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EXHIBIT 10.20
EXECUTION COPY
PURCHASE AGREEMENT
PURCHASE AGREEMENT ("AGREEMENT") dated as of October 13, 2000 between
ZYMETX, INC., a Delaware corporation (the "COMPANY"), and each person or entity
listed as an investor on SCHEDULE 1 attached to this Agreement (each
individually an "INVESTOR" and collectively the "INVESTORS"). Undefined terms
contained herein shall have the meaning ascribed to them in the Debentures.
WITNESSETH:
WHEREAS, the Company desires to sell and issue to the Investors, and
the Investors wish to purchase from the Company, 5% Senior Secured Convertible
Debentures due October 12, 2002 (the "DEBENTURES"), in the aggregate principal
amount of $2,000,000 at an aggregate purchase price of $2,000,000, having the
rights and privileges set forth in the Debentures in the form of EXHIBIT A
attached hereto, on the terms and conditions set forth herein;
WHEREAS, pursuant to the terms of the Debentures, the Debentures will
be convertible into shares ("COMMON SHARES") of common stock, par value $.001,
of the Company ("COMMON STOCK");
WHEREAS, to induce the Investors to purchase the Debentures, the
Company has agreed to issue to the Investors warrants (collectively with the
warrants issuable pursuant to Section 1.1(c)(iii) of this Agreement and Section
7(e) of the Debentures, the "WARRANTS") in the form attached as EXHIBIT B
exercisable for shares of Common Stock ("WARRANT SHARES"); and
WHEREAS, the Investors will have registration rights with respect to
such Common Shares and the Warrant Shares pursuant to the terms of that certain
Registration Rights Agreement to be entered into between the Company and the
Investors substantially in the form of EXHIBIT 4.2(E) hereto ("REGISTRATION
RIGHTS AGREEMENT");
WHEREAS, the Debentures and the Company's obligations under the
Transaction Documents shall be secured by a Security Agreement in the form of
Exhibit C attached hereto (the "SECURITY AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
PURCHASE AND SALE OF DEBENTURES AND WARRANTS, ETC.
Section 1.1 Issuance of Debentures and Warrants.
(a) Issuance. Upon the following terms and conditions, the
Company shall issue and sell to each Investor severally, and each Investor
severally shall purchase
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from the Company, the outstanding principal amount of Debentures and the number
of Warrants indicated next to such Investor's name on SCHEDULE I attached
hereto.
(b) Purchase Price. The purchase price for the Debentures and
Warrants to be acquired by each Investor (the "PURCHASE PRICE") shall be the
Purchase Price set forth next to such Investor's name on SCHEDULE I.
(c) The Closing.
(i) The closing of the purchase and sale of the
Debentures and the Warrants (the "CLOSING") shall take place at
the offices of Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
("INVESTORS' COUNSEL") at 10:00 am., local time on: (x) the date
on which the last to be fulfilled or waived of the conditions set
forth in Article 4 hereof and applicable to the Closing shall be
fulfilled or waived in accordance herewith, or (y) such other
time and place and/or on such other date as the Investors and the
Company may agree. The date on which the Closing occurs is
referred to herein as the "CLOSING DATE".
(ii) On the Closing Date, the Company shall deliver to
each Investor (x) one or more Debentures (with the number of and
outstanding principal amount of each debenture to be as
reasonably requested by such Investor) representing the aggregate
Debentures purchased hereunder by such Investor at the Closing
registered in the name of such Investor or its nominee and (y)
the Warrants registered in the name of Investor or its nominee in
such denominations as reasonably requested by such Investor, and
such Investor shall deliver to the Company the Purchase Price for
the Debentures purchased by such Investor hereunder by wire
transfer in immediately available funds to an account designated
in writing by the Company. The delivery of payment by each
Investor of the Purchase Price applicable to it shall constitute
a payment delivered to the Company in complete satisfaction of
such Investor's obligation to pay the Purchase Price hereunder.
In addition, each party shall deliver all documents, instruments
and writings required to be delivered by such party pursuant to
this Agreement at or prior to Closing.
(iii) By written notice deliverable to the Company at any
time up to and including the 270th day following the initial
Closing (such period to be extended 1.5 days for each day after
the 90th day following the Closing Date that there is not
Effective Registration), the Investors may elect to purchase from
the Company an aggregate of up to $1,000,000 worth of additional
Debentures on a pro-rata basis with their initial investment,
together with Warrants exercisable for up to 90,000 Warrant
Shares. The Investors may exercise this election in whole or in
part from time to time, and any Debentures so purchased shall be
deemed for all purposes to be the same type of Debentures issued
at the initial Closing. The Closing for each such subsequent
purchase of Debentures and
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Warrants shall occur on the third (3rd) trading day following the
date of the related notice. The Investors' rights under this
Section 1.1(c)(iii) automatically shall expire to the extent not
exercised by the time the Company fully converts the Debentures
pursuant to Section 8(b) of the Debentures.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to each of the
Investors as of the date hereof and on the Closing Date:
(a) Organization and Qualification; Material Adverse Effect. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any direct or indirect subsidiaries (defined as any entity of
which the Company owns, directly or indirectly, 50% or more of the equity or
voting power) other than the subsidiaries listed on SCHEDULE 2.1(a) attached
hereto. Except where specifically indicated to the contrary, all references in
this Agreement to subsidiaries shall be deemed to refer to all direct and
indirect subsidiaries of the Company. Except where specifically indicated to the
contrary, all references in this Article 2 to the Company shall be deemed to
refer to the Company and its consolidated subsidiaries. Each of the Company and
its subsidiaries is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other than
those in which the failure so to qualify would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any adverse effect on the business,
operations, properties or financial condition of the entity with respect to
which such term is used and which is (either alone or together with all other
adverse effects) material to such entity and other entities controlling or
controlled by such entity taken as a whole, and any material adverse effect on
the transactions contemplated under this Agreement, the Registration Rights
Agreement or any other agreement or document contemplated hereby or thereby.
