money security interests (which is senior only as to underlying assets
covered thereby) and capital lease obligations (which is senior only
as to the property covered thereby).
(z) Disclosure. The Company confirms that neither it nor
any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information. The
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Company understands and confirms that the Purchasers will rely on the
foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties
with respect to the transactions contemplated hereby.
(aa) Tax Status. The Company and each of its Subsidiaries
has made or filed all federal, state and foreign income and all other
tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company
and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested
in good faith and has 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 apply. There
are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, statue or local tax.
None of the Company's tax returns is presently being audited by any
taxing authority.
(bb) Acknowledgment Regarding Purchasers' Purchase of
Securities. The Company acknowledges and agrees that the Purchasers
are acting solely in the capacity of arm's length purchasers with
respect to this Agreement and the transactions contemplated hereby.
The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Purchaser or any of
their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its
representatives.
(cc) No General Solicitation or Advertising in Regard to
this Transaction. Neither the Company nor, to the knowledge of the
Company, any of its directors or officers (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c)
of Regulation D) or general advertising with respect to the sale of
the Debentures or the Warrants, or (ii) made any offers or sales of
any security or solicited
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any offers to buy any security under any circumstances that would
require registration of the Debentures, the Underlying Shares, the
shares issuable at the Closing or the Warrants under the Securities
Act or made any "directed selling efforts" as defined in Rule 902 of
Regulation S.
(dd) No Disagreements with Accountants and Lawyers. There
are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
3.2 Representations and Warranties of the Purchasers. Each
Purchaser hereby, for itself and for no other Purchaser, represents and
warrants to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity
duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization with the requisite corporate
or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise
to carry out its obligations thereunder. The purchase by such
Purchaser of the Securities hereunder has been duly authorized by all
necessary action on the part of such Purchaser. Each of this
Agreement, and the Registration Rights Agreement has been duly
executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it
in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes
only and not with a view to or for distributing or reselling such
Securities or any part thereof, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement, at all
times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such
Purchaser to hold Securities for any period of time. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(c) Purchaser Status. At the time such Purchaser was
offered the Securities, it was, and at the date hereof it is, and on
each date on which it exercises any Warrants or converts any
Debentures, it will be an "accredited investor" as defined in Rule
501(a) under the Securities Act. Such Purchaser has not been formed
solely for the purpose of acquiring the Securities. Such Purchaser is
not a registered broker-dealer under Section 15 of the Exchange Act.
(d) Experience of such Purchaser. Such Purchaser, either
alone or together with its representatives, has such knowledge,
sophistication and experience in business
-15-
and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is
able to bear the economic risk of an investment in the Securities and,
at the present time, is able to afford a complete loss of such
investment.
(e) General Solicitation. Such Purchaser is not
purchasing the Securities as a result of any advertisement, article,
notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or broadcast over television
or radio or presented at any seminar or any other general solicitation
or general advertisement.
(f) Reliance. Such Purchaser understands and
acknowledges that: (i) the Securities are being offered and sold to it
without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption depends in part on, and
the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and such Purchaser hereby consents to such
reliance.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance
with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective
registration statement, to the Company, to an Affiliate of a
Purchaser, to an entity managed by a Purchaser or in connection with a
pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that
such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of
this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as
is required by this Section 4.1(b), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE [NOT] BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN
-16-
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement or grant
a security interest in some or all of the Securities and, if required
under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such
a pledge or transfer would not be subject to approval of the Company
and no legal opinion of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required
of such pledge. At the appropriate Purchaser's expense, the Company
will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with
a pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of
the Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares and shares
of Common Stock issuable at the Closing shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) while a
registration statement (including the Underlying Shares Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Underlying Shares
or shares issuable at the Closing pursuant to Rule 144, or (iii) if
such Underlying Shares or such shares issuable at the Closing are
eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
Staff of the Commission). If all or any portion of a Debenture or
Warrant is converted or exercised (as applicable) at a time when there
is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule
144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations
thereof) then such Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Underlying Shares or shares issuable at
the Closing issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such shares
that are free from all restrictive and other legends. The Company may
not make any notation on its records or give instructions to any
-17-
transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section.
