Exhibit 4.1
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
February 2, 2006 among China Biopharmaceuticals Holdings, Inc., a Delaware
corporation (the "Company"), and the purchaser identified on the signature page
hereto (including its successors and assigns, a "Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to the Purchaser, and the Purchaser desires to purchase from
the Company, securities of the Company as more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Warrants (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act. With respect to the
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as the Purchaser
will be deemed to be an Affiliate of the Purchaser.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the
Transaction Documents have been executed and delivered by the
applicable parties thereto, and all conditions precedent to (i) the
Purchaser's obligations to pay the Investment Amount and (ii) the
Company's obligations to deliver the Securities have been satisfied or
waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any other class of securities into which
such securities may hereafter have been reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company
or the Subsidiaries which would entitle the holder thereof to acquire
at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly,
Common Stock.
"Company Counsel" means Xxxxx & XxXxxxxx, LLP.
"Disclosure Schedules" shall have the meaning ascribed to such
term in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term
in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or
securities exercisable or exchangeable for or convertible into shares
of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease
the exercise, exchange or conversion price of any such securities, and
(c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors,
provided any such issuance shall only be to a Person which is, itself
or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities
primarily for the purpose of raising capital or to an entity whose
primary business is investing in securities.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Knowledge" means, with respect to any statement made to the
knowledge of a party, that the statement is based upon actual knowledge
of the officers of such party having responsibility for the matter or
matters that are the subject of the statement, after due inquiry.
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"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"Investment Amount" means, as to the Purchaser, the aggregate
amount to be paid for Shares and Warrants purchased hereunder as
specified below the Purchaser's name on the signature page of this
Agreement and next to the heading "Investment Amount", in United States
Dollars and in immediately available funds.
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Participation Maximum" shall have the meaning ascribed to
such term in Section 4.12.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in
Section 4.12.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the date hereof, among the Company and the Purchaser,
in the form of Exhibit A attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale of the Shares and Warrant Shares by the
Purchaser as provided for in the Registration Rights Agreement.
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"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable
to the Purchaser pursuant to this Agreement, par value $.001 per share.
"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act (but shall not be
deemed to include the location and/or reservation of borrowable shares
of Common Stock).
"Subsequent Financing" shall have the meaning ascribed to such
term in Section 4.12.
"Subsequent Financing Notice" shall have the meaning ascribed
to such term in Section 4.12.
"Subsidiary" means any subsidiary of the Company as set forth
on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market.
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq Capital Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" means this Agreement, the Warrants,
the Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
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from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then reported in the "Pink Sheets"
published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (c) in all other
cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchaser and
reasonably acceptable to the Company.
"Warrants" means collectively the Common Stock purchase
warrants, in the form of Exhibit B delivered to the Purchaser at the
Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be exercisable immediately and have a term of exercise equal to four
years.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and the Purchaser
agrees to purchase up to $1,000,000 of Shares at $1.00 per Share together with
Warrants exercisable into 1,000,000 Shares having an exercise price of $1.25 per
Share with a term of four (4) years. The Purchaser shall deliver to the Company
via wire transfer or a certified check immediately available funds equal to its
Investment Amount and the Company shall deliver to the Purchaser its respective
Shares and Warrants as determined pursuant to Section 2.2(a) and the other items
set forth in Section 2.2 issuable at the Closing. Upon satisfaction of the
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of Xxxxx Xxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000, or
such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to
be delivered to the Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares
equal to the Purchaser's Investment Amount registered in the
name of the Purchaser;
(iii) a Warrant registered in the name of the
Purchaser exercisable into a number of shares of Common Stock
equal to 100% of the Purchaser's Investment Amount, with an
exercise price equal to $1.25 per Share, subject to adjustment
therein;
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(iv) the legal opinion of Company Counsel, in agreed
form, addressed to the Purchaser; and
(v) the Registration Rights Agreement, duly executed
by the Company.