(b) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Debentures, the Warrants, the Security Agreement and the Registration Rights
Agreement (the "TRANSACTION DOCUMENTS") and to issue the Debentures and the
Warrants in accordance with the terms hereof and thereof, (ii) the execution and
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby and thereby, including the issuance of
the Common Shares and the Warrant Shares, have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors (or any committee or subcommittee thereof) or
stockholders is required, (iii) the Transaction Documents have been duly
executed and delivered by the Company and (iv) the Transaction Documents
constitute valid and binding obligations of the Company enforceable against the
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Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock and 12,000,000 shares of preferred
stock of which 20,000 are designated Series A Junior Preferred; as of October
12, 2000 there were 6,840,430 shares of Common Stock and no shares of preferred
stock issued and outstanding; and, except as set forth on SCHEDULE 2.1(c), no
shares of Common Stock and no shares of preferred stock were reserved for
issuance to persons other than the Investors. All of the outstanding shares of
the Company's Common Stock and preferred stock have been validly issued and are
fully paid and nonassessable. No shares of capital stock are entitled to
preemptive rights and, except as set forth on SCHEDULE 2.1(c), there are no
outstanding options and outstanding warrants for shares of Common Stock
(excluding the Warrants). Except as set forth on SCHEDULE 2.1(c)(I), there are
no other scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights exchangeable for or convertible
into, any shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, or commitments to purchase or acquire, any
shares, or securities or rights convertible or exchangeable into shares, of
capital stock of the Company. Attached hereto as EXHIBIT 2.1(c)(I) is a true and
correct copy of the Company's Certificate of Incorporation (the "CHARTER"), as
in effect on the date hereof, and attached hereto as EXHIBIT 2.1(c)(II) is a
true and correct copy of the Company's By-Laws, as in effect on the date hereof
(the "BY-LAWS").
(d) Issuance of Common Shares. The Common Shares and the Warrant
Shares are duly authorized and reserved for issuance and, upon such conversion
in accordance with the Debentures and/or exercise in accordance with the
Warrants such Common Shares and Warrant Shares, as the case may be, will be
validly issued, fully paid and non-assessable, free and clear of any and all
liens, claims and encumbrances, and (subject to the registration of such shares
in accordance with the applicable provisions of the Securities Act of 1933, as
amended (the "SECURITIES ACT" or the "ACT") and the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") entitled to be traded on the Nasdaq
National Market System (or the American Stock Exchange, the New York Stock
Exchange, or the Nasdaq Small Cap Market collectively with the Nasdaq Small Cap
Market, the "APPROVED MARKETS"), and the holders of such Common Shares and
Warrant Shares shall be entitled to all rights and preferences accorded to a
holder of Common Stock. The outstanding shares of Common Stock are currently
listed on the Nasdaq National Market System.
(e) No Conflicts. The execution, delivery and performance the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby and the issuance of the Debentures,
the Warrants, the Common Shares and the Warrant Shares (collectively, the
"SECURITIES") do not and will not (i) result in a violation of the Company's
Charter or By-Laws or (ii)
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conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any of
its subsidiaries is a party (collectively, "COMPANY AGREEMENTS"), or (iii)
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) 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 (other than in the case of clause (i) above) where such
violation would not reasonably be expected to have a Material Adverse Effect.
The business of the Company and its direct and indirect subsidiaries is being
conducted in material compliance with (i) its Charter and By-Laws, (ii) all
Company Agreements and (iii) all applicable laws, ordinances or regulations of
any governmental entity, except (other than in the case of clause (i) above)
where such violation would not reasonably be expected to have a Material Adverse
Effect. Except for filings, consents and approvals required under applicable
state and federal securities laws or the rules and regulations of the Approved
Markets and covered by the Registration Rights Agreement, the Company is not
required under federal, state, local or foreign law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the Registration
Rights Agreement, the Debentures and the Warrants or to issue and sell the
Debentures, Warrants or the Common Shares and Warrants Shares issuable upon
conversion or exercise thereof except for the registration provisions provided
in the Registration Rights Agreement.
(f) SEC Documents; No Non-Public Information; Financial
Statements. The Common Stock of the Company is registered pursuant to Section
12(g) of the Exchange Act and the Company and its subsidiaries have filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Securities and Exchange Commission ("SEC") pursuant to the
reporting requirements of the Exchange Act, including all such proxy
information, solicitation statement and registration statements, and any
amendments thereto required to have been filed (all of the foregoing including
filings incorporated by reference therein being referred to herein as the "SEC
DOCUMENTS"). The Company has not directly or indirectly provided, and will not
directly or indirectly provide, to the Investors any material non-public
information or any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such SEC Documents, and none of
the SEC Documents 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 SEC Documents contain all material information
concerning the Company and its subsidiaries, and, except as set forth in
Schedule 2.1(f) (which the Company represents does not contain any material
information not previously disclosed or being disclosed on October 13, 2000 in
the
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Company's Form 10-KSB) no event or circumstance has occurred prior to the date
hereof or will have occurred on the Closing Date which would require the Company
to disclose such event or circumstance in order to make the statements in the
SEC Documents not misleading but which has not, or will have not, been so
disclosed.
(g) Financial Statements. The financial statements of the Company
and its subsidiaries included in the SEC Documents comply as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis 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, may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company and its subsidiaries as
of 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
year-end audit adjustments). The audited financial statements of each of the
Company and its subsidiaries for the fiscal year ending June 30, 1999 have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis 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 financial position of the Company and its
subsidiaries, as the case may be, as of 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 year-end audit adjustments).
(h) Principal Exchange/Market. The principal market on which the
Common Stock is currently traded is the Nasdaq National Market System (the
"PRINCIPAL MARKET").
(i) No Material Adverse Change. Except as disclosed in the SEC
Documents and as disclosed on Schedule 2.1(h) (which the Company represents does
not contain any material information not being disclosed on October 13, 2000 in
the Company's Form 10-KSB), since June 30, 1999, no Material Adverse Effect has
occurred or exists, and no event or circumstance has occurred that with notice
or the passage of time or both is reasonably likely to result in a Material
Adverse Effect with respect to the Company or its subsidiaries.
(j) No Undisclosed Liabilities. The Company and its subsidiaries
have no liabilities or obligations not disclosed in the Pre-Agreement SEC
Documents (as defined below), other than those liabilities incurred in the
ordinary course of the Company's or its subsidiaries' respective businesses
since June 30, 1999, which liabilities, individually or in the aggregate, do not
or would not have a Material Adverse Effect on the Company or its direct or
indirect subsidiaries.
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(k) No Undisclosed Events or Circumstances. No material event or
circumstance has occurred or exists with respect to the Company or its direct or
indirect subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
(l) No General Solicitation. Neither the Company, nor any of its
affiliates or any person acting on its or their behalf has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the Securities Act) in connection with the offer or sale of the
Debentures, the Warrants, Common Shares or the Warrant Shares.
(m) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor to its knowledge 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 of the Debentures, the Warrants, the Common Shares or Warrant
Shares under the Act.
The issuance of the Debentures, Warrants, Common Shares or Warrant
Shares to the Investors will not be integrated with any other issuance of the
Company's securities (past, current or future) which requires stockholder
approval under the rules of the Nasdaq National Market System.
