Exhibit 10.3
SECURITIES PURCHASE AGREEMENT
by and among
HEMISPHERX BIOPHARMA, INC.
and
THE INVESTORS LISTED HEREIN
Dated as of
March 12, 2003
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS........................ 1
2. BUYER'S REPRESENTATIONS AND WARRANTIES.............................. 3
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 6
4. COVENANTS........................................................... 14
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL...................... 25
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE................... 25
8. INDEMNIFICATION..................................................... 27
9. MISCELLANEOUS....................................................... 28
Schedule 3(a) - Subsidiaries
Schedule 3(c) - Capitalization
Schedule 3(e) - Conflicts
Schedule 3(l) - Title
Schedule 3(n) - Insurance
Schedule 3(r) - Transactions with Affiliates
Schedule 4(u) - Consideration pursuant to Interferon Agreements
Schedule 4(v) - Certain Accounts
EXHIBITS
Exhibit A Form of Debentures
Exhibit B - Form of Warrant
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Letter of Credit
Exhibit E - Form of Account Control Agreement
Exhibit F - Form of Security Agreement
Exhibit G-1 Interferon Inventory and License Agreement
Exhibit G-2 Interferon Asset Agreement
Exhibit H - Form of Irrevocable Transfer Agent Instructions
Exhibit I - Form of Legal Opinion
Exhibit J - Form of Current Report on 8-K
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of March 12,
2003, by and among Hemispherx Biopharma, Inc., a Delaware corporation, with
headquarters located at One Penn Center, 0000 XXX Xxxxxxxxx, Xxxxx 000,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Company"), and the investors listed on
the Schedule of Buyers attached hereto (individually, a "Buyer" and
collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act").
B. The Company has authorized the issuance of $5,426,000 principal amount
of its 6% Senior Secured Convertible Debentures due January 31, 2005
(collectively, the "Debentures"), which shall be convertible into shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Debentures.
C. The Buyers severally wish to purchase, upon the terms and conditions
stated in this Agreement, (i) the Debentures on the Closing Date (as defined
below), such Debentures to be in the form attached hereto as Exhibit A, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers for the purchase price opposite such Buyer's name on the Schedule of
Buyers and (ii) warrants (the "Warrants") to purchase shares of Common Stock (as
exercised collectively, the "Warrant Shares"), such Warrants to be substantially
in the form attached hereto as Exhibit B, in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers.
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit C (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide the Buyers with
the benefit of certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws, on the
terms and subject to the conditions set forth therein.
E. The location of defined terms in this Agreement is set forth on the
Index of Terms attached hereto.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
a. Purchase of Debentures and Warrants. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to
each Buyer, and each Buyer severally agrees to purchase from the Company, the
respective principal amount of Debentures, together with the related Warrants,
for the purchase price set forth opposite such Buyer's name on the Schedule of
Buyers (the "Closing").
b. The Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City time, on March 12, 2003 (or such later
date as is mutually agreed to by the Company and the applicable Buyer or Buyers)
subject to the satisfaction (or waiver) of the conditions set forth in Sections
6 and 7. The Closing shall occur on the Closing Date at the offices of Xxxxxxx
Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. "Business Day"
means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.
c. Delivery and Payment. (i) On the Closing Date, the Company shall
deliver to each Buyer Debentures (in the denominations as such Buyer shall
reasonably request) representing the principal amount of Debentures which such
Buyer is purchasing hereunder, along, with warrants representing the related
Warrants, duly executed on behalf of the Company and registered in the name of
such Buyer.
(ii) On the Closing Date, each Buyer shall set aside in a separate
segregated account (the "Segregated Account") an amount equal to such Buyer's
total purchase price for such Buyer's portion of Debentures and Warrants as set
forth on the Schedule of Buyers (such "Buyer's Purchase Price").
(iii) Payment of such Buyer's Purchase Price shall be made by wire
transfer of immediately available funds from such Buyer's Segregated Account in
accordance with the Company's written wire instructions, less any amount
withheld at the Closing for expenses pursuant to Section 4(k) in the following
manner:
(A) On the Closing Date, each Buyer shall pay the amount set
forth opposite such Buyer's name on the Schedule of Buyers under the heading
"First Payment Amount."
(B) Provided that no Default or Event of Default (each as
defined in the Debentures), or event that with notice or lapse of time would
constitute a Default or Event of Default, has occurred and is continuing on the
third Business Day after satisfaction of the covenant set forth in Section 4(t)
below, each Buyer shall pay the amount set forth opposite such Buyer's name on
the Schedule of Buyer's under the heading "Second Payment Amount."
(C) Provided that no Default or Event of Default, or event
that with notice or lapse of time would constitute a Default or Event of
Default, has occurred and is continuing on the third Business Day after
satisfaction of the covenant set forth in the final sentence of Section 4(s)
below, each Buyer shall pay the amount set forth opposite such Buyer's name on
the Schedule of Buyer's under the heading "Third Payment Amount."
The dates of the payments pursuant to the foregoing clauses (A), (B) and
(C) are referred to herein as a "Payment Date".