(b) On the Closing Date, the Purchaser shall deliver or cause
to be delivered to the Company the following:
(i) this Agreement duly executed by the Purchaser;
(ii) the Purchaser's Investment Amount by wire
transfer to the account as specified in writing by the
Company; and
(iii) the Registration Rights Agreement, duly
executed by the Purchaser.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made
and on the Closing Date of the representations and warranties
of the Purchaser contained herein;
(ii) all obligations, covenants and agreements of the
Purchaser required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by the Purchaser of the items set
forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchaser hereunder in
connection with the Closing are subject to the following conditions
being met:
(i) the accuracy in all material respects on the
Closing Date of the representations and warranties of the
Company contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing
Date shall have been performed;
(iii) the delivery by the Company of the items set
forth in Section 2.2(a) of this Agreement;
(iv) since the date of execution of this Agreement,
no event or series of events shall have occurred that
reasonably could have or result in (i) an adverse effect on
the legality, validity or enforceability of any Transaction
Document, or (ii) a Material Adverse Effect;
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(v) 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 that prohibits the consummation of
any of the transactions contemplated by the Transaction
Documents; and
(vi) from the date hereof to the Closing Date,
trading in the Common Stock shall not have been suspended by
the Commission or the Company's principal Trading Market
(except for any suspension of trading of limited duration
agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or
minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading
Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity of
such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in the
reasonable judgment of the Purchaser, makes it impracticable
or inadvisable to purchase the Shares at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchaser concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to the Purchaser.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1(a). The Company owns,
directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities.
If the Company has no subsidiaries, then references in the Transaction
Documents to the Subsidiaries will be disregarded.
(b) Organization and Qualification. The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
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Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not, individually, or in the aggregate, have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company's ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii)
or (iii), a "Material Adverse Effect") and no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or
qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part
of the Company and no further action is required by the Company, its
board of directors or its stockholders in connection therewith other
than in connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the
Company of the other transactions contemplated hereby and thereby do
not and will not: (i) conflict with or violate any provision of the
Company's or any Subsidiary's certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict
with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
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authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could
not, individually, or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by
the Company of the Transaction Documents, other than (i) filings
required pursuant to Section 4.6, (ii) the filing with the Commission
of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, (iii) filings
required by state securities laws in accordance with the requirements
of the Registration Rights Agreement, which when permitted, will be
made prior to the Effectiveness Date (as such term is defined in the
Registration Rights Agreement), (iv) the notice and/or application(s)
to each applicable Trading Market for the issuance and sale of the
Shares, Warrants and the listing of the Shares and Warrant Shares for
trading thereon in the time and manner required thereby and (v) the
filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the
"Required Approvals").
(f) Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens other than
restrictions on transfer provided for in the Transaction Documents. The
Warrant Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens. The Company has reserved
from its duly authorized capital stock the shares of Common Stock
issuable pursuant to this Agreement and the Warrants in order to issue
the Shares and the Warrant Shares. The Securities are not subject to
any preemptive or similar rights to subscribe for or purchase
securities.
(g) Capitalization. Other than disclosed in the SEC Reports
and as set forth on Schedule 3.1(g), the Company has not issued any
capital stock other than pursuant to the exercise of employee stock
options under the Company's stock option plans, the issuance of shares
of Common Stock to employees pursuant to the Company's employee stock
purchase plan and pursuant to the conversion or exercise of outstanding
Common Stock Equivalents all as set forth on Schedule 3.1(g). No
securities of the Company are entitled to preemptive or similar rights
and no Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. As of the date
of this Agreement, except as disclosed in the SEC Reports and as set
forth in Schedule 3.1(g) and as a result of the purchase and sale of
the Warrants, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of the capital stock of the
Company, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of its capital stock, or securities or rights
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convertible or exchangeable into shares of Common Stock. The issuance
and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than
the Purchaser) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the
issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect
to the Company's capital stock to which the Company is a party or, to
the Knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required
to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the "SEC Reports") on
a timely basis or has received a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of
the Company and its consolidated Subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments. The Company maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with GAAP and the applicable requirements of
the Exchange Act.