(n) Form S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) on Form S-3 under
the Act and rules promulgated thereunder, and Form S-3 is permitted to be used
for the transactions contemplated hereby under the Act and rules promulgated
thereunder.
(o) Intellectual Property. The Company and/or its wholly-owned
subsidiaries owns or has exclusive licenses to use certain patents, copyrights
and trademarks ("INTELLECTUAL PROPERTY") associated with its business. The
Company and its subsidiaries have all intellectual property rights which are
needed to conduct the business of the Company and its subsidiaries as it is now
being conducted or as proposed to be conducted as disclosed in the SEC
Documents. The Company and its subsidiaries have no reason to believe that the
material intellectual property rights which it owns are invalid or unenforceable
or that the use of such intellectual property by the Company or its subsidiaries
infringes upon or conflicts with any right of any third party, and neither the
Company nor any of its subsidiaries has received notice of any such infringement
or conflict, which individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect. The Company and its subsidiaries
have no knowledge of any infringement of its intellectual property by any third
party. There exists no valid basis for a claim by Biota Holdings or its
affiliates against the Company or its affiliates with respect to any of the
intellectual property, including but not limited to the invention of such
intellectual property.
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(p) Poison Pill Provisions. The Company has a stockholder rights
plan. None of the acquisition of Debentures, Warrants, Common Shares or Warrant
Shares nor the deemed beneficial ownership of shares of Common Stock prior to,
or the acquisition of such shares pursuant to, the conversion of Debentures or
the exercise of the Warrants will in any event under any circumstance trigger
the poison pill provisions of any stockholder rights plan or agreement, or a
substantially similar occurrence under any successor or similar plan.
(q) No Litigation. Except as set forth in the reports or
documents filed at least 5 Trading Days prior to the Closing Date by the Company
pursuant to Section 13(a) or 15(d) of the Exchange Act (the "PRE-AGREEMENT SEC
DOCUMENTS"), no litigation or claim (including those for unpaid taxes) against
the Company or any of its subsidiaries is pending or, to the Company's
knowledge, threatened, and no other event has occurred, which if determined
adversely could reasonably be expected to have a Material Adverse Effect on the
Company or could reasonably be expected to materially and adversely affect the
transactions contemplated hereby. There is no legal proceeding described in the
Pre-Agreement SEC Documents that could reasonably be expected to have a Material
Adverse Effect on the Company.
(r) Brokers. Except as set forth on SCHEDULE 2.1(r), 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 by the Company or any
Investor relating to this Agreement or the transactions contemplated hereby. The
Company shall be responsible for any payments contemplated by SCHEDULE 2.1(r).
(s) Other Investors. Except as set forth on SCHEDULE 2.1(s)(i),
there are no outstanding securities issued by the Company that are entitled to
registration rights under the Act. Except as set forth on SCHEDULE 2.1(s)(ii),
there are no outstanding securities issued by the Company that are directly or
indirectly convertible into, exercisable into, or exchangeable for, shares of
Common Stock of the Company, or that have anti-dilution or similar rights that
would be affected by the issuance of the Debentures, the Common Shares, the
Warrants or the Warrant Shares.
(t) Certain Transactions. Except as set forth on SCHEDULE 2.1(t)
none of the officers, directors, or key 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.
(u) 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
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(collectively, the "COMPANY PERMITS"), except where failure to possess such
Company Permits would not have a Material Adverse Effect on the Company and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits except for
such Company Permits the failure of which to possess, or the cancellation or
suspension of which, would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. To the best of its knowledge, neither
the Company nor any of its subsidiaries is in material conflict with, or in
material default or material violation of, any of the Company Permits. Since
June 30, 1999, neither the Company nor any of its subsidiaries has received any
notification with respect to possible material conflicts, material defaults or
material violations of applicable laws.
(v) 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 direct and
indirect 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
without a significant increase in cost.
(w) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's management, 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.
(x) Environmental Matters. The Company and each of its
subsidiaries is in compliance in all respects with all applicable state and
federal environmental laws except where any such non-compliance would not
reasonably be expected to have a Material Adverse Effect on the Company and no
event or condition has occurred that may interfere with the compliance by the
Company or any of its subsidiaries with any environmental law or that may give
rise to any liability under any environmental law that, individually or in the
aggregate, would have a Material Adverse Effect.
(y) Solvency.
(i) Based on the financial condition of the Company as of
the Closing Date, 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.
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(ii) Based on the financial condition of the Company as
of the Closing Date, the Company's assets do not constitute
unreasonably small capital to carry out its business for fiscal
year 2001 as now conducted and as proposed to be conducted
including the Company's fiscal year 2001 capital needs taking
into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and
capital availability thereof.
(iii) 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). Based on the financial condition of the Company as of
the Closing Date, 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.
(iv) Neither the Company nor any of its subsidiaries is
subject to any bankruptcy, insolvency or similar proceeding.
(z) Taxes. All federal, state, city and other tax returns,
reports and declarations required to be filed or extended by or on behalf of the
Company and each of its subsidiaries have been filed or extended and all such
filed returns are complete and accurate and disclose all taxes (whether based
upon income, operations, purchases, sales, payroll, licenses, compensation,
business, capital, properties or assets or otherwise) required to be paid in the
periods covered thereby. All taxes required to be withheld by or on behalf of
the Company or any such subsidiary in connection with amounts paid or owing to
any employees, independent contractor, creditor or other party have been
withheld, and such withheld taxes have either been duly and timely paid to the
proper governmental authorities or set aside in accounts for such purposes.
(aa) Title to Properties; Encumbrances. SCHEDULE 2.1(aa) contains
a complete and accurate list of all material real property, leaseholds, or other
interests therein owned by the Company and its subsidiaries. Each of the Company
and its subsidiaries owns (with good and marketable title in the case of real
property) all the properties and assets (whether real, personal, or mixed and
whether tangible or intangible ("COMPANY PROPERTY")) that it purports to own.
All material Company Property is free and clear of all encumbrances and are not,
in the case of real property (which, for this purpose, shall not include the
Company's interest as tenant in leaseholds), subject to any rights of way,
building use restrictions, exceptions, variances, reservations or limitations of
any nature, except, with respect to all such properties and assets, (a)
mortgages, liens or security interests shown on SCHEDULE 2.1(aa) as securing
specified liabilities or obligations, with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(b) liens for current taxes not yet due, and (c) with respect to real property,
(i) minor imperfections of title, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company or any of its
subsidiaries; and (ii) zoning laws and
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other land use restrictions (including, but not limited to, easements of
records) that do not impair the present or anticipated use of the property
subject thereto. All buildings, plans, and structures owned by the Company or
any of its subsidiaries lie wholly within the boundaries of the real property
owned by the Company or such subsidiaries, and do not encroach upon the property
of, or otherwise conflict with the property rights of, any other person.