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2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Debentures
and the Warrants, (ii) upon conversion of the Debentures owned by it, will
acquire the Conversion Shares then issuable, (iii) upon issuance, will acquire
the Interest Shares and Repayment Shares, if any (each as defined in the
Debentures), and (iv) upon exercise of the Warrants held by it, will acquire the
Warrant Shares issuable upon exercise thereof (the Debentures, the Conversion
Shares, the Interest Shares, the Repayment Shares, the Warrants and the Warrant
Shares collectively are referred to herein as the "Securities") for its own
account for investment only and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time, provided further, however, that such
disposition shall be in accordance with or pursuant to a registration statement
or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D under the
1933 Act and was not organized for the specific purpose of acquiring the
Securities.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein and in the
applicable Debenture or Warrant in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Securities.
d. Information. Such Buyer (i) has been furnished with or has had
full access to all of the information that it considers necessary or appropriate
to make an informed investment decision with respect to the Debentures, the
Warrants, the Conversion Shares and the Warrant Shares and that it has requested
from the Company, (ii) has had an opportunity to discuss with management of the
Company the business and financial affairs of the Company and to obtain
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to it or to which it had access, (iii) can bear the
economic risk of a total loss of its investment in the Debentures and the
Warrants and (iv) has such knowledge and experience in business and financial
matters so as to enable it to understand the risks of and form an investment
decision with respect to its investment in the Debentures, the Warrants, the
Conversion Shares and the Warrant Shares and to protect its interest in
connection with such investment. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in this Agreement.
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e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, or (B) such Buyer shall have delivered to
the Company an opinion of counsel in a form reasonably satisfactory to the
Company, to the effect that such Securities to be sold, assigned or transferred
may be sold, assigned or transferred pursuant to an exemption from such
registration, (ii) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144") may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder. The
Securities may be pledged in connection with a bona fide margin account or other
loan secured by the Securities and such pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities and no Investor effecting
a pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document, including, without limitation, this Section
2(f); provided that in order to make any sale, transfer or assignment of
Securities, such Investor and its pledgee makes such disposition in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
g. Legends. Such Buyer understands that the Debentures and Warrants,
except as set forth below, shall bear a restrictive legend and that the
Debentures shall bear a tax legend in substantially the following forms (and a
stop-transfer order may be placed against transfer of such Debentures and
Warrants):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT
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REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
THE FOLLOWING INFORMATION IS PROVIDED SOLELY FOR PURPOSES OF
APPLYING THE U.S. FEDERAL INCOME TAX ORIGINAL ISSUE DISCOUNT ("OID")
RULES TO THIS DEBENTURE. THIS DEBENTURE HAS AN ISSUE PRICE OF
$4,484,990.14, AN AGGREGATE AMOUNT OF OID OF $941,009.86, AN ISSUE
DATE OF MARCH 12, 2003 AND A YIELD TO MATURITY OF 16.9%.
Such Buyer further understands that until such time as the Conversion
Shares, the Interest Shares, the Repayment Shares and the Warrant Shares have
been sold pursuant to the registration statement contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares, the Interest Shares, the Repayment Shares and the Warrant
Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY
NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (I) A REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE ACT IS IN EFFECT OR (II) THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, WHICH IS SATISFACTORY TO THE COMPANY, TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT. THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
The legends set forth above, other than the tax legend, shall be removed and the
Company shall issue the relevant securities without such legend to the holder of
the Securities upon which it is stamped, if, (i) such Securities are registered
for resale under the 1933 Act and are transferred or sold pursuant to such
registration or (ii) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, reasonably satisfactory to the Company,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the 1933 Act.
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h. Authorization; Enforcement; Validity. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of such Buyer and are valid and binding agreements of
such Buyer enforceable against such Buyer in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country or state
specified in its address on the Schedule of Buyers.
j. No Conflicts The execution and performance of this Agreement and
the Registration Rights Agreement do not conflict with any agreement to which
such Buyer is a party or is bound thereby, any court order or judgment addressed
to such Buyer, or the constituent documents of such Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that as of the
date hereof, except as expressly set forth on the Schedule of Exceptions
attached hereto:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns 30% or more of the capital stock or
other equity or similar interests or owns capital stock or holds an equity or
similar interest which ownership entitles the Company to elect 30% or more of
the board of directors or similar governing body of such entity) are
corporations, partnerships or limited liability companies duly organized and
validly existing in good standing (to the extent such concepts are applicable)
under the laws of the jurisdiction in which they are incorporated or organized,
and have the requisite corporate, limited liability company or partnership power
and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign corporation, partnership or limited liability company to do business and
is in good standing (to the extent such concepts are applicable) in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect"means any
material adverse effect on the business, properties, assets, operations, results
of operations, prospects or condition (financial or otherwise) of the Company
and its Subsidiaries, taken as a whole, or on the transactions contemplated
hereby or by the agreements and instruments to be entered into in connection
herewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). A complete list
of Subsidiaries is set forth on Schedule 3(a).