(i) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that, individually, or in the
aggregate, could reasonably be expected to result in a Material Adverse
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Effect, (ii) the Company has not incurred any liabilities (contingent
or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past
practice, (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in
filings made with the Commission, and (C) other liabilities that would
not, individually or in the aggregate, have a Material Adverse Effect,
(iii) the Company has not altered its method of accounting or the
identity of its auditors, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not
have pending before the Commission any request for confidential
treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no
event, liability or development has occurred or exists with respect to
the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws at the
time this representation is made that has not been publicly disclosed 1
Trading Day prior to the date that this representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the Knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"Action") which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could if there were an unfavorable decision,
individually, or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the Knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act. None of the Company's or its Subsidiaries' employees is
a member of a union that relates to such employee's relationship with
the Company, and neither the Company or any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees are
good. No executive officer, to the Knowledge of the Company, is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of
each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters. The Company and its Subsidiaries are in compliance with all
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U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment
and wages and hours, except where the failure to be in compliance could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(k) Labor Relations. No material labor dispute exists or, to
the Knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business and all such
laws that affect the environment, except in each case as could not,
individually, or in the aggregate, have a Material Adverse Effect. The
Company is in compliance with all effective requirements of the
Xxxxxxxx-Xxxxx Act of 2002, as amended, and the rules and regulations
thereunder, that are applicable to it, except where such noncompliance,
individually or in the aggregate, could not have or reasonably be
expected to result in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could
not, individually, or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect ("Material Permits"), and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens described in Schedule 3.1(n) and Liens as do not materially
affect the value of such property and do not materially interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries. Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
12
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade
secrets, inventions, copyrights, licenses and other intellectual
property rights or similar rights necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could, individually, or in the
aggregate, have or reasonably be expected to have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the
Company nor any Subsidiary has received a notice (written or otherwise)
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. All
such Intellectual Property Rights are enforceable and do not violate or
infringe the Intellectual Property Rights of others in any respect that
would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect and, to the Knowledge of the
Company, there is no existing infringement by another Person of any of
the Company's or the Subsidiary's Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expect to have a
Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Investment Amount. To the best
Knowledge of the Company, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports, none of the officers or directors of the
Company and, to the Knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the
Knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer,
director, trustee or partner.
(r) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company
is in compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
13
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's most recently filed periodic report under the Exchange
Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in
the Company's internal controls (as such term is defined in Item 307(b)
of Regulation S-K under the Exchange Act) or, to the Knowledge of the
Company, in other factors that could significantly affect the Company's
internal controls.
(s) Private Placement. Assuming the accuracy of the
Purchaser's representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Company to the Purchaser as contemplated
hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market. Except as
described in Schedule 3.1(s), the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been
satisfied.
(t) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
(u) Registration Rights. The Purchaser has the right to cause
the Company to effect the registration under the Securities Act of any
securities of the Company.
(v) Listing and Maintenance Requirements. The Company's Common
Stock is registered pursuant to Section 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its Knowledge
is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration. The Company has not, in the 24 months preceding the date
hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is
14
not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with
all such listing and maintenance requirements. The issuance and sale of
the Securities under the Transaction Documents does not contravene the
rules and regulations of the Trading Market on which the Common Stock
is currently listed or quoted, and no approval of the stockholders of
the Company thereunder is required for the Company to issue and deliver
to the Purchaser the Securities contemplated by the Transaction
Documents. As of the date hereof, the Company's Common Stock is listed
on the OTC Bulletin Board.
(w) Disclosure. The Company confirms that neither it nor any
other Person acting on its behalf has provided the Purchaser or its
agents or counsel with any information that constitutes or might
constitute material, nonpublic information. The Company understands and
confirms that the Purchaser will rely on the foregoing representations
and covenants in effecting transactions in securities of the Company.
All disclosure provided to the Purchaser regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that the
Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(x) No Integrated Offering. Neither the Company, nor any of
its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on
which any of the securities of the Company are listed or designated.
(y) Solvency. Based on the financial condition of the Company
as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i)
the Company's cash and fair saleable value of its assets in an orderly
liquidation exceeds the amount that will be required to be paid on or
in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the
Company's assets do not constitute unreasonably small capital to carry
on its business for the current fiscal year as now conducted and as
proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted
by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
15
uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). The Company has no
Knowledge of any facts or circumstances which lead it to believe that
it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the
Closing Date.
(z) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and each Subsidiary
has filed all necessary federal, state and foreign income and franchise
tax returns and has paid or accrued all taxes shown as due thereon, and
the Company has no Knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.
(aa) No General Solicitation. Neither the Company nor any
person acting on behalf of the Company has offered or sold any of the
Securities by any form of general solicitation or general advertising.
The Company has offered the Securities for sale only to the Purchaser.
(bb) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
(cc) Acknowledgment Regarding Purchaser's Purchase of
Securities. The Company acknowledges and agrees that the Purchaser is
acting solely in the capacity of an arm's length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby.
The Company further acknowledges that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Purchaser or any of its
respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to the
Purchaser's purchase of the Securities. The Company further represents
to the Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.