(bb) No Reliance on Investors. The Company acknowledges and
agrees that each Investor is acting solely in the capacity of an arm's length
purchaser with respect to this Agreement and the Registration Rights Agreement
and the performance under the Debentures and the Warrants and the transactions
contemplated hereby and thereby. The Company further acknowledges that no
Investor is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the Registration Rights
Agreement and the performance under the Debentures and the Warrants and the
transactions contemplated hereby and thereby. The Company further represents to
the Investor that the Company's decision to enter into this Agreement and the
Registration Rights Agreement and the performance under the Debentures and the
Warrants has been based solely on the independent evaluation by the Company and
its representatives.
(cc) Foreign Corrupt Practices Act. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government or party official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(dd) Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any anti-takeover provision contained in the Company's Certificate
of Incorporation or By-Laws or Delaware law which is or could become applicable
to the Investors as a result of the transactions contemplated by the Transaction
Documents, including, without limitation, the Company's issuance of the
Securities and the Investors' ownership of the Securities.
(ee) Acknowledgement of Dilution. The number of shares of Common
Stock constituting Common Shares and Warrant Shares may increase substantially
in certain circumstances. The Company acknowledges that its obligation to issue
shares of Common Stock in accordance with the Transaction Documents is absolute
and unconditional, regardless of the dilution that such issuance may have on
other stockholders of the Company.
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(ff) MFN and Variable Rate Transactions. The Company has not
entered into any MFN Transaction or Variable Rate Transaction (other than
transactions entered into with the Investors), pursuant to which: (i) securities
or potential obligations to issue securities are still outstanding or (ii) the
issuance or exercise, as the case may be, of the Securities trigger, or may in
the future trigger, an adjustment.
The term "MFN Transaction" shall mean a transaction in which
the Company issues or sells any securities in a capital raising transaction or
series of related transactions (the "MFN Offering") which grants to an investor
(the "MFN Investor") the right to receive additional shares (including without
limitation as a result of a lower conversion, exchange or exercise price but
excluding customary antidilution protections) based upon subsequent transactions
of the Company on terms more favorable than those granted to such MFN Investor
in such MFN Offering. As used herein, the term "Variable Rate Transaction" shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of, Common Stock either (x) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the Common Stock at any time
after the initial issuance of such debt or equity securities, or (y) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity security or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock (but
excluding standard stock split anti-dilution provisions), or (ii) any securities
of the Company pursuant to an "equity line" structure which provides for the
sale, from time to time, of securities of the Company which are registered for
resale under the Act. (gg) Insurance. The Company maintains insurance policies
of a type and in amounts customary for similar companies. Without limiting the
foregoing, the Company maintains product liability coverage in the amount of
$11,000,000 and director and officer insurance in the amount of $3,000,000.
Section 2.2 Representations and Warranties of the Investors. Each of
the Investors, severally (as to itself only) and not jointly hereby makes the
following representations and warranties to the Company as of the date hereof
and on the Closing Date:
(a) Organization and Qualification. Such Investor is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and is duly qualified to do business and in
good standing in each jurisdiction in which 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 reasonably be expected to have a
Material Adverse Effect on such Investor.
(b) Authorization; Enforcement. (i) Such Investor has the
requisite power and authority to enter into and perform the Transaction
Documents to purchase the Debentures and to acquire the Warrants being sold to
it hereunder and to acquire the Common Shares and the Warrant Shares, (ii) the
execution and delivery of the
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Transaction Documents by such Investor and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
corporate or partnership action, and (iii) the Transaction Documents constitute
valid and binding obligations of such Investor enforceable against such Investor
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of the
Transaction Documents and the performance under the Debentures and Warrants and
the consummation by such Investor of the transactions contemplated hereby and
thereby do not and will not (i) result in a violation of such Investor's
organizational documents, or (ii) conflict with any agreement, indenture or
instrument to which such Investor is a party, or (iii) result in a material
violation of any law, rule, or regulation, or any order, judgment or decree of
any court or governmental agency applicable to such Investor. Such Investor is
not required to obtain any consent or authorization of any governmental agency
in order for it to perform its obligations under the Transaction Documents.
(d) Investment Representations.
(i) Access to Other Information. Such Investor
acknowledges that the Company has made available to such Investor
the opportunity to examine such additional documents from the
Company and to ask questions of, and receive full answers from,
the Company concerning, among other things, the Company, its
financial condition, its management, its prior activities and any
other information which such Investor considers relevant or
appropriate in connection with entering into this Agreement.
(ii) Risks of Investment. Such Investor acknowledges that
the Securities and the Common Shares and Warrant Shares issuable
upon conversion and/or exercise of the Securities have not been
registered under the Act. Such Investor is familiar with the
provisions of Rule 144 and understands that in the event all of
the applicable requirements of Rule 144 are not satisfied,
registration under the Act or some other exemption from the
registration requirements of the Act will be required in order to
dispose of the Securities and the Common Shares and Warrant
Shares issuable upon conversion and/or exercise of the rights
granted in the Securities, and that such Investor may be required
to hold the Securities and the Common Shares and Warrant Shares
issuable upon conversion and/or exercise of the Securities
received under this Agreement for a significant period of time
prior to reselling them, subject to the Company successfully
registering the Common Shares and Warrant Shares pursuant to the
Registration Rights Agreement. Such Investor is capable of
assessing the risks of an investment in the Securities and is
fully aware of the economic risks thereof.
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(iii) Investment Representation. Such Investor is
purchasing the Debentures, and Warrants, and may purchase the
Common Shares and Warrants Shares in each case, for its own
account and not with a view to distribution in violation of any
securities laws. Such Investor has no present intention to sell
the Debentures, Warrants, Common Shares or Warrant Shares in
violation of federal or state securities laws and such Investor
has no present arrangement (whether or not legally binding) to
sell the Debentures, Warrants, Common Shares or Warrant Shares to
or through any person or entity; provided, however, that by
making the representations herein, such Investor does not agree
to hold the Debentures, Warrants, Common Shares or Warrant Shares
for any minimum or other specific term and reserves the right to
dispose of the Debentures, Warrants, Common Shares or Warrant
Shares at any time in accordance with federal and state
securities laws applicable to such disposition.