b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Debentures, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions, the Security
Agreement, the Collateral Agency Agreement, dated as of the date
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hereof, among the Buyers and acknowledged by the Company, the Account Control
Agreement, the Mortgages, each deposit account control agreement and security
account control agreement entered into among the Company, the Agent (as defined)
and the depositary bank named therein (collectively, the "Bank Agreements") and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Debentures, the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion thereof, the reservation for issuance and the
issuance of Interest Shares and Repayment Shares in accordance with the terms of
the Debentures, the issuance of the Warrants and the reservation for issuance
and the issuance of the Warrant Shares issuable upon exercise of the Warrants,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required of the Company's Board of Directors or
stockholders (except to the extent that stockholder approval may be required
pursuant to the rules of the AMEX for the issuance of a number of Conversion
Shares, Interest Shares, Repayment Shares and Warrant Shares greater in the
aggregate than 19.99% of the number of shares of Common Stock outstanding
immediately prior to the Closing Date (the "19.99% Rule")). The Transaction
Documents executed on the date hereof have been and the other Transaction
Documents when executed by the Company in accordance with their terms will be
duly executed and delivered by the Company and constitute and will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Capitalization. As of March 12, 2003, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, of which as
of such date, 33,137,178 shares are issued and outstanding and 8,609,920 shares
are reserved for issuance pursuant to the Company's stock option and purchase
plans (including pursuant to options outstanding as of such date as well as
options granted thereafter). All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c) or in the section titled "Capitalization" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001, (A)
no shares of the Company's capital stock are subject to preemptive rights or any
other similar rights (arising under Delaware law, the Company's Certificate of
Incorporation or By-laws or any agreement or instrument to which the Company is
a party) or any liens or encumbrances granted or created by the Company; (B)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries (other than
any such options, warrants, scrip, rights, calls, commitments, securities,
understandings and arrangement outstanding under plans disclosed in the SEC
Documents); (C) there are no outstanding debt securities, notes, credit
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agreements, credit facilities or other agreements, documents or instruments
evidencing indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (D) there are no
amounts outstanding under, and there will be no amounts due upon termination of,
any credit agreement or credit facility; (E) there are no financing statements
securing obligations in any amounts greater than $100,000, singly, or $250,000
in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (F) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(G) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (H) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; (I)
the Company does not have any stock appreciation rights or "phantom" stock plans
or agreements or any similar plan or agreement; (J) to the Company's knowledge,
(i) no current or former officer or director who individually owns 1% or more of
the Company's outstanding capital stock or (ii) other beneficial owner of 5% or
more of the Company's outstanding capital stock, has pledged shares of the
Company's capital stock in connection with a margin account or other loan
secured by such capital stock; and (K) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents (as
defined herein) but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
The Company has made available to each Buyer that has requested it true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable or
exchangeable for Common Stock and the material rights of the holders thereof in
respect thereto except for stock options granted under any benefit plan or stock
option plan of the Company approved by the Board of Directors of the Company.
d. Issuance of Securities. The Securities are duly authorized and,
upon issuance in accordance with the terms of the applicable Transaction
Documents, shall be (i) validly issued, fully paid and non-assessable and (ii)
free from all taxes, liens and charges with respect to the issuance thereof
(other than any such taxes, liens and charges created by any Buyer or assignee
or transferee), and, except as set forth in Schedule 3(c), shall not be subject
to pre-emptive rights or other similar rights of shareholders of the Company. As
of the Closing, at least 6,971,256 shares of Common Stock (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(f) below) will have
been duly authorized and reserved for issuance upon conversion of the
Debentures, exercise of the Warrants and the issuance of the Interest Shares and
the Repayment Shares issuable over the full term of the Debentures (assuming the
Company paid the maximum amount of interest permitted to be paid in Interest
Shares over the full term of the Debentures). Upon conversion or issuance in
accordance with the Debentures or the Warrants, as applicable, the Conversion
Shares, the Interest Shares, the Repayment Shares and the Warrant Shares, as the
case may be, will be validly issued, fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof (other than any
such taxes,
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liens and charges created by any Buyer or any assignee or transferee), with the
holders being entitled to all rights accorded to a holder of Common Stock.
Based, in part, on reliance on the representations and warranties of each of the
Buyers in the Transaction Documents, the issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Conversion Shares, the Interest
Shares, the Repayment Shares and the Warrant Shares) will not (i) result in a
violation of the Certificate of Incorporation or the By-laws; (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party (except
for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect); or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market (as defined below)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, By-laws or their organizational charter or
by-laws, respectively. Neither the Company nor any of its Subsidiaries is in
violation of any term of or in default under any contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except where
such violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
Except as specifically contemplated by this Agreement, as required under the
1933 Act, as required by Blue Sky filings or as required by the 19.99% Rule, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are currently unaware of any
facts or circumstances which might give rise to any of the foregoing events set
forth in this paragraph. The Company is not in violation of the listing
requirements of the Principal Market, and has no actual knowledge of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since January 1, 2001, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to or on the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents
9
incorporated by reference therein being hereinafter referred to as the "SEC
Documents"). As of the date of filing of such SEC Documents, each such SEC
Document, as it may have been subsequently amended by filings made by the
Company with the SEC prior to the date hereof, complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Document. None of the SEC
Documents, as of the date filed and as they may have been subsequently amended
by filings made by the Company with the SEC prior to the date hereof, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The Company is not aware of any fact or circumstance that would
result or reasonably be likely to result in the Company receiving a "going
concern" opinion or qualification from its independent auditor's with respect to
the Company's financial position for the year ended December 31, 2002. To the
best of the Company's knowledge, no other written information provided by or on
behalf of the Company to the Buyers which is not included in the SEC Documents,
including, without limitation, information referred to in Section 2(d), contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries nor any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information. As of the date hereof, other than the need to file updated
financial statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, the Company meets the requirements for use of Form S-3
for registration of the resale of Registrable Securities (as defined in the
Registration Rights Agreement) and does not have any knowledge or reason to
believe that it does not meet such requirements or any actual knowledge of any
fact which would reasonably result in its not meeting such requirements. The
Company is not required to file and will not be required to file any agreement,
note, lease, mortgage, deed or other instrument entered into prior to the date
hereof and to which the Company is a party or by which the Company is bound
which has not been previously filed as an exhibit to its reports filed with the
SEC under the 1934 Act. Except for the issuance of the Debentures and the
Warrants contemplated by this Agreement and the transactions contemplated
therein, no event, liability, development or circumstance has occurred or
exists, or is currently contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws and which has not been publicly disclosed.