(dd) Acknowledgement Regarding Purchaser's Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding, it is understood and agreed by the Company (i) that
the Purchaser has not been asked to agree, nor has the Purchaser
agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other
transactions by the Purchaser, including Short Sales, and specifically
including, without limitation, Short Sales or "derivative"
16
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that the Purchaser, and
counter parties in "derivative" transactions to which the Purchaser is
a party, directly or indirectly, presently may have a "short" position
in the Common Stock, and (iv) that the Purchaser shall not be deemed to
have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction. The Company further
understands and acknowledges that (a) the Purchaser may engage in
hedging activities at various times during the period that the
Securities are outstanding, including, without limitation, during the
periods that the value of the Warrant Shares deliverable with respect
to Securities are being determined and (b) such hedging activities (if
any) could reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.
(ee) Manipulation of Price. The Company has not, and to its
Knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or, paid any compensation for soliciting
purchases of, any of the Securities (other than for the placement
agent's placement of the Securities), or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
(ff) Press Releases. The press releases disseminated by the
Company during the two (2) years preceding the date of this Agreement
taken as a whole do not contain any untrue statement of a material fact
or omit 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.
(gg) Certain Fees. No brokerage or finder's fees or
commissions are or will be payable by the Company to any broker,
financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchaser shall have no obligation
with respect to any fees or with respect to any claims (other than such
fees or commissions owed by the Purchaser pursuant to written
agreements executed by the Purchaser which fees or commissions shall be
the sole responsibility of the Purchaser) made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due
in connection with the transactions contemplated by this Agreement.
(hh) Application of Takeover Protections. The Company has
taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state
17
of incorporation that is or could become applicable to the Purchaser as
a result of the Purchaser and the Company fulfilling their obligations
or exercising their rights under the Transaction Documents, including
without limitation the Company's issuance of the Securities and the
Purchaser's ownership of the Securities.
(ii) No Additional Agreements. The Company does not have any
agreement or understanding with the Purchaser with respect to the
transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.
3.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants as of the date hereof and as of the Closing Date
to the Company as follows:
(a) Organization; Authority. The Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution,
delivery and performance by the Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate or similar action on the part of the Purchaser.
Each Transaction Document to which it is a party has been duly executed
by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with
its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. The Purchaser understands that the Securities
are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to
or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities law,
has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law
and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and
warranty not limiting the Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Subject to the
immediately preceding sentence, nothing contained herein shall be
deemed a representation or warranty by the Purchaser to hold the
Securities for any period of time. The Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. The
Purchaser does not have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
18
(c) Purchaser Status. At the time the Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants it will be either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities
Act. The Purchaser is not required to be registered as a broker-dealer
under Section 15 of the Exchange Act.
(d) Experience of the Purchaser. The Purchaser, either alone
or together with its representatives, has such Knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. The Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. The Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof.
Other than the transaction contemplated hereunder, the Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with the Purchaser, executed any
disposition, including Short Sales, in the securities of the Company
during the period commencing from the time that the Purchaser first
received a term sheet from the Company or any other Person setting
forth the material terms of the transactions contemplated hereunder
until the date hereof. Notwithstanding the foregoing, in the case that
the Purchaser is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of the Purchaser's assets
and the portfolio managers have no direct Knowledge of the investment
decisions made by the portfolio managers managing other portions of the
Purchaser's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager
that made the investment decision to purchase the Securities covered by
this Agreement. Other than to other Persons party to this Agreement,
the Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence
and terms of this transaction).
The Company acknowledges and agrees that the Purchaser does
not make or has not made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
19
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Company or to an affiliate of the Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL
BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that the Purchaser may
from time to time pledge pursuant to a bona fide margin agreement with
a registered broker-dealer or grant a security interest in some or all
of the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and, if
required under the terms of such arrangement, the Purchaser may
transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval of
the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the expense of
the Purchaser, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act
to appropriately amend the list of Selling Stockholders thereunder.