(iv) Restricted Securities. It acknowledges and
understands that the terms of issuance have not been reviewed by
the SEC or by any state securities authorities and that the
Securities have been issued in reliance on the certain exemptions
for non-public offerings under the Act, which exemptions depend
upon, among other things, the representations made and
information furnished by such Investor, including the bona fide
nature of such Investor's investment intent as expressed above.
(v) Ability to Bear Economic Risk. It is an "accredited"
investor as defined in Rule 501 of Regulation D, as amended,
under the Act, and that it (i) is able to bear the economic risk
of its investment in the Debentures, (ii) is able to hold the
Debentures for an indefinite period of time, (iii) can afford a
complete loss of its investment in the Debentures and (iv) has
adequate means of providing for its current needs.
(vi) No Public Solicitation. At no time was such Investor
presented with or solicited by any general mailing, leaflet,
public promotional meeting, newspaper or magazine article, radio
or television advertisement, or any other form of general
advertising or general solicitation in connection with the
issuance.
(vii) Reliance by the Company. Such Investor understands
that the Debentures and Warrants are being or will be, as the
case may be, offered and sold and that the Common Shares or
Warrant Shares, as the case may be, will be issued, in reliance
on transactional exemptions from the registration requirements of
federal and state securities laws and that the Company is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Investor
set forth herein in order to determine the applicability of such
exemptions and the suitability of such Investor to acquire the
Debentures and Warrants.
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(e) Brokers. Such Investor has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby.
ARTICLE 3
COVENANTS
Section 3.1 Registration and Listing; Effective Registration. For so
long as the Securities are outstanding, the Company will cause the Common Stock
issuable upon the exercise or conversion of the Securities to continue at all
times to be registered under Section 12(b) or Section 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such reporting and filing obligations. Until such time as no Securities are
outstanding, the Company shall continue the listing or trading of the Common
Stock on the Nasdaq National Market System or one of the other Approved Markets
and comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Approved Market on which the Common
Stock is listed. The Company shall cause the Common Stock to be listed on the
Nasdaq National Market System no later than the registration of the Common Stock
under the Act, and at all times shall continue such listing(s) on one of the
Approved Markets. As used herein and in the Registration Rights Agreement, the
Debenture and the Warrants, the term "EFFECTIVE REGISTRATION" shall mean: (i)
the Company is in compliance with the Transaction Documents; (ii) the resale of
Registrable Securities (as defined in the Registration Rights Agreement) is
covered by an effective registration statement and such registration statement
is not subject to any suspension or stop orders; (iii) the resale of such
securities may be effected pursuant to a current and deliverable prospectus that
is not subject to any blackout or similar circumstance; (iv) the securities are
listed on an Approved Market and are not subject to any trading suspension; (v)
no Interfering Event (as described in the Registration Rights Agreement) then
exists; and (vi) none of the Company or any direct or indirect subsidiary of the
Company is subject to any bankruptcy, insolvency or similar proceeding.
Section 3.2 Debentures on Conversion and Warrants on Exercise.
(a) Upon any conversion by an Investor (or then holder of
Debentures) of the Debentures pursuant to the terms thereof, the Company shall
issue and deliver to such Investor (or holder) within three (3) Trading Days of
the Conversion Date, a new Debenture for the principal amount of Debentures
which such Investor (or holder) has not yet elected to convert but which is
evidenced in part by the Debenture(s) submitted to the Company in connection
with such conversion (with the number of and denomination of such new
debenture(s) designated by such Investor or holder).
(b) Upon any partial exercise by an Investor (or then holder of
the Warrants) of the Warrants, the Company shall issue and deliver to such
Investor (or holder) within three (3) days of the date on which such Warrants
are exercised, a new Warrant or Warrants representing the number of adjusted
Warrant Shares and/or
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Common Shares, as the case may be, in accordance with the terms of Section 3 of
such Warrants.
Section 3.3 Replacement Debentures and Warrants.
(a) The Debentures held by any Investor (or then holder) may be
exchanged by such Investor (or such holder) at any time and from time to time
for Debentures with different denominations representing an equal aggregate
number of Debentures or to reflect the actual Conversion Price pursuant to
Section 7(c) of the Debentures, as requested by such Investor (or such holder)
upon surrendering the same. No service charge will be made for such registration
or transfer or exchange.
(b) The Warrants will be exchangeable at the option of the
Investor (or then holder of the Warrants) at the office of the Company for other
Warrants of different denominations entitling the holder thereof to purchase in
the aggregate the same number of Warrant Shares and/or Common Shares, as the
case may be, as are purchasable under such Warrants. No service charge will be
made for such transfer or exchange.
Section 3.4 Expenses. At Closing, the Company shall reimburse the
Investors for all costs and expenses (including reasonable legal fees and
disbursements) incurred by the Investors in connection with the Transaction
Documents and the transactions contemplated thereby.
Section 3.5 Securities Compliance. The Company shall notify the SEC, in
accordance with their requirements, of the transactions contemplated by the
Transaction Documents and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Debentures hereunder, the Common Shares issuable
upon conversion thereof, the Warrants and the Warrant Shares issuable upon
exercise of the Warrants.
Section 3.6 Dividends or Distributions; Purchases of Equity Securities.
Except as provided in this Section 3.6 to the contrary, for so long as any
Debentures or Warrants remain outstanding, the Company agrees that it shall not
(a) declare or pay any dividends or make any distributions to any holder or
holders of Common Stock (other than dividends payable in Common Stock) in their
capacity as stockholders, or (b) purchase or otherwise acquire for value,
directly or indirectly, any shares of Common Stock or other equity security of
the Company; provided that the Company may purchase or acquire shares of Common
Stock that are hereafter issued to employees pursuant to employment, stock
repurchase or other similar agreements.
Section 3.7 Notices. The Company agrees to provide all holders of
Debentures and Warrants with copies of all notices and information, including
without limitation notices and proxy statements in connection with any meetings,
that are provided to the holders of shares of Common Stock, contemporaneously
with the delivery of such notices or information to such Common Stock holders.
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Section 3.8 Use of Proceeds. The Company agrees that the proceeds
received by the Company from the sale of the Debentures and Warrants hereunder
shall be used for working capital purposes.