g. Absence of Certain Changes. Except as disclosed in the SEC
Documents available on the XXXXX system, there has been no change or development
that has
10
had or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. Except as disclosed in the SEC Documents
available on the XXXXX system, since December 31, 2000, (i) the Company has not
declared or paid any dividends, and (ii) as of the date hereof, has not sold any
assets, individually or in the aggregate, in excess of $100,000 outside of the
ordinary course of business or had capital expenditures, individually or in the
aggregate, in excess of $200,000.
h. Absence of Litigation. Except as disclosed in the section titled
"Legal Proceedings" in (i) the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 or (ii) any of the Company's SEC Documents filed since
the filing of such Form 10-K, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened in writing against the Company or any of
the Company's Subsidiaries or any of the Company's or the Company's
Subsidiaries' officers or directors in their capacities as such, that would
reasonably be expected to result in judgments against the Company or any of its
Subsidiaries in an amount, individually or in the aggregate, in excess of
$250,000.
i. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated, nor will the Company or any of its Subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
j. Employment Matters; ERISA Matters. (i) Neither the Company nor
any of its Subsidiaries is involved in any material union labor dispute nor, to
the knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. None of the Company's or its Subsidiaries' U.S. employees is a
member of a union which relates to such employee's relationship with the
Company. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. No executive officer (as defined in Rule 501(f)
of the 0000 Xxx) has notified the Company in writing that such officer intends
to leave the Company or otherwise terminate such officer's employment with the
Company.
(ii) The Company and its Subsidiaries are in compliance with
all federal, state, local and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours, except where failure to be in compliance would not, either individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect.
11
k. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use (i) all trademarks, trade
names, trade dress, service marks, service xxxx registrations, service names,
patents, patent rights, copyrights, inventions, technology licenses, approvals,
governmental authorizations, trade secrets, and other intellectual property
rights (collectively, "Intellectual Property") necessary to conduct their
respective businesses as now conducted and as currently contemplated to be
conducted other than businesses that the Company has not as of the date hereof
launched, except where the failure to own, possess or protect such rights would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect. None of the Company's or its Subsidiaries'
Intellectual Property rights have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement, except
where such expiration or termination would not, either individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect. Except
as would not reasonably be expected to result in a Material Adverse Effect, the
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of Intellectual Property rights of others, or of
any development of similar or identical trade secrets or technical information
by others and except as would not reasonably be expected to result in a Material
Adverse Effect, there is no claim, action or proceeding being made by or brought
against, or to the knowledge of the Company, currently threatened in writing by
or against, the Company or its Subsidiaries regarding the Intellectual Property
rights of or the use of any Intellectual Property by the Company or its
Subsidiaries or any third party. The Company and its Subsidiaries have taken all
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property.
l. Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries taken as a whole, in each case free and clear of all liens,
encumbrances and defects except such as (i) constitute purchase money security
interests, (ii) are described in Schedule 3(l) or (iii) such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
any of its Subsidiaries. Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
facilities by the Company and its Subsidiaries.
m. Environmental Laws. The Company and its Subsidiaries (A) are in
compliance with any and all Environmental Laws, (B) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses, and (C) are in compliance with all terms
and conditions of any such permit, license or approval, except in each case
where the failure of the Company and its Subsidiaries would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the
12
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
n. Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Except as set forth on Schedule 3(n), neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
o. Regulatory Permits. Except for Permits (as defined below) the
absence of which would not, either individually or in the aggregate, result in a
Material Adverse Effect, the Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as currently conducted (the "Permits"), and neither the Company nor
any such Subsidiary has received any written notice of proceedings relating to
the revocation or modification of any such Permit.
p. No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is currently expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement which in the judgment of the Company's
officers has or is currently expected to have a Material Adverse Effect.
q. Tax Status. Except as could not reasonably be expected to have a
Material Adverse Effect, the Company and each of its Subsidiaries (i) has made
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges due with respect to the
periods covered by such returns, reports and declarations, except those being
contested in good faith and for which the Company has made appropriate reserves
on its books, and (iii) has paid or set aside on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations (referred to in clause (i) above)
apply. There are no unpaid taxes that are individually or in the aggregate
material in amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
r. Transactions With Affiliates. Except as set forth on Schedule
3(r) and in the SEC Documents, and other than the grant of stock options
described on Schedule 3(c), none of the officers, directors, employees of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (other than in connection with the provision of services as
employees, officers and directors, payment of ordinary course business expenses
for
13
employees, and other expenditures on behalf of employees in an aggregate amount
for all employees not in excess of $500,000), including any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
s. Application of Takeover Protections. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation, the laws of the
state of its incorporation or the laws of any other state which is or could
become applicable to the Buyers as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyers' ownership of the Securities.
t. Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company or any Subsidiary used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
4. COVENANTS.
a. Best Efforts. Each party shall use its reasonable best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for, sale to the Buyers at each of the Closings pursuant
to this Agreement under applicable securities or "Blue Sky" laws of the states
of the United States (or to obtain an exemption from such qualification), and
shall provide evidence of any such action so taken to the Buyers on or prior to
each of the Closing Dates (to the extent such action is required by applicable
law). The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following each Closing Date.
c. Reporting Status. Other than pursuant to a Change of Control (as
defined in the Debentures), until the earlier of (i) the date which is one year
after the date as of
14
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares, the Interest Shares, the
Repayment Shares and the Warrant Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the date
on which (A) the Investors shall have sold all the Conversion Shares, the
Interest Shares, the Repayment Shares and the Warrant Shares and (B) none of the
Debentures or Warrants is outstanding (the "Reporting Period"), the Company
shall timely file all reports required to be filed with the SEC pursuant to the
1934 Act and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the sale
of the Debentures and the Warrants to fund the acquisition of certain assets of
Seller (as defined Section 4(t)(i) below) and for general corporate purposes.
