EXHIBIT 10.1
TO FORM 8-K
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February
24, 2000, by and among Biospherics Incorporated, a Delaware corporation, with
headquarters located at 00000 Xxxxxx Xxxxx Xxxxx, Xxxxxxxxxx, XX 00000 (the
"COMPANY"), and each of the purchasers set forth on the signature pages hereto
(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 under 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 Buyers desire to purchase and the Company desires to issue
and sell, upon the terms and conditions set forth in this Agreement, 723,982
units (the "UNITS"), each Unit consisting of (i) one (1) share of the
Company's common stock, par value $.005 per share (the "COMMON STOCK"), and
(ii) one and one-half (1.5) detachable warrants in the form attached hereto
as EXHIBIT "A" (each, a "WARRANT" and, collectively, the "Warrants"), each
Warrant exercisable for one (1) share of Common Stock (subject to adjustment
as provided in the Warrants), for a per Unit purchase price of $6.90625, or
an aggregate purchase price of Five Million One Dollars ($5,000,001). The
shares of Common Stock that are included in the Units, together with any
shares of Common Stock issued in replacement thereof or as a dividend thereon
or otherwise with respect thereto, and any shares of Common Stock issuable
pursuant to Section 2(c) of the Registration Rights Agreement (as defined
below), are hereinafter referred to as the "COMMON SHARES." The shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
are hereinafter collectively referred to as the "WARRANT SHARES." The
2
Common Shares, the Warrants and the Warrant Shares are sometimes hereinafter
collectively referred to as the "Securities;"
C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, such number of Units as is set forth immediately below its
name on the signature pages hereto;
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT "B" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF UNITS
a. PURCHASE OF UNITS. On the Closing Date (as defined below),
the Company shall issue and sell to each Buyer and each Buyer severally agrees
to purchase from the Company such number of Units as is set forth immediately
below such Buyer's name on the signature pages hereto.
b. FORM OF PAYMENT. On the Closing Date (as defined below),
(i) each Buyer shall pay the purchase price for the Units to be issued and sold
to it at the Closing (as defined below) (the "PURCHASE PRICE") by wire transfer
of immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates for
the Common Shares and duly executed Warrants representing the number of Units
set forth immediately below such Buyer's name on the signature pages hereto, and
(ii) the Company shall deliver such certificates and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.
c. CLOSING DATE. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 7 and Section 8 below, the date and
time of the issuance and sale of the Units pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon Eastern Standard Time on February 24, 2000
or such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall occur on the Closing Date
at the offices of Klehr, Harrison, Xxxxxx, Xxxxxxxxx & Xxxxxx LLP, or at such
other location as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
a. INVESTMENT PURPOSE. As of the date hereof, the Buyer is
purchasing the Securities for its own account and not with a present view
towards the public sale
3
or distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
c. RELIANCE ON EXEMPTIONS. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. INFORMATION. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. GOVERNMENTAL REVIEW. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. TRANSFER OR RE-SALE. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor, or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such 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
4
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a BONA FIDE margin account or other lending arrangement.
g. LEGENDS. The Buyer understands that the Warrants and, until
such time as the Common Shares and the Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the Common
Shares and Warrant Shares, may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the
absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. RESIDENCY. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
5
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(A) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii)
the transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith or (iv) the authority or the ability of the
Company to perform its obligation under this Agreement, the Registration Rights
Agreement or the Warrants. "SUBSIDIARIES" means any corporation or other
organization, whether incorporated or unincorporated, in which the Company owns,
directly or indirectly, any equity or other ownership interest.
b. AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Common Shares and the
Warrants and the issuance and reservation for issuance of the Warrant Shares
issuable upon exercise of or otherwise pursuant to the Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery by
the Company of the Registration Rights Agreement and the Warrants, each of such
agreement and instruments will constitute, a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 18,000,000 shares of Common Stock
of which 9,834,518 shares are issued and outstanding, 930,450 shares are
reserved for issuance pursuant to the Company's stock option plans, 685,000
shares are reserved for issuance pursuant to securities (other than the
Warrants) exercisable for, or convertible into or exchangeable for, shares of
Common Stock, 723,982 shares are reserved for issuance as part of the Units
issuable pursuant hereto and 1,628,960 (1.5x currently required) shares are
reserved for issuance upon exercise of the Warrants (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(h)
6
below); and (ii) 2,000,000 shares of preferred stock, none of which are issued
and outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in SCHEDULE 3(C), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, 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,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Common Shares, the
Warrants or the Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.