(d) In addition to such Purchaser's other available
remedies, the Company shall pay to a Purchaser, in cash, as liquidated
damages and not as a penalty, for each $1,000 of Underlying Shares or
shares issuable at the Closing (based on the Closing Bid Price of the
Common Stock on the date such Securities are submitted to the
Company's transfer agent) subject to this Section 4.1(c), $20 per
Trading Day (increasing to $40 per Trading Day 3 Trading Days after
such damages have begun to accrue) for each Trading Day after such
third Trading Day until such certificate is delivered.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities will result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Underlying Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim that the
Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.
4.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) such information as is required for
the Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.
4.4 Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.
4.5 Reservation and Listing of Securities.
(a) At all times after February 1, 2003, the Company
shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction
-18-
Documents in an amount equal to 150% of the number required to fulfill
its obligations in full under the Transaction Documents (the "Reserved
Amount"). In order to ensure that the Company has authorized a
sufficient amount of shares to meet the Reserved Amount at all times,
the Company must deliver to the Purchaser at the end of every month a
list detailing (1) the current amount of shares authorized by the
Company and reserved for the Purchaser; and (2) amount of shares
issuable upon conversion of the Debentures and upon exercise of the
Warrants and as payment of interest accrued on the Debentures for one
year. If the Company fails to provide such list within five (5)
business days of the end of each month, the Company shall pay the
Standard Liquidated Damages Amount in cash.
(b) If, on any date after February 1, 2003, the number
of authorized but unissued (and otherwise unreserved) shares of Common
Stock is less than 125% of (i) the Actual Minimum on such date, minus
(ii) the number of shares of Common Stock previously issued pursuant
to the Transaction Documents, then the Board of Directors of the
Company shall use its best efforts to amend the Company's certificate
or articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at
such time (minus the number of shares of Common Stock previously
issued pursuant to the Transaction Documents), as soon as possible and
in any event not later than the 60th day after such date; provided
that the Company will not be required at any time to authorize a
number of shares of Common Stock greater than the maximum remaining
number of shares of Common Stock that could possibly be issued after
such time pursuant to the Transaction Documents.
(c) The Company shall: (i) in the time and manner
required by each Principal Market, prepare and file with such
Principal Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the greater of (A)
the Required Minimum on the Closing Date and (B) the Required Minimum
on the date of such application, (ii) take all steps necessary to
cause such shares of Common Stock to be approved for listing on each
Principal Market as soon as possible thereafter, (iii) provide to the
Purchasers evidence of such listing, and (iv) maintain the listing of
such Common Stock on each such Principal Market or another Principal
Market.
(d) If, on any date, the number of shares of Common
Stock previously listed on a Principal Market is less than 125% of the
Actual Minimum on such date, then the Company shall take the necessary
actions to list on such Principal Market, as soon as reasonably
possible, a number of shares of Common Stock at least equal to the
Required Minimum on such date; provided that the Company will not be
required at any time to list a number of shares of Common Stock
greater than the maximum number of shares of Common Stock that could
possibly be issued pursuant to the Transaction Documents.
(e) The Company shall not effectuate a reverse split of
the Common Stock without the prior written consent of the Purchasers.
4.6 Conversion and Exercise Procedures. The form of Election to
Purchase included in the Warrants and the forms of Conversion Notice included
in the Debentures set forth the
-19-
totality of the procedures required in order to exercise the Warrants or
convert the Debentures. No additional legal opinion or other information or
instructions shall be necessary to enable the Purchasers to exercise their
Warrants or convert their Debentures. The Company shall honor exercises of the
Warrants and conversions of the Debentures and shall deliver Underlying Shares
in accordance with the terms, conditions and time periods set forth in the
Transaction Documents. Attached hereto as Annex A is a list of the shares
available to each Purchaser in light of the limitation on conversion and
exercise set forth in Section 4(a)(iii) (subject to adjustment therein) of the
Debenture prior to Shareholder Approval (as defined in Section 4.16). The
Company agrees and acknowledges that prior to Shareholder Approval and pursuant
to Section 4(a)(iii) of the Debenture, that the aggregate Issuable Maximum (as
defined in the Debenture) is 26,480,467.