e. Financial Information. The Company agrees to send the following
to each Investor during the Reporting Period: (i) within ten (10) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements (other than on Form S-8) or amendments thereto filed
pursuant to the 1933 Act, provided that if any such report is filed with the SEC
through XXXXX and is available to the Buyers via XXXXX then no such deliveries
shall be required; (ii) using its reasonable efforts, on the same day as the
release thereof, facsimile copies of all press releases issued by the Company
relating to the Company's quarterly operating results and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
f. Reservation of Shares. Prior to the date on which cash collateral
payments have been made pursuant to Section 25 of the Debentures in an amount
equal to the entire Outstanding Principal Amount (as defined in the Debentures),
together with accrued and unpaid interest on all Debentures outstanding the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 135% of the number of shares
of Common Stock needed to provide for the issuance of the Conversion Shares upon
conversion of all of the Debentures, the Warrant Shares upon exercise of all of
the Warrants (without regard to any limitations on conversions or exercise) and
the maximum number of Interest Shares issuable over the full term of the
Debentures (assuming the Company paid the maximum amount of interest permitted
to be paid in Interest Shares over the full term of the Debentures), and after
such time 100% of the number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares upon conversion of all of the Debentures and
of the Warrant Shares upon exercise of all of the Warrants (without regard to
any limitations on conversions or exercise).
g. Listing. The Company timely shall satisfy the condition set forth
in clause (2) of Section 7(a)(ii) and also shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and, shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time
15
issuable under the terms of the Transaction Documents. So long as any Securities
are outstanding, the Company shall maintain the Common Stock's authorization for
quotation on listing on The New York Stock Exchange, Inc. (the "NYSE"), the
American Stock Exchange, Inc. ("AMEX") or The Nasdaq Stock Market, Inc.
("NASDAQ") (as applicable, the "Principal Market"). The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section 4(g).
h. Filing of Form 8-K. At or before 8:30 a.m., New York City time,
on the Business Day following the Closing Date, the Company shall file a Current
Report on Form 8-K with the SEC describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement, the form of Debenture,. the form of
Warrants and the Registration Rights Agreement in the form required by the 1934
Act (with such exhibits, a "Form 8-K")). At or before 8:30 a.m., New York City
time, on the Business Day following each Payment Date, if any, the Company shall
file a Form 8-K with the SEC describing the transaction consummated on such
Payment Date. From and after the initial filing of the Form 8-K with the SEC,
unless required pursuant to Section 3(h) of the Registration Rights Agreement,
no Buyer shall be in possession of any material, nonpublic information received
from the Company or any of its officers, directors, employees or agents, that is
not disclosed in the Form 8-K. Unless required pursuant to Section 3(h) of the
Registration Rights Agreement, the Company shall not, and shall cause each of
its officers, directors, employees and agents, not to, provide any Buyer with
any material nonpublic information regarding the Company from and after the
filing of the Form 8-K with the SEC without the express written consent of such
Buyer. In the event of a breach of the foregoing covenant by the Company or any
of its or its officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Buyer shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic information without the
prior approval by the Company or any of its officers, directors, employees or
agents. No Buyer shall have any liability to the Company or any of its officers,
directors, employees, stockholders or agents for any such disclosure. Subject to
the foregoing, neither the Company nor any Buyer shall issue any press releases
or any other public statements with respect to the transactions contemplated
hereby, other than as set forth in Section 9(j) hereof.
i. Proxy Statement. If the Company at any time determines that in
connection with the issuance of the Securities, Stockholder Approval is required
by the Principal Market in connection with the 19.99% Rule, the Company shall
provide each stockholder entitled to vote at the next meeting of stockholders of
the Company, which meeting shall occur on or before ninety days from the date of
such determination (the "Stockholder Meeting Deadline"), a proxy statement,
which has been previously reviewed by the Buyers and a counsel of their choice,
soliciting each such stockholder's affirmative vote at such stockholder meeting
for approval of the Company's issuance of all of the Securities as described in
the Transaction Documents in accordance with applicable law and the rules and
regulations of the Principal Market (such affirmative approval being referred to
herein as the "Stockholder Approval"), and the Company shall use its reasonable
best efforts to solicit its stockholders' approval of such issuance of the
Securities and to cause the Board of Directors of the Company to recommend to
the stockholders that they approve such proposal.
16
j. Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged in compliance with applicable securities laws by
an Investor in connection with a bona fide margin agreement or other loan
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) of this Agreement; provided that in order to make any sale,
transfer or assignment of Securities, such Investor and its pledgee makes such
disposition in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act. The Company hereby agrees to execute and deliver
such reasonable documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.
k. Expenses. Subject to Section 9(l) below, at the Closing, the
Company shall reimburse the Buyers for the Buyers' reasonable, documented fees
and expenses (including legal expenses) incurred in connection with the
consummation of the transactions contemplated by this Agreement, up to a maximum
of $70,000 (in addition to any other expense amounts previously paid to the
Buyers), which reasonable, documented amount shall be withheld by the Buyers
from its purchase price to be paid at the Closing. In addition, Portside Growth
& Opportunity Fund shall withhold from the amounts set forth opposite its name
on the Schedule of Buyers $105,000 from the First Payment Amount, $78,750 from
the Second Payment Amount and $52,500 from the Third Payment Amount, in each
case to pay the fees of the placement agent engaged by the Company in connection
with the transactions contemplated hereby.
l. Additional Debentures. For so long as any Buyer beneficially owns
any Debentures, the Company shall not issue any other securities that would
cause a breach or default under the Debentures.
m. Tax Matters.