Section 3.9 Notification of Additional Financings. The Company agrees
that until the twelve (12) month anniversary of the Closing Date, the Investors
shall have a right of first refusal with respect to all capital raising
transactions (other than firm commitment underwritten public offerings with
aggregate net proceeds to the Company of no less than $7,000,000) as set forth
in this Section 3.9. The Company shall give advance written notice to the
Investors prior to any offer or sale of any of its equity securities or any
securities convertible into or exchangeable or exercisable for such securities
in a non-public capital raising transaction ("FINANCING TRANSACTION"). The
Investors shall have fifteen (15) Trading Days from receipt of such notice to
deliver a written notice to the Company that one or more of such Investors
elects to exercise its right of first refusal with respect to all or a part of
such issuance upon the terms and conditions set forth in the Company's notice.
If, subsequent to the Company giving notice to the Investors hereunder, the
terms and conditions of the proposed Financing Transaction are changed in any
way, the Company shall be required to provide a new notice to the Investors
hereunder and the Investors shall have the right of refusal again to purchase
all or a part of such offering on such changed terms and conditions as provided
hereunder. In such event, if such other Financing Transaction provides for
non-cash consideration, in whole or in part, from such other potential
investor(s), the Investors shall still have the right to participate in the
Financing Transaction as provided herein, provided that cash or cash equivalents
may be substituted by the Investors for such non-cash consideration. This right
of first refusal shall continue even if the Investors elect not to participate
in one or more Financing Transactions. The Investors acknowledge that the
Company shall have the right to sell up to $1,000,000 in debentures having
identical terms as the Debentures to the Presbyterian Health Foundation and
other prospective investors (such other prospective investors to be approved by
the Investors) without triggering the provisions of this Section 3.9.
Section 3.10 Reservation of Stock Issuable Upon Conversion and Upon
Exercise of the Warrants. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the Debentures and the exercise of
the Warrants, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Debentures and
the full exercise of the Warrants and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Debentures and the full exercise of the
Warrants, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
shareholder approval. Without in any way limiting the foregoing, the Company
agrees to reserve and at all times keep available solely for purposes of
conversion of Debentures and the exercise of the Warrants such number of
authorized but unissued shares of Common Stock that is at least equal to 200% of
the aggregate shares issuable upon conversion of
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Debentures, and 200% of the aggregate shares issuable on exercise of the
Warrants, which number shall be appropriately adjusted for any stock split,
reverse split, stock dividend or reclassification of the Common Stock. If the
Company falls below the reserves specified in the immediately preceding sentence
and does not cure such non-compliance within 30 days of its start, then the
Investors will be entitled to the compensatory payments specified in Section
2(b)(i) of the Registration Rights Agreement. If at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all the then outstanding Debentures or the full exercise of the
Warrants, the Investors shall be entitled to, inter alia, the premium price
redemption rights provided in the Registration Rights Agreement.
Section 3.11 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article 4 of this Agreement.
Section 3.12 Limitations on Issuance of Debt and Transfers;
Subordination.
(a) So long as any Debentures remain outstanding, the Company
agrees that neither the Company nor any of its subsidiaries shall (i) create,
incur, assume, guarantee, secure or in any manner become liable in respect of
any debt financing, which is senior to the Debentures; or (ii) create, incur or
permit to exist any security interest, lien or other encumbrance on or with
respect to any of the assets of the Company or its subsidiaries in connection
with any debt financing; provided, in the case of both (i) and (ii), that the
Company may enter into and grant security interests in connection with a bona
fide line of credit in the amount of at least $1,000,000 negotiated on an arm's
length basis with a United States commercial bank (or other recognized lender
primarily in the business of making such loans) entering into an intercreditor
agreement with the Investors on terms acceptable to the Investors and Investors'
Counsel.
(b) The Company shall not contribute or transfer its assets to
any of its subsidiaries, other than a subsidiary that has delivered its
guarantee to the Investor in form and substance satisfactory to the Investors.
Section 3.13 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Debentures, Warrants, Common Shares and Warrant Shares, as
required under Regulation D and to provide a copy thereof to each Investor
promptly after such filing. The Company shall, on or before each Closing Date,
take such action as the Company shall have reasonably determined is necessary to
qualify the Debentures, Warrants, Common Shares and Warrant Shares for sale to
the Investors 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 Investor on or prior to the Closing Date.
Section 3.14 Nasdaq Rule. The Investors shall, in the aggregate, be
entitled to convert Debentures into a total of 1,367,402 Common Shares (19.99%
of the Common Stock issued and outstanding on the date hereof, which number
shall be subject to readjustment for any stock split, stock dividend or
reclassification of the Common Stock)
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(the "20% CAP"). Each Investor shall be entitled to convert that amount of its
Debentures into such total number of Common Shares equal to such Investor's pro
rata share of the 20% Cap. Once an Investor has received its total pro rata
share upon conversion of its Debentures, it may request that the Company redeem
its remaining Debentures at a price equal to the Premium Redemption Price (as
defined in the Registration Rights Agreement) plus accrued but unpaid interest
and default payments in effect at that time. If an Investor has converted all of
its Debentures, but has not depleted the total number of pro rata shares
allocated to it, its remaining pro rata shares shall be reallocated amongst the
Investors still holding Debentures on a pro rata basis. The restrictions and
redemption obligations set forth in this Section 3.14 shall cease to apply if
(a) the Company obtains written shareholder approval to issue Common Shares in
excess of the 20% Cap pursuant to Nasdaq Rule 4460 or (b) the Company provides
the Investors with irrevocable written notice, based upon the advice of its
counsel, that any such issuance of Common Shares upon conversion of the
Debentures is not subject to the 20% Cap pursuant to Nasdaq Rule 4460. The
Company will use its best efforts promptly to obtain either the shareholder
approval or the irrevocable notice described in the preceding sentence and to
provide the Investors with a copy of same: without limiting the foregoing, the
Company shall solicit the aforementioned shareholder approval at the next
shareholders meeting (for whatever purpose it may be called) which, in any
event, shall not be later than [DATE] in which the Company will solicit the
aforementioned shareholder approval, will solicit proxies in favor of issuing
Common Shares in excess of the 20% Cap and will use its best efforts to have all
affiliates of the Company which own or control shares of Common Stock to vote
their shares in favor of such resolution.
Section 3.15 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 3.16 Press Release. Immediately following the Closing, the
Company shall issue a press release in the form set forth in SCHEDULE 3.16
hereto. Investors shall have the opportunity to review such press release prior
to its issuance. No press release shall name the Investors except as shall be
required by law. If the Company fails to issue a press release within 1 business
day of the Closing, the Investors may issue a press release covering the Closing
and complying with any legal requirement applicable to the Investors.
Section 3.17 Form 10-KSB. On the Closing Date, the Company shall file a
Form 10-KSB with the SEC which discloses the transactions contemplated by the
Transaction Documents. Investors shall have the opportunity to review such Form
10-KSB prior to its filing.