4.7 Future Financings. From the date hereof until after the
Effective Date, other than as contemplated by this Agreement, neither the
Company nor any Subsidiary shall (i) incur, issue, create, guarantee, assume or
otherwise become liable on account of any indebtedness or (ii) increase any
amounts owing or to which such Person is liable under any existing obligations
or (iii) issue or sell any Capital Shares or Capital Shares Equivalents.
4.8 Securities Laws Disclosure; Publicity. The Company shall,
within 1 Trading Day after the Closing Date, issue a press release or file a
Current Report on Form 8-K reasonably acceptable to the Purchasers disclosing
all material terms of the transactions contemplated hereby. The Company and the
Purchasers shall consult with each other in issuing any press releases with
respect to the transactions contemplated hereby. Notwithstanding the foregoing,
other than in any registration statement filed pursuant to the Registration
Rights Agreement and filings related thereto, the Company shall not publicly
disclose the name of any Purchaser or the terms of the Agreement, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Principal Market, without the prior written consent of such
Purchaser, except to the extent such disclosure is required by law or Principal
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure.
4.9 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.
4.10 Use of Proceeds. The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes and not for
the satisfaction of any portion of the Company's debt (other than payment of
trade payables, capital lease obligations, and accrued expenses in the ordinary
course of the Company's business and prior practices), to redeem any Company
equity or equity-equivalent securities or to settle any outstanding litigation.
4.11 Reimbursement. If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company, solely as a result of
-20-
such Purchaser's acquisition of the Securities under this Agreement and without
causation by any other activity, obligation, condition or liability pertaining
to such Purchaser and not to the transactions contemplated by this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of
or in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.12 Indemnification of Purchasers. The Company will indemnify and
hold the Purchasers and their directors, officers, shareholders, partners,
employees and agents (each, a "Purchaser Party") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to: (a) any
misrepresentation, breach or inaccuracy, or any allegation by a third party
that, if true, would constitute a breach or inaccuracy, of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents; or (b) any cause of
action, suit or claim brought or made against such Purchaser Party and arising
solely out of or solely resulting from the execution, delivery, performance or
enforcement of this Agreement or any of the other Transaction Documents and
without causation by any other activity, obligation, condition or liability
pertaining to such Purchaser and not to the transactions contemplated by this
Agreement. The Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation, preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred.
4.13 Shareholders Rights Plan. In the event that a shareholders
rights plan is adopted by the Company, no claim will be made or enforced by the
Company or any other Person that any Purchaser is an "Acquiring Person" under
the plan or in any way could be deemed to trigger the provisions of such plan
by virtue of receiving Securities under the Transaction Documents.
4.14 Participation in Future Financing. From the date hereof until
12 months after the Effective Date, the Company shall not effect a financing of
its Capital Shares or Capital Shares Equivalents (a "Subsequent Financing")
unless (i) the Company delivers to each of such Purchasers, at least ten (10)
Trading Days prior to the Closing of such Subsequent Financing, a written
notice (the "Subsequent Financing Notice") of its intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to
-21-
which shall be a term sheet or similar document relating thereto and (ii) such
Purchaser shall not have notified the Company by 6:30 p.m. (New York City time)
on the tenth (10th) Trading Day after its receipt of the Subsequent Financing
Notice of its willingness to provide (or to cause its designee to provide),
subject to completion of mutually acceptable documentation, all or part of such
Purchaser's pro-rata portion of such financing to the Company on the same terms
set forth in the Subsequent Financing Notice. If the Purchasers shall fail to
so notify the Company of their willingness to participate in the Subsequent
Financing, the Company may effect the remaining portion of such Subsequent
Financing on the terms and to the Persons set forth in the Subsequent Financing
Notice; provided that the Company must provide the Purchasers with a second
Subsequent Financing Notice, and the Purchasers will again have the right of
first refusal set forth above in this Section 4.14, if the Subsequent Financing
subject to the initial Subsequent Financing Notice is not consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice
with the Person identified in the Subsequent Financing Notice.