20
(c) Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b) hereof): (i) whenever the Shares and Warrant Shares are
registered for resale under the Securities Act, or (ii) following any
sale or transfer of such Shares or Warrant Shares pursuant to Rule 144,
or (iii) while such Shares or Warrant Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a standing
legal opinion to the Company's transfer agent promptly after the
Effective Date if required by the Company's transfer agent to effect
the removal of the legend hereunder. Following such time as restrictive
legends are not required to be placed on certificates representing the
Shares or Warrant Shares, the Company will, no later than three Trading
Days following the delivery by the Purchaser to the Company or the
Company's transfer agent of (i) a certificate representing such Shares
or Warrant Shares containing a restrictive legend (endorsed or with
stock power attached, signatures guaranteed, and otherwise in form
necessary to affect reissuance and/ or transfer), or (ii) an Exercise
Notice in the manner stated in the Warrants to affect the exercise of
such Warrant in accordance with its terms (such third Trading Day, the
"Legend Removal Date"), deliver or cause to be delivered to the
Purchaser a certificate representing such Shares or Warrant Shares that
is free from all restrictive and other legends. The Company may not
make any notation on its records or give instructions to any transfer
agent of the Company that enlarge the restrictions on transfer set
forth in this Section. Certificates for Securities subject to legend
removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchaser by crediting the account of the Purchaser's
prime broker with the Depository Trust Company System.
(d) In addition to the Purchaser's other available remedies,
the Company shall pay to the Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Shares and Warrant
Shares, respectively (based on the VWAP of the Common Stock on the date
such Securities are submitted to the Company's transfer agent)
delivered for removal of the restrictive legend and subject to Section
4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5
Trading Days after the Legend Removal Date) for each Trading Day after
the Legend Removal Date until such certificate is delivered without a
legend. Payment shall be made to the Purchaser no later than on each
monthly anniversary of each such Legend Removal Date until the
applicable certificate free from all restrictive and other legends is
delivered. Nothing herein shall limit the Purchaser's right to pursue
actual damages for the Company's failure to deliver certificates
representing any Securities as required by the Transaction Documents,
and the Purchaser shall have the right to pursue all remedies available
to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Shares and
21
Warrant Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against the Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.
4.3 Furnishing of Information. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchaser and make publicly available in accordance with Rule
144(c) such information as is required for the Purchaser to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.4 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchaser or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants set forth the totality of the procedures required of
the Purchaser in order to exercise the Warrants. No additional legal opinion or
other information or instructions shall be required of the Purchaser to exercise
its Warrants. The Company shall honor exercises of the Warrants and shall
deliver Warrant Shares in accordance with the terms, conditions and time periods
set forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time)
on the Trading Day following the execution of this Agreement, and by 9:00 a.m.
(New York time) on the Trading Day following the Closing Date, the Company shall
issue press releases disclosing the transactions contemplated hereby and the
Closing. On the Trading Day following the execution of this Agreement the
Company will file a Current Report on Form 8-K disclosing the material terms of
the Transaction Documents (and attach as exhibits thereto the Transaction
Documents), and on the Trading Day following the Closing Date the Company will
file an additional Current Report on Form 8-K to disclose the Closing. In
addition, the Company will make such other filings and notices in the manner and
time required by the Commission and the Trading Market on which the Common Stock
is listed. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Purchaser, or include the name of the Purchaser in any
filing with the Commission (other than the Registration Statement and any
exhibits to filings made in respect of this transaction in accordance with
periodic filing requirements under the Exchange Act) or any regulatory agency or
Trading Market, without the prior written consent of the Purchaser, except to
the extent such disclosure is required by law or Trading Market regulations.
22
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the Knowledge of the Company, any other Person that the Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that the Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchaser. The Company shall conduct
its business in a manner so that it will not become subject to the Investment
Company Act.
4.8 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide the Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto the Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that the Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for (A) working capital purposes and (B) for the purchase price of the
Company's acquisition of potential subsidiaries, and not for the satisfaction of
any portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reimbursement. If the Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
the Purchaser to or with any current stockholder), solely as a result of the
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse the Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company solely as a result of acquiring the Securities under this
Agreement.
4.11 Indemnification of Purchaser. Subject to the provisions of this
Section 4.11 and in addition to the indemnity provided in the Registration
Rights Agreement, the Company will indemnify and hold the Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
23
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling person (each, a "Purchaser Party")
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach, misrepresentation or inaccuracy of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against the Purchaser, or any of its respective Affiliates, by any stockholder
of the Company who is not an Affiliate of the Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a material breach of the Purchaser's representations, warranties
or covenants under the Transaction Documents or any agreements or understandings
that the Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by the Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's material breach of
any of the representations, warranties, covenants or agreements made by the
Purchaser in this Agreement or in the other Transaction Documents.