d. ISSUANCE OF SHARES. The Common Shares are duly authorized
and, when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof. The Warrant Shares are duly authorized and reserved for
issuance and, when issued upon exercise of or otherwise pursuant to the Warrants
in accordance with the terms thereof, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances and will
not be subject to preemptive rights or other similar rights of stockholders of
the Company and will not impose personal liability upon the holder thereof.
e. ACKNOWLEDGMENT OF DILUTION. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon issuance
of the Warrant Shares upon exercise of or otherwise pursuant to the Warrants and
this Agreement. The Company's directors and executive officers have studied and
fully understand the nature of the Securities being sold hereunder. The Company
further acknowledges that its obligation to issue the Warrant Shares upon
exercise of or otherwise pursuant to the Warrants in accordance with this
Agreement and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Securities and the consummation of the
7
transactions contemplated hereby and thereby are in the best interest of the
Company and its stockholders.
f. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance of the Common
Shares and the Warrants and the issuance and reservation for issuance of the
Warrant Shares) will not (i) conflict with or result in a violation of any
provision of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) 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 (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrants in accordance with the terms hereof or thereof or to
issue and sell the Common Shares and the Warrants in accordance with the terms
hereof and to issue the Warrant Shares upon exercise of or otherwise pursuant to
the Warrants. Except as disclosed in SCHEDULE 3(F), 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 is not in violation of the listing
requirements of the Nasdaq National Market ("NASDAQ") and does not reasonably
anticipate that the Common Stock will be delisted by Nasdaq in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
8
g. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31,
1996, the Company has timely 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 the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to as the "SEC DOCUMENTS"). The Company has
delivered to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated documents. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings prior to the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States 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 not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 1998 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
h. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, except
for operating losses of the Company in 1999 and except as set forth on SCHEDULE
3(H), there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or any of
its Subsidiaries.
i. ABSENCE OF LITIGATION. There is no action, suit, claim,
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 against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. SCHEDULE
3(I) contains a complete list and summary description of any pending or
threatened proceeding
9
against or affecting the Company or any of its Subsidiaries, without regard to
whether it would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
j. PATENTS, COPYRIGHTS, ETC.
(i) The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(j) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding pending,
or to the Company's knowledge threatened, which challenges the right of the
Company or of a Subsidiary with respect to any Intellectual Property necessary
to enable it to conduct its business as now operated (and, except as set forth
in SCHEDULE 3(j) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and
computer hardware, and other similar or related items of automated, computerized
or software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant, except where the failure to be Year 2000 Compliant would not have a
Material Adverse Effect. For purposes of this Agreement, the term "YEAR 2000
COMPLIANT" means, with respect to the Company's Information Technology, that the
Information Technology is designed to be used prior to, during and after the
calendar Year 2000 A.D., and the Information Technology used during each such
time period will accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations, and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of the date or time data, to
the extent that other information technology, used in combination with the
Information Technology, properly exchanges date and time data with it. The
Company has delivered to the Buyer true and correct copies of all analyses,
reports, studies and similar written information, whether prepared by the
Company or another party, relating to whether the Information Technology is Year
2000 Compliant.
k. 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 expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its
10
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
l. TAX STATUS. Except as set forth on SCHEDULE 3(l), 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, state or local tax. Except as set forth on SCHEDULE 3(l), none
of the Company's tax returns is presently being audited by any taxing authority.
m. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(m)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
n. DISCLOSURE. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which has
not been publicly announced or disclosed but under applicable law, rule or
regulation, requires public disclosure or announcement by the Company (assuming
for this purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
11
o. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF SECURITIES.