4.15 Breach of Representations and Warranties and Covenants by the
Company. If the Company breaches any of the representations, warranties or
covenants set forth in Articles III and IV, and in addition to any other
remedies available to the Purchasers pursuant to this Agreement, the Company
shall pay to the Purchasers liquidated damages of three percent (3%) of the
outstanding amount of the Debentures per month plus accrued and unpaid interest
on the Debentures, prorated for partial months, in cash ("Standard Liquidated
Damages Amount"), until such breach is cured.
4.16 Shareholder Vote. Within 60 days of the Closing Date, the
Company shall use its best efforts to have obtained the vote of shareholders
(the "Shareholder Approval") as may be required by the applicable rules and
regulations of the Principal Market (or any successor entity) to approve the
issuance of shares of Common Stock pursuant to the Transaction Documents in
excess of, in the aggregate, 19.999% of the number of shares of Common Stock
outstanding on the Trading Day immediately preceding the Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by the Company
or any Purchaser, by written notice to the other parties, if the Closing has
not been consummated by the fifth business day following the date of this
Agreement; provided that no such termination will affect the right of any party
to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. The Company has agreed to reimburse
$20,000 to the Purchasers as reimbursement for the Purchasers' legal fees and
expenses incurred in connection with the preparation and negotiation of the
Transaction documents. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this
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Agreement. The Company shall pay all transfer agent fees, stamp taxes and other
taxes and duties levied in connection with the issuance of any Securities.
5.3 Entire Agreement. The Transaction Documents, together with
the Exhibits and Schedules thereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.
5.4 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) three
Trading Days following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party
to whom such notice is required to be given. The addresses for such notices and
communications are those set forth on the signature pages hereof, or such other
address as may be designated in writing hereafter, in the same manner, by such
Person. Set forth on the Disclosure Schedule is a list of names and contact
information for the Company's Board of Directors, executive officers, key
employees (including organization chart of the Company), corporate counsel,
including, if applicable, in-house counsel, the Company's outside counsel
(including securities counsel, if different than corporate counsel), the
Company's accountants and the Company's transfer agent. The Company hereby
represents that it has no present intent to change the information set forth in
such list.
5.5 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each of the Purchasers or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 Construction. The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
5.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchasers. Any Purchaser
may assign its rights under this Agreement and the Registration Rights
Agreement to any Person to whom such Purchaser assigns or transfers any
Securities.
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5.8 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.8.
5.9 Governing Law; Venue; Waiver of Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of this Agreement,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
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5.13 Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside, recovered from, disgorged by or are required to be refunded, repaid or
otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company
hereby agrees not to insist upon or plead or in any manner whatsoever claim,
and will resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be brought
by any Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any
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other sums in the nature of interest that the Company may be obligated to pay
under the Transaction Documents exceed such Maximum Rate. It is agreed that if
the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate of interest applicable
to the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to
any Purchaser with respect to indebtedness evidenced by the Transaction
Documents, such excess shall be applied by such Purchaser to the unpaid
principal balance of any such indebtedness or be refunded to the Company, the
manner of handling such excess to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.
5.19 Liquidated Damages. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.
***********************
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
VIRAGEN, INC.
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Exec. VP/CFO
Address for Notice:
000 XX 00xx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx Xxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
(which shall not constitute notice) Xxxxx X. Xxxxxxxxx, Esq.
Xxxxxx & Xxxx, P.A.