(i) For United States Federal income tax purposes, the Company
and each Buyer agree (A) to treat the Debentures as indebtedness, (B) that
$165,009.86 of the aggregate purchase price for the securities issued by the
Company to the Buyers hereunder is attributable to the purchase of the Warrants,
and (C) to treat the Debentures as having been issued for an aggregate purchase
price of $5,260,990.14.
(ii) The Company shall be permitted to withhold from any
amounts payable to a Buyer, a Debenture holder, a Warrant holder or a holder of
Common Stock any taxes required by law to be withheld from such amount. If the
Company shall be required to withhold or deduct any tax, levy or other
governmental charge, excluding (A) net income taxes, franchise taxes, or taxes
imposed on or measured by net income (or overall gross receipts, to the extent
such tax is imposed in lieu of a tax on net income by a jurisdiction that does
not impose any tax based on or measured by net income) on any Buyer or Debenture
holder by the jurisdiction in which such Buyer or Debenture holder is organized
or any other jurisdiction in which such Buyer or Debenture holder would be
subject to tax without regard to the transactions contemplated hereby, and (B)
U.S. Federal withholding taxes (unless such U.S. Federal withholding taxes
17
would not be imposed but for a change in or amendment to the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury Regulations or any other
administrative authority thereunder or any tax treaty or the release or
promulgation of any judicial decision relating thereto, in each case, on or
after the later of (x) the date of this Agreement or (y) the date such Debenture
holder becomes a party hereto (each, a "Change in Law")) (all such non-excluded
taxes, levies or other governmental charges, "Taxes") from any payment of
interest, or any accrual of original issue discount, for U.S. Federal income tax
purposes made hereunder or under any Debenture to or for the benefit of any
Buyer or any Debenture holder, then (A) the amount payable shall be increased by
the amount necessary so that after making all required deductions and
withholdings (including deductions and withholdings with respect to additional
amounts payable under this Section 4(m)) such Buyer or such Debenture holder
shall receive an amount equal to the amount it would have received if no such
deduction or withholding of Taxes had been required, (B) the Company shall make
such deduction or withholding and (C) the Company shall pay the full amount
deducted to the appropriate governmental authority in accordance with applicable
law. If any Buyer or any Debenture holder is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (each a "Non-U.S. Debenture Holder"), it shall deliver to the Company
two copies of either (A) U.S. Internal Revenue Service Form W-8BEN (claiming
complete exemption from U.S. Federal withholding tax under an income tax
treaty), or any successor form; (B) U.S. Internal Revenue Service Form W-8ECI
(claiming complete exemption from U.S. Federal withholding tax because the
18
income is effectively connected with a U.S. trade or business), or any successor
form; (C) in the case of a Non-U.S. Debenture Holder claiming exemption from
U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code, with
respect to payments of "portfolio interest," U.S. Internal Revenue Service Form
W-8BEN (certifying as to beneficial ownership), or any successor form, and a
certificate in form and substance reasonably acceptable to the Company
representing that such Non-U.S. Debenture Holder is not a "bank" for purposes of
Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Code) of the Company and is not a "controlled
foreign corporation" related to the Company (within the meaning of Section
864(d)(4) of the Code); or (D) other applicable form, certificate or document
prescribed by the U.S. Internal Revenue Service certifying as to such Non-U.S.
Debenture Holder's entitlement to a complete exemption from U.S. Federal
withholding tax, as applicable, in all cases such forms and other documents
being properly completed and duly executed by such Non-U.S. Debenture Holder
claiming complete exemption from U.S. Federal withholding tax on payments of
interest (or of original issue discount) for U.S. Federal income tax purposes by
the Company under the Debentures. Each Buyer, each Warrant holder and each
holder of common stock that is organized under the laws of a jurisdiction other
than the United States, any State thereof or the District of Columbia (each a
"Non-U.S. Equity Holder") also shall deliver to the Company, to the extent
legally able to do so, with respect to payments of dividends for U.S. Federal
income tax purposes by the Company, if applicable, two copies of either (A) U.S.
Internal Revenue Service Form W-8BEN (claiming a reduction of U.S. Federal
withholding tax under an applicable income tax treaty, if any), or any successor
form, (B) U.S. Internal Revenue Service Form W-8ECI (claiming complete exemption
from U.S. Federal withholding tax because the income is effectively connected
with a U.S. trade or business), or any successor form, or (C) other applicable
form, certificate or document prescribed by the U.S. Internal Revenue Service
certifying as to such Non-U.S. Equity Holder's entitlement to an exemption from,
or a reduction of, U.S. Federal withholding tax on payments of dividends for
U.S. Federal income tax purposes by the Company, as applicable, in all cases
such forms and other documents being properly completed and duly executed by
such Non-U.S. Equity Holder. In addition, each Buyer, each Debenture holder,
each Warrant holder, and each holder of Common Stock that is not otherwise
exempt from "back-up withholding" shall deliver to the Company two properly
completed and duly executed copies of either (A) U.S. Internal Revenue Service
Form W-8BEN, or any successor form, (B) U.S. Internal Revenue Service Form
W-8ECI, or any successor form, (C) U.S. Internal Revenue Service Form W-9, or
any successor form, or (D) other applicable form, certificate or document
prescribed by the U.S. Internal Revenue Service, as applicable, in each case
indicating that such Buyer, Debenture holder, Warrant holder, or holder of
Common Stock is not subject to "back-up withholding" for U.S. Federal income tax
purposes. The forms and other documents required to be delivered pursuant to
this Section 4(m)(ii) shall be delivered (A) on or prior to the Closing Date and
(B) from time to time thereafter if within ten (10) Business Days after receipt
of a written request therefor by the Company. In addition, each Buyer, each
Debenture holder, each Warrant holder and each holder of Common Stock shall
promptly notify the Company at any time it determines that it is no longer in a
position to provide any previously delivered (or requested) form, document or
certificate to the Company, including as a result in whole or in part from a
Change in Law; provided, however, that the failure to provide such notice shall
not affect any Buyer's or Debenture holder's right to any additional amounts
hereunder.