The company acknowledges and agrees that the Buyers 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 Buyer
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 that any statement made by any Buyer 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 Buyers' purchase of the Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
each Buyer that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. 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 require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
q. NO BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
r. PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), except those that, if not obtained, would not have a Material Adverse
Effect, and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since December 31,
1998, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(s), there are,
to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
12
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws that, in any such case, would have a Material Adverse Effect, and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. 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,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(s), there are
no underground storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. TITLE TO PROPERTY. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3(t) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
u. 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. 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.
v. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the
13
Company's board of directors, 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.
w. 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, 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.
x. NO INVESTMENT COMPANY. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement and the
Warrants will not be, an "investment company" required to be registered under
the Investment Company Act of 1940 (an "Investment Company"). The Company is not
controlled by an Investment Company.
4. COVENANTS.
a. BEST EFFORTS. The parties shall use their best efforts
to satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
b. FORM D; BLUE SKY LAWS. 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 the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
Closing 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 each
Buyer on or prior to the Closing Date.
c. REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities or for one year after
the exercise in full of the Warrants, whichever occurs first, 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 permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
14
d. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Common Shares and the Warrants in the manner set forth in
SCHEDULE 4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any other purpose.
e. ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL. Subject
to the exceptions described below, the Company will not, without the prior
written consent of Xxxx Xxxx Capital Management, L.P. ("Xxxx Xxxx"), negotiate
or contract with any party to obtain additional equity financing (including debt
financing with an equity component) that involves (A) the issuance of Common
Stock (whether upon conversion or exercise of a security convertible into or
exercisable for Common Stock ("CONVERTIBLE SECURITIES") or otherwise) at a
discount to the market price of the Common Stock on the date of issuance thereof
or, in the case of Convertible Securities, the date of issuance of such
Convertible Securities (in each case taking into account the value of any
warrants or options to acquire Common Stock issued in connection therewith) or
(B) the issuance of Convertible Securities that are convertible into an
indeterminate number of shares of Common Stock or where the issuance price of
the Common Stock upon conversion or exercise of such Convertible Securities
(including, based upon any conversion, exchange or reset formula) changes at any
time after the date of issuance of such Convertible Securities during the period
(the "LOCK-UP PERIOD") beginning on the Closing Date and ending One Hundred
Eighty (180) days from the date the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective (subject to extension for
any days in which sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) cannot be made pursuant to the Registration
Statement (as defined in the Registration Rights Agreement) occurring after the
date on which such Registration Statement is first declared effective by the
SEC). In addition, subject to the exceptions described below, the Company will
not conduct any equity financing (including debt financing with an equity
component) ("FUTURE OFFERINGS") during the twelve (12) month period after the
end of the Lock-up Period (subject to extension for any days in which sales of
all of the Registrable Securities cannot be made pursuant to the Registration
Statement occurring after the date on which such Registration Statement is first
declared effective by the SEC) unless it shall have first delivered to Xxxx
Xxxx, at least fifteen (15) business days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering, including the
terms and conditions thereof in the form of a term sheet or letter of intent to
be entered into in connection therewith, and providing Xxxx Xxxx and its
affiliates an option during the ten (10) day period following delivery of such
notice to elect to purchase all of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "CAPITAL RAISING LIMITATIONS"), which purchase
shall be completed not later than twenty (20) days after delivery of such
notice. In the event the terms and conditions of a proposed Future Offering are
amended in any respect after delivery of the notice to Xxxx Xxxx concerning the
proposed Future Offering, the Company shall deliver a new notice to Xxxx Xxxx
describing the amended terms and conditions of the proposed Future Offering and
Xxxx Xxxx and its affiliates thereafter shall have an option during the ten (10)
day period following delivery of such new notice to purchase all of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction
15
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 0000
Xxx) or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by the stockholders of the Company or to the grant to
employees or independent contractors of the Company of options, warrants or
other convertible securities to purchase up to 50,000 shares of Common Stock in
any calendar year.
f. EXPENSES. The Company shall pay Xxxx Xxxx at the Closing a
non-accountable expense allowance equal to Fifteen Thousand Dollars ($15,000)
for all expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, attorneys'
and consultants' fees and expenses and travel expenses.
g. FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns or sells all
of the Securities or until one (1) year after the exercise in full of the
Warrants, whichever occurs first: (i) within ten (10) days after the filing with
the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. RESERVATION OF SHARES. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full exercise of the outstanding
Warrants and issuance of the Warrant Shares in connection therewith (based on
the Exercise Price of the Warrants in effect from time to time). The Company
shall not reduce the number of shares of Common Stock reserved for issuance upon
exercise of or otherwise pursuant to the Warrants without the consent of each
Buyer. The Company shall use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for issuance at no less than one
hundred fifty percent (150%) of the number that is then actually issuable upon
full exercise of the Warrants (based on the Exercise Price of the Warrants in
effect from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Warrant Shares
issued or issuable upon exercise of or otherwise pursuant to the Warrants (based
on the Exercise Price of the Warrants in effect from time to time), the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain stockholder approval of
an increase in such authorized number of shares.