24
4.12 Participation in Future Financing.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any offer or sale to, or
exchange with (or other type of distribution to) any third party by the
Company or any of its Subsidiaries of Common Stock or Common Stock
Equivalents (a "Subsequent Financing"), the Purchaser shall have the
right to participate in up to an amount of the Subsequent Financing
equal to 100% of the Subsequent Financing (the "Participation
Maximum").
(b) At least 10 Trading Days prior to the anticipated closing
of a Subsequent Financing, the Company shall deliver to the Purchaser a
written notice of its intention to effect a Subsequent Financing
("Pre-Notice"), which Pre-Notice shall ask the Purchaser if it wants to
review the details of such financing (such additional notice, a
"Subsequent Financing Notice"). Upon the request of the Purchaser, and
only upon a request by the Purchaser, which request must occur within 3
Trading Days of receipt of the Pre-Notice, for a Subsequent Financing
Notice, the Company shall promptly, but no later than one Trading Day
after such request, deliver a Subsequent Financing Notice to the
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto. The
Purchaser shall have the right to purchase the securities being offered
in the Subsequent Financing on the same, absolute terms and conditions
as contemplated by such Subsequent Financing. Delivery of any
Subsequent Financing Notice constitutes a representation and warranty
by the Company that there are no other material terms and conditions,
arrangements, agreements or otherwise except for those disclosed in the
Subsequent Financing Notice.
(c) If the Purchaser desires to participate in such Subsequent
Financing it must provide written notice to the Company by not later
than 5:30 p.m. (New York City time) on the 5th Trading Day after the
Purchaser has received the Subsequent Financing Notice that the
Purchaser is willing to participate in the Subsequent Financing, the
amount of the Purchaser's participation, and that the Purchaser has
such funds ready, willing, and available for investment on the terms
set forth in the Subsequent Financing Notice. If the Company receives
no notice from the Purchaser as of such 5th Trading Day, the Purchaser
shall be deemed to have notified the Company that it does not elect to
participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading
Day after the Purchaser has received the Subsequent Financing Notice,
notification by the Purchaser of its willingness to participate in the
Subsequent Financing (or to cause its designees to participate) is, in
the aggregate, less than the total amount of the Subsequent Financing,
then the Company may effect the remaining portion of such Subsequent
Financing on the terms and to the Persons set forth in the Subsequent
Financing Notice.
25
(e) The Company shall have 10 Trading Days from delivery of
the Pre-Notice to publicly announce the Subsequent Financing. If by the
end of such 10 Trading Day period, the Company has not made a public
announcement with respect to the Subsequent Financing, such Subsequent
Financing shall be deemed terminated and knowledge of such transaction
shall no longer be deemed material, non-public information.
(f) Notwithstanding the foregoing, this Section 4.12 shall not
apply in respect of an Exempt Issuance.
4.13 Equal Treatment. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents.
4.14 Form D. The Company agrees to timely file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof,
promptly upon request of the Purchaser.
4.15 Subsequent Registrations. Other than pursuant to the Registration
Statement, prior to the Effective Date, the Company may not file any
registration statement (other than on Form S-8) with the Commission with respect
to any securities of the Company.
4.16 Limitation on Issaunce of Future Priced Securities. During the
twelve (12) months following the Closing Date, the Company shall not issue any
security that would be a "Future Priced Securities" as such term is described by
NASD IM-4350-1, that would have a conversion price lower than $1.00 per share or
exercise price lower than $1.25 per share.
4.17 Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing and trading of its Common Stock on the OTC
Bulletin Board (or another nationally recognized Trading Market). The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application the Shares and Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Purchaser to cause all of the Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible. The Company will
use best efforts and take all action reasonably necessary to continue the
listing and trading of its Common Stock on the Trading Market on which the
Common Stock is currently listed or quoted and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of such Trading Market.
4.18 Form SB-2 and Form S-1 Eligibility. The Company is eligible to
register the resale of the Shares and the Warrant Shares by the Purchaser under
Form SB-2 or Form S-1 promulgated under the Securities Act and the Company
hereby covenants and agrees to use its best efforts to maintain its eligibility
to use Form SB-2 until the Registration Statement covering the resale of the
Shares and Warrant Shares shall have been filed with, and declared effective by,
the Commission. If for any reason the Company is not eligible to register the
resale of the Shares and the Warrant Shares by the Purchaser under Form SB-2,
the Company covenants and agrees to register the resale of the Shares and
Warrant Shares on Form S-1 promulgated under the Securities Act.