Section 3.18 Reporting Lack of Effective Registration. The Company
shall promptly notify each Investor in writing if there shall ever be a lack of
Effective Registration, as well as when Effective Registration is
re-established.
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ARTICLE 4
CONDITIONS TO CLOSINGS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Debentures and Warrants. The obligation hereunder of the Company to
issue and/or sell the Debentures and Warrants to the Investors at the Closing
(unless otherwise specified) is subject to the satisfaction, at or before the
Closing, of each of the applicable conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
(a) Accuracy of the Investors' Representations and Warranties.
The representations and warranties of each Investor will be true and correct as
of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties as of an earlier date, which will be
true and correct as of such date).
(b) Performance by the Investors. Each Investor shall have
performed all agreements and satisfied all conditions required to be performed
or satisfied by such Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
(d) Purchase Price. The Company shall have received the aggregate
Purchase Price from the Investors.
Section 4.2 Conditions Precedent to the Obligation of the Investors to
Purchase the Debentures and Warrants. The obligation hereunder of each Investor
to acquire and pay for the Debentures and Warrants at the Closing (unless
otherwise specified) is subject to the satisfaction, at or before the Closing,
of each of the applicable conditions set forth below. These conditions are for
each Investor's benefit and may be waived by each Investor at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects (except for representations and warranties that are already
qualified as to materiality or knowledge, which shall be true and correct) as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties as of an earlier date, which shall be
true and correct as of such date).
(b) Performance by the Company. The Company shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Company at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive,
judicial or administrative order, decree, ruling or injunction shall have been
enacted, entered,
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promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
(d) Opinion of Counsel. At the Closing, the Investors shall have
received an opinion of the independent counsel of the Company, in the form
attached hereto as EXHIBIT 4.2(d) and such other opinions, certificates and
documents as the Investors or their counsel shall reasonably require incident to
the Closing.
(e) Registration Rights Agreement. The Company and the Investors
shall have executed and delivered the Registration Rights Agreement in the form
and substance of EXHIBIT 4.2(e) attached hereto.
(f) Adverse Changes. No event which had or is likely to have, in
the judgment of the Investors, a Material Adverse Effect on the Company or any
of its direct or indirect subsidiaries shall have occurred.
(g) Officer's Certificate. The Company shall have delivered to
the Investors a certificate in form and substance of EXHIBIT 4.2(g) attached
hereto, executed by an officer of the Company, certifying as to satisfaction of
closing conditions, incumbency of signing officers, and the true, correct and
complete nature of the Charter, By-Laws, good standing and authorizing
resolutions of the Company.
(h) Debentures and Warrants. The Investors shall have received
certificates representing the Debentures and Warrants in the form and substance
of EXHIBIT A and EXHIBIT B hereto.
(i) Counsel Fees. The Company shall have paid all the incurred
and estimated fees and expenses of Investors' Counsel.
(j) Due Diligence. Each Investor shall have completed its
financial, accounting, operational and legal due diligence in a manner
satisfactory to such Investor in its sole discretion.
ARTICLE 5
LEGEND AND STOCK
The Company will issue one or more certificates representing the
Debentures and the Warrants in the name of the Investor and in such
denominations to be specified by the Investor prior to (or from time to time
subsequent to) Closing. Each certificate representing the Debentures and the
Warrants and any shares of Common Stock issued upon conversion or exercise
thereof initially shall be stamped or otherwise imprinted with a legend
substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE TRANSFERRED,
ASSIGNED, SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
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REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
BECAUSE OF AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Debentures and reissue or issue Warrants,
as the case may be, without the legend set forth above at such time as (i) the
holder thereof is permitted to dispose of such Debentures and/or Warrants and
Common Stock issuable upon conversion or exercise thereof pursuant to Rule 144
under the Act, or (ii) such Debentures and/or Warrants are sold to a purchaser
or purchasers who (in the opinion of counsel to the seller or such purchaser(s),
in form and substance reasonably satisfactory to the Company and its counsel)
are able to dispose of such shares publicly pursuant to an effective
registration or exemption.
Prior to the Registration Statement (as defined in the Registration
Rights Agreement) being declared effective, any Common Shares issued pursuant to
conversion of Debentures or Warrant Shares issued upon exercise of the Warrants
shall bear a legend in the same form as the legend indicated above. Upon such
Registration Statement becoming effective, or Rule 144 under the Act becoming
available the Company agrees to promptly, but no later than three (3) Trading
Days thereafter, issue new certificates representing such Common Shares and
Warrant Shares without such legend. Except as provided in Section 2(f) of the
Registration Rights Agreement, any Common Shares issued pursuant to conversion
of Debentures or shares of Common Stock issued upon exercise of the Warrants
after the Registration Statement has become effective shall be free and clear of
any legends, transfer restrictions and stop orders. Notwithstanding the removal
of such legend, each Investor agrees to sell the Common Shares and Warrant
Shares represented by the new certificates in accordance with the applicable
prospectus delivery requirements (if copies of a current prospectus are provided
to such Investor by the Company) or in accordance with an exemption from the
registration requirements of the Act.
Nothing herein shall limit the right of any holder to pledge these
securities pursuant to a bona fide margin account or lending arrangement.
ARTICLE 6
TERMINATION
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and a majority in interest of the Investors.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors of the Company or by any of the Investors at
any time if the Closing shall not have been consummated by the third business
day following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to xxx for any
breach by the other party (or parties).
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ARTICLE 7
MISCELLANEOUS
Section 7.1 Stamp Taxes. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Securities and
the shares of Common Stock issued upon conversion or exercise thereof.
Section 7.2 Specific Performance; Consent to Jurisdiction; Jury Trial.
(a) The Company and the Investors acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of the
Transaction Documents were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) THE COMPANY AND EACH OF THE INVESTORS (I) HEREBY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT, THE
NEW YORK STATE COURTS AND OTHER COURTS OF THE UNITED STATES SITTING IN NEW YORK
COUNTY, NEW YORK FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT AND (II) HEREBY WAIVES, AND AGREES NOT TO
ASSERT IN ANY SUCH SUIT ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT,
ACTION OR PROCEEDING IS IMPROPER. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
COMPANY AND EACH OF THE INVESTORS CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF 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 IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
(c) THE COMPANY AND EACH INVESTOR HEREBY WAIVES ALL RIGHTS TO A
TRIAL BY JURY.