(iii) Notwithstanding anything to the contrary in Section
4(m)(ii) above, the Company shall not be required to pay any additional amount
to any Buyer or any Debenture holder pursuant to the preceding paragraph to the
extent the Tax in respect of which such additional amount would otherwise be
payable would not have been imposed but for the failure of such Buyer or
Debenture holder to comply with its obligations under such paragraph; provided,
however, that the failure to provide the applicable form, document or
certificate pursuant to the preceding paragraph as provided in the notice
required by the preceding paragraph resulting in whole or in part from a Change
in Law shall not affect such Buyer's or Debenture holder's right to any
additional amounts hereunder.
n. Violations of Law. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
o. Corporate Existence. So long as a Buyer beneficially owns any
Securities, the Company shall maintain its corporate existence and shall not
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the Transaction
19
Documents and (ii) such surviving or successor entity or its parent into whose
stock the Debentures and Warrants will be convertible or exercisable is a
publicly traded corporation whose common stock is listed for trading on or
quoted on AMEX, NYSE or NASDAQ.
p. Short Positions. Each Buyer agrees that on any Business Day prior
to the time such Buyer no longer holds any Debentures, such Buyer shall not
maintain a Net Short Position. For purposes hereof, "Net Short Position" shall
mean that the aggregate number of shares of Common Stock held in a short
position by such Buyer exceeds the sum of the number of Conversion Shares,
Warrant Shares and Interest Shares then issuable (without regard to any
limitations on conversions or exercise) to such Buyer.
q. Letter of Credit. Pursuant to this subsection, the Company shall
cause to be issued and delivered to Portside Growth & Opportunity Fund, as
collateral agent for the Buyers (in such capacity, together with any successor
in such capacity, the "Agent"), four (4) irrevocable standby letters of credit
in the stated amount of $250,000 each ($1,000,000 in the aggregate),
substantially in the form of Exhibit D hereto and otherwise reasonably
satisfactory to the Buyers (together with any letter of credit issued in
exchange therefor or in replacement thereof, each a "Letter of Credit"), naming
the Agent as beneficiary and issued by a bank with a Minimum Rating and
otherwise acceptable to the Agent in its reasonable discretion. As used herein,
"Minimum Rating" shall mean one of the two highest long-term debt ratings,
without regard to qualification by symbols, such as "+" and "-", or by numerical
notations, such as "1", "2" and "3" (or if no long-term debt rating is
available, one of the two highest long-term deposit ratings) obtainable from
either Standard & Poor's Ratings Services ("S&P") or Xxxxx'x Investors Service,
Inc. ("Moody's") (or if at any time neither S&P nor Moody's shall issue such
ratings, then from another nationally recognized rating service). The Buyers
agree to pay at the Closing for all reasonable and customary fees in connection
with the Letter of Credit provided, that such fees do not exceed $20,000. The
first Letter of Credit shall be delivered within seven (7) days following the
Closing, the second Letter of Credit within fourteen (14) days following the
Closing, the third Letter of Credit within twenty-one (21) days following the
Closing and the fourth Letter of Credit within twenty-eight (28) days following
the Closing. The Company shall have the right, at any time and from time to
time, to cause to be issued and delivered to the Agent a replacement for any
Letter of Credit previously issued and delivered, provided, that such
replacement is substantially in the form of the Letter of Credit being exchanged
or replaced therefor and is otherwise acceptable to the Agent in its sole
discretion. Upon delivery of a replacement Letter of Credit, the Agent shall
immediately deliver the original Letter of Credit being exchanged therefor. The
Letters of Credit shall not be drawn upon by the Buyers unless the obligations
of the Company pursuant to the Transaction Documents are not otherwise satisfied
pursuant to the terms of the Transaction Documents.
r. Cash Collateral Account. No later than March 28, 2003, the
Company shall establish with a bank acceptable to the Agent (the "Cash
Collateral Bank") a deposit account (together with all monies on deposit in such
deposit account and all certificates and instruments, if any, representing or
evidencing such deposit account, the "Cash Collateral Account"), and shall cause
the Cash Collateral Bank to enter into an Account Control Agreement with the
Agent, substantially in the form of Exhibit E (as amended from time to time, the
"Account Control Agreement"). The Cash Collateral Account shall at all times be
under the dominion and control of the Agent. The Company shall deliver to the
Agent (for the benefit of
20
the Buyers) any opinion that the Agent may reasonably request in connection with
the Account Control Agreement.