26
4.19 Advisory Board Representation. The Company covenants and agrees
that as soon as is reasonably practicable following the date of this Agreement,
but in no event later than thirty calendar days, as long as the Purchaser
beneficially owns at least 700,000 shares of Common Stock, the Company shall
nominate and elect one (1) advisor to the Advisory Board of the Company as
designated in writing by the Purchaser. As long as the Purchaser beneficially
owns at least 700,000 shares of Common Stock, the Purchaser shall be entitled to
have one advisor designated by it on the Advisory Board of the Company at all
times.
4.20 Price Protection. While the Warrants are outstanding, the Company
covenants and agrees not to issue (i) any shares of Common Stock at a price per
share equal to or less than $1.00 per share, or (ii) any promissory notes or
other securities convertible or exchangeable into shares of Common Stock which
have a conversion price equal to or less than $1.00 per share. Notwithstanding
the foregoing, while the Warrants are outstanding, solely with respect to common
stock purchase warrants exercisable into shares of Common Stock, the Company
covenants and agrees not to issue any such common stock purchase warrants which
have an exercise price less than the then applicable Exercise Price (as defined
in the Warrants).
ARTICLE V.
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company shall pay to Xxxxx
Xxxx LLP $15,000 as partial reimbursement to the Purchaser for its legal fees in
connection with the Transaction Documents (the Purchaser may deduct such amount
from the Investment Amount deliverable to the Company at Closing), it being
understood that Xxxxx Xxxx LLP has only rendered legal advice to the Purchaser,
and not to the Company in connection with the transactions contemplated hereby,
and that the Company has relied for such matters on the advice of its own
respective counsel. Except as specified in the immediately preceding sentence,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
the Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the sale of the Shares.
5.2 Termination. This Agreement may be terminated prior to Closing:
(a) by written agreement of the Purchaser and the Company; and
(b) by the Company or the Purchaser upon written notice to the
other, if the Closing shall not have taken place by 6:30 p.m. Eastern
time on February 21, 2006; provided, that the right to terminate this
Agreement under this Section shall not be available to any Person whose
failure to comply with its obligations under this Agreement has been
the cause of or resulted in the failure of the Closing to occur on or
before such time.
27
Upon a termination in accordance with this Section, the Company and the
Purchaser shall not have any further obligation or liability (including as
arising from such termination) to the other except pursuant to Section 4.11.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, discussions, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission) at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 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. 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. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. The Purchaser may assign any
or all of its rights under this Agreement to any Person to whom the Purchaser
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions
hereof that apply to the Purchaser.
28
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11 (as to each
Purchaser Party).
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations, warranties, covenants and other
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
29
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever the Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then the
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of exercise of a Warrant, the Purchaser
shall be required to return any shares of Common Stock subject to any such
rescinded exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchaser and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
or payments to the Purchaser pursuant to any Transaction Document or the
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
30
5.17 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.18 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
5.19 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of the
Purchaser arising directly or indirectly, under any Transaction Document of any
and every nature whatsoever shall be satisfied solely out of the assets of the
Purchaser, and that no trustee, officer, other investment vehicle or any other
Affiliate of the Purchaser or any investor, shareholder or holder of shares of
beneficial interest of the Purchaser shall be personally liable for any
liabilities of the Purchaser.
(Signature Pages Follow)
31
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
CHINA BIOPHARMACEUTICALS HOLDINGS, INC. Address for Notice:
-------------------
Suite 1601, Building A
Xxxxxxx Xxxxx, Xx. 0
Xxxx Xx Xxxx
Xxxxxxx, Xxxxxxx
Xxxxx
Fax: 00-00-0000-0000
By: /s/ Xxxxx Xxxx Mao
-----------------------
Name: Xxxxx Xxxx Mao
Title: Chief Executive Officer and Chairman
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
32
[PURCHASER SIGNATURE PAGES TO CHBP.OB SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser: GCE Property Holdings, Inc.
Signature of Authorized Signatory of Purchaser:/s/ Xxxxxxx X. Xxxxxxxxx
Name of Authorized Signatory: Xxxxxxx X. Xxxxxxxxx
Title of Authorized Signatory:President
Email Address of Purchaser:_____________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Investment Amount:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
33
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the Purchaser shall purchase up to $1,000,000 of Shares and Warrants
from China Biopharmaceuticals Holdings, Inc. (the "Company"). All funds will be
wired into a trust account maintained by ____________, counsel to the Company.