Section 7.3 Entire Agreement; Amendment. This Agreement, together with
other Transaction Documents and the agreements and documents executed in
connection herewith and therewith, contains the entire understanding of the
parties with respect to the matters covered hereby and thereby, supercedes any
prior understanding, memoranda or other written or oral agreements between or
among any of them respecting the matters covered hereby and thereby and, except
as specifically set forth herein or therein, neither the Company nor any
Investor 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 a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
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Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing by mail, facsimile or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
ZymeTx, Inc.
000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attention: G. Xxxx Xxxxxx
Facsimile: (000) 000-0000
with copies to:
Xxxxxxxx XxXxxx XxXxxxxxx XxXxx & Xxxxxx, P.C.
Twelfth Floor
One Leadership Square
000 Xxxxx Xxxxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
to the Investors:
To each Investor at the address and/or fax
number set forth on SCHEDULE 1 of this
Agreement.
with copies to:
Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other parties
hereto.
Section 7.5 Indemnity. In consideration of the Investors' execution and
delivery of the Transaction Documents and in addition to all of the Company's
other obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless the Investors and all of their partners,
officers, directors, employees, members and direct or indirect investors and any
of the foregoing persons' agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES")
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from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) the
status of the Investor or holder of the Securities as investors in the Company,
and (d) the enforcement of this Section. Notwithstanding the foregoing,
Indemnified Liabilities shall not include any liability of any Indemnitee
arising solely out of such Indemnitee's willful misconduct or fraudulent
action(s). To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 7.5 shall be the same as those set forth in Section 6 (other than
Section 6(b)) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and
Company's right to assume the defense of claims.
Section 7.6 Waivers. No waiver by any party 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 other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.7 Headings. 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.
Section 7.8 Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The parties hereto may amend
this Agreement without notice to or the consent of any third party. The Company
may not assign this Agreement or any rights or obligations hereunder without the
prior written consent of all Investors (which consent may be withheld for any
reason in their sole discretion). No Investor may assign this Agreement (in
whole or in part) or any rights or obligations hereunder without the consent of
the Company (which shall not be unreasonably withheld), except that an
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Investor may assign its rights hereunder in connection with an assignment of
Debentures or Warrants.
Section 7.9 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.10 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE.
Section 7.11 Survival. The representations and warranties and the
agreements and covenants of the Company and each Investor contained herein shall
survive the Closing.
Section 7.12 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
Section 7.13 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any Investor
without the express written agreement of such Investor, unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. The Company agrees that it will deliver a copy of
any public announcement regarding the matters covered by this Agreement or any
agreement and document executed herewith to each Investor and any public
announcement including the name of an Investor to such Investor, reasonably in
advance of the release of such announcements.
Section 7.14 Severability. The parties acknowledge and agree that the
Investors are not agents, affiliates or partners of each other, that all
representations, warranties, covenants and agreements of the Investor hereunder
are several and not joint, that no Investor shall have any responsibility or
liability for the representations, warrants, agreements, acts or omissions of
any other Investor, and that any rights granted to "Investors" hereunder shall
be enforceable by each Investor hereunder.
Section 7.15 Like Treatment of Holders; Redemption. Neither the Company
nor any of its affiliates shall, directly or indirectly, pay or cause to be paid
any consideration (immediate or contingent), whether by way of interest, fee,
payment for the redemption or conversion of Debentures or exercise of the
Warrants, or otherwise, to any holder of Debentures or Warrants, for or as an
inducement to, or in connection with the solicitation of, any consent, waiver or
amendment of any terms or provisions of the Transaction Documents unless such
consideration is required to be paid to all holders of Debentures and Warrants
bound by such consent, waiver or amendment whether or not such holders so
consent, waive or agree to amend and whether or not such holders tender their
Debentures or Warrants for redemption, conversion or exercise. The Company shall
not, directly or indirectly, redeem any Debentures or Warrants unless such offer
of
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redemption is made pro rata to all holders of Debentures or Warrants, as the
case may be, on identical terms.
Section 7.16 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.
Section 7.17 Remedies. Each Investor and each permitted assignee shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any person having any rights under any provision of the Transaction
Documents shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of the Transaction Documents and to exercise all other rights granted
by law. Each Investor and each permitted assignee without prejudice may
withdraw, revoke or suspend its pursuit of any remedy at any time prior to its
complete recovery as a result of such remedy.
Section 7.18 Days. Unless the context refers to "business days" or
"trading days," all references herein to "days" shall mean calendar days.
Section 7.19 Rescission and Withdrawal Right. Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
the Transaction Documents, wherever the Investors exercise 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 the
Investors may rescind or withdraw, in their 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.
Section 7.20 Obligations Absolute. The Company's obligations under the
Transaction Documents are unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction.
Signature Page Follows
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
COMPANY:
ZYMETX, INC.
By:
---------------------------------
Xxxxxx X. Xxxxxx
Chief Executive Officer
INVESTORS:
PALLADIN OPPORTUNITY FUND, LLC.
By: Palladin Asset Management, L.L.C.
Managing Member
By:
---------------------------------
Xxxxxx Xxxxxxx
Managing Member
HALIFAX FUND, L.P.
By: The Palladin Group, L.P.
Attorney-in-Fact
By: Palladin Capital Management, LLC
General Partner
By:
Xxxxxx Xxxxxxx
Managing Member
Signature page to ZymeTx Purchase Agreement
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EXHIBITS AND SCHEDULES
Schedule 1 List of Investors
Schedule 2.1(a) List of Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(c)(i) Capitalization
Schedule 2.1 (r) Brokers
Schedule 2.1 (s)(i) Outstanding securities entitled to
registration rights
Schedule 2.1 (s)(ii) Outstanding securities affected by the
issuance of Debentures, etc.
Schedule 2.1(t) Certain Transactions
Schedule 2.1(aa) Real Property
Schedule 3.16 Press Release
Schedule 4.2(g) Officer's Certificate
Exhibit A Form of Debenture
Exhibit B Form of Warrant
Exhibit C Form of Security Agreement
Exhibit 2.1(c)(i) Certificate of Incorporation of the Company
Exhibit 2.1(c)(ii) By-Laws of the Company
Exhibit 4.2(d) Opinion of Company Counsel
Exhibit 4.2(e) Registration Rights Agreement
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SCHEDULE 1
OUTSTANDING
PRINCIPAL NUMBER
AMOUNT OF
INVESTOR OF DEBENTURES WARRANTS PURCHASE PRICE PRO RATA SHARE
-------- ------------- -------- -------------- --------------
Palladin Opportunity Fund LLC [$1,000,000] 90,000 [$1,000,000] 50%
Halifax Fund, L.P. [$1,000,000] 90,000 [$1,000,000] 50%