16
i. LISTING. The Company shall promptly secure the listing of
the Common Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Common Shares and Warrant Shares
from time to time issuable upon exercise of or otherwise pursuant to the
Warrants. The Company will obtain and, so long as any Buyer owns any of the
Securities, use its best efforts to maintain the listing and trading of the
Common Stock on Nasdaq, the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New
York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to each Buyer copies of any notices it receives from Nasdaq and any
other exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
j. CORPORATE EXISTENCE. So long as a Buyer beneficially owns
any Securities, or until one (1) year after the exercise in full of the
Warrants, whichever occurs first, the Company shall maintain its corporate
existence and shall not merge, consolidate or 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 (i) the successor or
acquiring entity and, if an entity different from the successor or acquiring
entity, the entity whose securities for which the Warrants shall become
exercisable pursuant to Section 4(e) of the Warrants, in such transaction
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith (including the Warrants) and
(ii) the entity whose securities for which the Warrants shall become exercisable
pursuant to Section 4(e) of the Warrants is a publicly traded corporation whose
common stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. NO INTEGRATION. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
l. CERTAIN RESTRICTIONS. No Buyer shall knowingly sell or
transfer to any one purchaser (other than a registered broker/dealer) Securities
representing more than 4.9% of the then total outstanding Common Stock
(calculated on a fully diluted basis). Each Buyer shall use its best efforts to
notify the Company prior to any block sales involving more than 50,000 shares of
Common Stock.
m. CERTAIN OPTIONS. The Company has requested the Buyer's
consent to the grant of options to two stockholders of the Company to purchase
1,000,000 shares of Common Stock at an exercise price of $1.4375 per share,
which options shall be exercised if (i) a third party acquires five percent (5%)
or more of the outstanding Common Stock and (ii) such
17
exercise is approved by the Board of Directors of the Company. The Company has
further requested that such grant not cause an adjustment to the Exercise Price
of the Warrants in accordance with the terms thereof. Buyers hereby consent to
such grant so long as such options expressly provide that neither the purchase
and sale of the Common Shares and Warrants pursuant to this Agreement nor the
purchase of the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants shall result in such options becoming exercisable.
5. OTHER AGREEMENTS. The Company and the Buyers hereby agree as
follows:
a. REPURCHASE EVENTS. If any of the following events (each, a
"REPURCHASE EVENT") shall occur during the period in which any Buyer (or any
permitted assignee of a Buyer's rights hereunder) beneficially owns any
Securities:
(i) The Company (A) fails to issue Warrant Shares to the
holders of Warrants upon exercise thereof in accordance with the terms of the
Warrants (for a period of at least 60 days if such failure is solely as a result
of the circumstances governed by Section 3(b) of the Warrants and the Company is
using its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable), (B) fails to transfer or to cause its transfer
agent to transfer (electronically or in certificated form) any certificate for
Warrant Shares issued to the holders of Warrants upon exercise thereof as and
when required by this Agreement, the Warrants and the Registration Rights
Agreement, (C) fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate or any Common
Shares or Warrant Shares issued to the holders as and when required by this
Agreement, the Warrants or the Registration Rights Agreement or (D) fails to
fulfill its obligations pursuant to Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 6
of this Agreement (or makes any announcement, statement or threat that it does
not intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for 10 days after the
Company shall have been notified thereof in writing by any holder of Securities;
(ii) The Company fails to use its best efforts to obtain
effectiveness with the SEC prior to June 21, 2000 of the Registration Statement
(as defined in the Registration Rights Agreement) required to be filed pursuant
to Section 2(a) of the Registration Rights Agreement, or fails to use its best
efforts to obtain the effectiveness of any additional Registration Statement
required pursuant to Section 3(b) of the Registration Rights Agreement within 90
days after the date the Company first determined (or reasonably should have
determined) the need therefor, or any such Registration Statement, after its
initial effectiveness, lapses in effect or sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) otherwise cannot be
made thereunder (whether by reason of the Company's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement, the Company's failure to file and obtain effectiveness with