All funds will be disbursed in accordance with this Closing Statement.
Disbursement Date: February ___, 2006
________________________________________________________________________________
I. PURCHASE PRICE
Gross Proceeds to be Received in Trust $
II. DISBURSEMENTS
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
34
Schedule 3.1(a)
---------------
China Biopharmaceuticals Holdings Inc.
List of Subsidiaries of China Biopharmaceuticals Holdings, Inc.
---------------------------------------------------------------
China Biopharmaceuticals Corp., a British Virgin Island Corporation (100%
controlled by China Biopharmaceuticals Holdings, Inc.)
NanJing Keyuan Pharmaceutical R&D Co., Ltd., a Chinese Corporation (90%
controlled by China Biopharmaceuticals Corp.)
Suzhou Hengyi Pharmaceuticals of Feedstock Co., Ltd., a Chinese Corporation
(75.76% controlled by China Biopharmaceuticals Corp.)
Suzhou Erye Pharmaceutical Limited Company, a Chinese Corporation (51%
controlled by China Biopharmaceuticals Corp.)
Chengdu Tianyin Pharmaceutical Limited Company, a Chinese Corporation (51%
controlled by China Biopharmaceuticals Corp.)
35
Schedule 3.1(g)
---------------
China Biopharmaceuticals Holdings Inc.
----------------------------- --------------------------- ----------------------
Security Common Stock Warrants
----------------------------- --------------------------- ----------------------
Existing Common Stock Share 775,883 775,883
----------------------------- --------------------------- ----------------------
Convertible Preferred (1) 1,234,625 1,419,819
----------------------------- --------------------------- ----------------------
Common Stock to be Issued
(2) 1,100,000 1,100,000
----------------------------- --------------------------- ----------------------
Total 3,110,508 3,295,702
----------------------------- --------------------------- ----------------------
Remarks:
(1) Three private placements in Preferred Convertible closed in 2005.
(2) Additional amounts to be raised in a subsequent financing.
36
Schedule 3.1(i)
---------------
China Biopharmaceuticals Holdings Inc.
None.
37
Schedule 3.1(n)
---------------
China Biopharmaceuticals Holdings Inc.
------------------- ------------------- -------------------- -------------------
Name of Company(1) Nature of Company Total value of Total Liens(6) on
Owned Properties(5) Owned Properties
------------------- ------------------- -------------------- -------------------
CBH(1) Holding $0 $0
------------------- ------------------- -------------------- -------------------
CBC(2) 100% owned by CBH $0 $0
------------------- ------------------- -------------------- -------------------
Keyuan(3) 90% owned by CBC $0 $0
------------------- ------------------- -------------------- -------------------
Hengyi(4) 76% owned by CBH $377,034 $154,962
------------------- ------------------- -------------------- -------------------
Erye(4) 51% owned by CBH $1,209,790 $442,055
------------------- ------------------- -------------------- -------------------
Tianyin(4) 51% owned by CBC $1,133,384 $422,293
------------------- ------------------- -------------------- -------------------
Total $2,720,209 $1,019,310
------------------- ------------------- -------------------- -------------------
Remarks:
(1) China Biopharmaceuticals Holdings Inc. ("CBH") is a corporation incorporated
in Delaware, US.
(2) China Biopharmaceuticals Corp. ("CBC") is a corporation incorporated in
British Virgin Islands.
(3) Keyuan is a R & D company incorporated in Nanjing, China.
(4) Companies are incorporated in China.
(5) Properties include land, office buildings, manufacturing buildings and
production licenses & facilities.
(6) Mortgages and bank loans against the properties.
38
Schedule 3.1(s)
China Biopharmaceuticals Holdings Inc.
-------- ---------------------- --------------- ------------ -------------------
Common Shares
with Registration Convertible Equity Shares Underlying
Rights Preferred Investment Warrants
-------- ---------------------- --------------- ------------ -------------------
Number 775,883 1,234,625 1,100,000* 3,295,702
-------- ---------------------- --------------- ------------ -------------------
7,000,000 7,000,000
-------- ---------------------- --------------- ------------ -------------------
Total 775,883 8,234,625 1,100,000 10,295,702
-------- ---------------------- --------------- ------------ -------------------
*Same as in Schedule 3.1(g)
39
Schedule 4.9
------------
China Biopharmaceuticals Holdings Inc.
Capital contributions to one or more of the Company's existing or future
subsidiaries.
40