000 X. Xxx Xxxx Xxxxxxxxx, Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
(000) 000-0000
(000) 000-0000 (Direct)
(000) 000-0000 (Fax)
xxxxxxxxxx@xxxxxx.xxx
Secretary (Xxxxxxx) xxxxxx@xxxxxx.xxx
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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PURCHASERS SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
PALISADES EQUITY FUND L.P. Address for Notice:
C/o PEF Advisors, LLC
0000 Xxxxxxxxx Xxxxx
By: /s/ Xxxx X. Xxxxxxx Xx. Suite B220
----------------------------- Xxxxxxx, Xxxxxxx 00000
Name: Xxxx X. Xxxxxxx Xx. Attn: Fund Manager
Title: General Partner
Subscription Amount: surrender of $300,000 principal amount of promissory note
and $352,500 cash consideration.
CRESCENT INTERNATIONAL LTD. Address for Notice:
x/x XxxxxXxxxx (Xxxxxxxxxxx) XX
00, Xxxxxx Xxxxx-Xxxxx
By: /s/ Xxx Xxxx / Maxi Brezzi CH 1216 Cointrin, Geneva
----------------------------- Switzerland
Name: Xxx Xxxx / Maxi Brezzi Attention: Xxx Xxxx / Maxi Brezzi
Title: Authorized Signatories Tel.: + 00 00 000 0000 / x00 00 000 0000
Fax: x00 00 000 0000
Subscription Amount: $435,000.
ALPHA CAPITAL AG Address for Notice:
Xxxxxxxxxxx 00
Xxxxxxxxxx 0000
By: /s/ Xxxxxx Xxxxxxxxx Vaduz, Liechtenstein
----------------------------- Fax: 000-000 000 0000
Name: Xxxxxx Xxxxxxxxx Attn: Director
Title: Director
Subscription Amount: $304,500.
BRIVIS INVESTMENT, LTD. Address for Notice:
Arawak Xxxxxxxx
Sea Meadow House
By: /s/ Xxxx Xxxxx Blackburne Highway
----------------------------- Road Town, Tortola, BVI
Name: Xxxx Xxxxx Attn:
Title: Director Fax:
Subscription Amount: $217,500
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[PURCHASER SIGNATURE PAGE 2]
CASTLERIGG MASTER INVESTMENTS LTD. Address for Notice:
X/x Xxxxx Xxxx Xxxxxxxx
Xxxx Xxxxxxxxx 0
By: /s/ Xxxxxx X. Xxxxxxx P.O. Box 812
----------------------------- Curacao, Netherland Antilles
Name: Xxxxxx X. Xxxxxxx Attn:
Title: Principal of Xxxxxxx Fax:
Asset Mgmt. Corp.
Advisor to Castlerigg
Master Investment Ltd.
Subscription Amount: $217,500
With a copy to:
(which shall not constitute notice) Xxxxxxx Xxxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
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ANNEX A
Palisades Equity Fund LP
Principal Amount of Debenture issued: $750,375
Warrant Shares issuable under Warrant: 3,331,500
Shares issuable at Closing: 1,500,750
Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 7,149,726(1)
Crescent International Ltd.
Principal Amount of Debentures issued: $500,250
Warrant Shares issuable under Warrant: 2,001,000
Shares issuable at Closing: 1,000,500
Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 7,149,726
Alpha Capital AG
Principal Amount of Debenture issued: $350,175
Warrant Shares issuable under Warrant: 1,400,700
Shares issuable at Closing: 700,350
Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 5,031,289
Brivis Investment, Ltd.
Principal Amount of Debenture issued: $250,125
Warrant Shares issuable under Warrant: 1,000,500
Shares issuable at Closing: 500,250
Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 3,574,863
Castlerigg Master Investments Ltd.
Principal Amount of Debenture issued: $250,125
Warrant Shares issuable under Warrant: 1,000,500
Shares issuable at Closing: 500,250
Issuable Maximum pursuant to Section 4(a)(iii) of the Debenture: 3,574,863
---------------
(1) Palisades waives its right to any additional shares of Common Stock
issuable under the Issuable Maximum that it may otherwise be entitled to by
virtue of it Subscription Amount until after Shareholder Approval.
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