the SEC of an additional Registration Statement required pursuant to Section
3(b) of the Registration Rights Agreement or otherwise) for more than 30
consecutive days or more than 60 days in any 12-month period after such
Registration Statement becomes effective; or
18
(iii) The Company shall fail to use its best efforts
to maintain the listing of the Common Stock on Nasdaq, the Nasdaq SmallCap, the
NYSE or the AMEX; then, upon the occurrence and during the continuation of any
Repurchase Event, at the option of the holders of at least 50% of the then
outstanding Common Shares and Warrant Shares by written notice (the "STOCK
REPURCHASE NOTICE") to the Company of such Repurchase Event, the Company shall
purchase each holder's outstanding Common Shares and Warrant Shares for an
amount equal to the greater of (1) 120% of the product of (x) the number of
outstanding Common Shares and Warrant Shares then held by such holder,
multiplied by (y) $6.90625 (subject to adjustment for stock splits, stock
dividends and similar transactions) and (2) the "parity value" of the Common
Shares and Warrant Shares to be repurchased, where parity value means the
product of (a) the number of Common Shares and Warrant Shares to be repurchased
multiplied by (b) the highest Closing Price (as defined below) for the Common
Stock during the period beginning on the date of first occurrence of the
Repurchase Event and ending one day prior to the date of payment (the "STOCK
REPURCHASE DATE") of the Stock Repurchase Amount (the greater of such amounts
being referred to as the "STOCK REPURCHASE AMOUNT"). The Stock Repurchase Amount
shall be payable by the Company within five business days after receipt by the
Company of the Stock Repurchase Notice. In addition to and not in lieu of the
rights of holders of Common Shares and Warrant Shares set forth in this Section
5(a), upon the occurrence and during the continuation of any Repurchase Event,
at the option of the holders of at least 50% of the then outstanding Warrants by
written notice (the "WARRANT REPURCHASE NOTICE") to the Company of such
Repurchase Event, the Company shall purchase each holder's outstanding Warrants
for an amount equal to the greater of (1) the "parity value" of the Warrants to
be repurchased, where parity value means the product of (a) the number of
Warrants to be repurchased multiplied by (b) (i) the highest Closing Price (as
defined below) for the Common Stock during the period beginning on the date of
first occurrence of the Repurchase Event and ending one day prior to the date of
payment (the "WARRANT REPURCHASE DATE") of the Warrant Repurchase Amount, minus
(ii) the then current Exercise Price (as defined in the Warrants), and (2) the
Black-Scholes Amount (as defined below) (the greater of such amounts being
referred to as the "WARRANT REPURCHASE AMOUNT"). The Warrant Repurchase Amount
shall be payable by the Company within five business days after receipt by the
Company of the Warrant Repurchase Notice. "CLOSING PRICE," as of any date, means
the last sale price of the Common Stock on Nasdaq as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holders of a majority in interest
of the Common Shares and the Company ("BLOOMBERG") or, if Nasdaq is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last sale price of such security is available in the over-the-counter market on
the electronic bulletin board for such security or in any of the foregoing
manners, the average of the bid prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Company and the holders of a majority in interest of
the outstanding Common Shares. "BLACK-SCHOLES AMOUNT," as of any date, means the
amount determined by calculating the "Black-Scholes" value of an option to
purchase one share of Common Stock on the applicable page on the Bloomberg
online
19
page, using the following variable values: (i) the current market price of the
Common Stock equal to the closing trade price on the last trading day before the
date for which such amount is being determined (the "APPLICABLE DATE"); (ii)
volatility of the Common Stock equal to the volatility of the Common Stock
during the 100-trading day period preceding the Applicable Date; (iii) a risk
free rate equal to the interest rate of the United States treasury xxxx or
treasury note with a maturity corresponding to the remaining term of the
Warrants on the Applicable Date; and (iv) an exercise price equal to the
Exercise Price on the Applicable Date. In the event such calculation function is
no longer available utilizing the Bloomberg online page, such calculation shall
be made using the closest available alternative mechanism and variable values to
those available utilizing the Bloomberg online page for such calculation
function. The rights of holders of Common Shares and Warrant Shares under this
Section 5 are independent of the rights of holders of Warrants under this
Section 5, and no repurchase by the Company of Common Shares and Warrant Shares
shall limit or otherwise affect the Company's obligations to repurchase Warrants
and no repurchase of Warrants by the Company shall limit or otherwise affect the
Company's obligations to repurchase Common Shares and Warrant Shares.
6. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Common Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the Common
Shares and Warrant Shares under the 1933 Act or the date on which the Common
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 6, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Common Shares and Warrant Shares, prior to
registration of the Common Shares and Warrant Shares under the 1933 Act or the
date on which the Common Shares and Warrant Shares may be sold pursuant to Rule
144 without any restriction as to the number of securities as of a particular
date that can then be immediately sold), will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section shall
affect in any way the Buyer's obligations and agreement set forth in Section
2(g) hereof to comply with all applicable prospectus delivery requirements, if
any, upon re-sale of the Securities. If a Buyer provides the Company with (i) an
opinion of counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected or (ii) the Buyer provides reasonable assurances that the
Securities can be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Common Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates, free from any
restrictive legend, in such name and in such denominations as specified by such
Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Units to a Buyer at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions
20
thereto, 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:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase
Price for the Units which it is purchasing in accordance with Section 1(b)
above.
c. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
d. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
8. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
each Buyer hereunder to purchase the Units 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 such Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly
executed certificates (in such denominations as the Buyer shall request)
representing the Common Shares and duly executed Warrants in accordance with
Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied
21
with by the Company at or prior to the Closing Date. The Buyer shall have
received a certificate or certificates, executed by the chief executive officer
of the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer including, but
not limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
f. The Common Shares and Warrant Shares shall have been
authorized for quotation on Nasdaq and trading in the Common Stock on Nasdaq
shall not have been suspended by the SEC or Nasdaq.
g. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "C"
attached hereto.
h. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may
be executed in one or more 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. This Agreement, once
executed by a party, may be delivered to the
22
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
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 or the validity or enforceability of this Agreement
in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. 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 the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
f. NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Biospherics Incorporated
00000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With copy to:
Baxter, Baker, Xxxxx & Conn, P.A.
000 X. Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Xx.
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
23
With copy to:
Klehr, Harrison, Xxxxxx, Branzburg & Xxxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
Each party shall provide notice to the other party of any change in
address.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any Accredited Investor that purchases Securities in a
private transaction from a Buyer (subject to the limitations set forth herein,
including Section 4(l)) or to any of its "affiliates," as that term is defined
under the 1934 Act (which affiliates shall be subject to the limitations set
forth herein, including Section 4(l)), without the consent of the Company.
h. 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. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5, 6 and 9 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement, the Warrants or the Registration Rights
Agreement, including advancement of expenses as they are incurred. Each Buyer
agrees to indemnify and hold harmless the Company and its officers, directors,
employees and agents for loss or damage arising as a result of or related to any
breach or alleged breach by such Buyer of any of its representations, warranties
and covenants set forth in Sections 2 and 4 hereof or any of its covenants and
obligations under this Agreement, the Warrants or the Registration Rights
Agreement, including advancement of expenses as they are incurred.
j. PUBLICITY. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, NASD or any stock exchange or interdealer
quotation system, 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 each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such
24
press release prior to its release and shall be provided with a copy thereof and
be given an opportunity to comment thereon).
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. NO STRICT CONSTRUCTION. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. REMEDIES. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Buyer, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that each Buyer shall be entitled, in addition to all other available
remedies in law or in equity, to an injunction or injunctions to prevent or cure
any breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions of this Agreement, without the necessity of showing
economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
BIOSPHERICS INCORPORATED
By: /S/ XXXXXXX X. XXXXX
Name: XXXXXXX X. XXXXX
Title: PRESIDENT / CEO
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By: /S/ XXXXXX X. XXXXXXXXXX
Xxxxxx X. Xxxxxxxxxx
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Common Shares: 723,982
Number of Warrants: 1,085,973
Aggregate Purchase Price: $5,000,001
26