s. Perfected First Security Interest- Personal Property. The Company
shall execute and deliver to the Agent the Security Agreement at Closing,
substantially in the form of Exhibit F hereto (as amended from time to time, the
"Security Agreement"), pursuant to which the Company shall grant to the Agent,
for the benefit of the Buyers, a perfected (subject to the final sentence hereof
with respect to certain inventory being acquired from Interferon pursuant to the
Interferon Inventory and License Agreement in which certain third parties
currently have a first priority security interest (the "Encumbered Inventory")),
first priority security interest in all of its now owned and hereafter acquired
personal property other than intellectual property (the "Personal Property
Collateral"), and shall take such other action and execute, acknowledge and
deliver such other agreements, instruments or other documents as the Agent may
require from time to time in order (i) to carry out more effectively the
purposes of the Security Agreement, (ii) to subject to valid and perfected first
priority liens any of the Personal Property Collateral, (iii) to establish and
maintain the validity and effectiveness of the Security Agreement or such other
agreements, instruments or other documents and the validity, perfection and
priority of the liens intended to be created thereby, and (iv) to better assure,
convey, grant, assign, transfer and confirm unto each of the Agent and the
Buyers the rights now or hereafter intended to be granted to it under the
Security Agreement (including, without limitation, by (w) executing any
amendment to the Security Agreement as may be reasonably requested by the
Buyers, (x) not later than March 28, 2003, by causing insurance certificates
satisfactory to the Buyers naming the Buyers as "loss payee" or "additional
insured" on all of the Company's property and liability insurance to be issued,
(y) by using its reasonable commercial efforts to obtain landlord waivers
reasonably satisfactory to the Buyers in connection with the Company's leasehold
premises where Personal Property Collateral is located and (z) by cooperating
with the Buyers to finalize and execute a perfection certificate to include,
among other things, information relating to the acquisition of certain
Interferon assets.). In furtherance of the foregoing, to the maximum extent
permitted by applicable law, the Company (i) authorizes the Agent to execute any
such agreements, instruments or other documents in the Company's name and to
file such agreements, instruments or other documents in any appropriate filing
office, (ii) authorizes the Agent to file any financing statement required
hereunder or under the Security Agreement, and any continuation statement or
amendment with respect thereto, in any appropriate filing office without the
signature of the Company, and (iii) ratifies the filing of any financing
statement, and any continuation statement or amendment with respect thereto,
filed without the signature of the Company prior to the date hereof. The
security interest described herein relating to the Encumbered Inventory shall be
a first priority security interest within five (5) Business Days of the Closing
Date, and the Company shall provide all evidence thereof as may reasonably be
requested by the Agent, including (without limitations) copies of the applicable
UCC-3 termination statements.
t. Perfected First Security Interest - Real Property. Within 90 days
of the Closing Date, the Company shall:
(i) execute and deliver to the Agent a mortgage, deed of trust
or deed to secure debt for each real property location (the "Properties")
acquired by the Company from the Interferon Sciences, Inc. (the "Seller"), each
in recordable form and
21
containing such terms, covenants and provisions and in all other respects
reasonably acceptable to the Agent in its sole discretion (as amended from time
to time, each a "Mortgage" and collectively, the "Mortgages"), pursuant to which
the Company shall grant to the Agent, for the benefit of the Buyers, a perfected
first priority security interest and mortgage lien in the Properties and all
improvements located thereon (the "Real Property Collateral"; together with the
Personal Property Collateral, collectively, the "Collateral");
(ii) furnish to the Agent the following, each in form and
substance reasonably satisfactory to the Agent:
(A) evidence of the recording of each Mortgage referred
to in clause (i) above in such office or offices as may be necessary or, in the
reasonable opinion of the Agent, desirable to create and perfect a valid and
enforceable first priority lien on the property purported to be covered thereby
or to otherwise protect the rights of the Agent and the Buyers thereunder;
(B) an ALTA form of mortgage loan title insurance
policy, in form and substance reasonably satisfactory to the Agent, issued by or
on behalf of a title insurance company reasonably satisfactory to the Agent,
insuring the mortgage lien created by each Mortgage for an amount not less than
$1,500,000, subject only to such exceptions to title as the Agent may reasonably
accept and approve and with such endorsements and affirmative insurance as the
Agent may reasonably require, and otherwise on terms satisfactory to the Agent
(a "Title Insurance Policy");
(C) an ALTA survey of each Property, certified to the
Agent and to the issuer of the applicable Title Insurance Policy by a licensed
land surveyor reasonably satisfactory to the Agent (a "Survey");
(D) a satisfactory ASTM 1527-00 Phase I Environmental
Site Assessment ("Phase I ESA") for each Property (and, if reasonably requested
by the Agent based upon the results of such Phase I ESA, an ASTM 1527-00 Phase
II Environmental Site Assessment ("Phase II ESA") for such Property), each in
form and substance and by an independent firm satisfactory to the Agent;
(E) an opinion of counsel for the Company as to such
matters regarding each Mortgage (including the due authorization, execution and
delivery of the Mortgage, the validity and enforceability of the Mortgage and
its compliance with the law of the jurisdiction in which the relevant Property
is located) as the Agent may reasonably require; and
(F) such other instruments and documents, including
estoppel certificates, permits, licenses, approvals, violation reports, plans
and engineering studies, regarding each such Property as the Agent may require;
and
22
(iii) take such other action and execute, acknowledge and
deliver such other agreements, instruments or other documents as the Agent may
reasonably require from time to time in order to (A) carry out more effectively
the purposes of each Mortgage, (B) subject to valid and perfected first priority
liens any of the Real Property Collateral, (C) establish and maintain the
validity and effectiveness of each Mortgage or such other agreements,
instruments or other documents and the validity, perfection and priority of the
liens intended to be created thereby, and (D) better assure, convey, grant,
assign, transfer and confirm unto each of the Agent and the Buyers the rights
intended to be granted to it under each Mortgage. In furtherance of the
foregoing, to the maximum extent permitted by applicable law, the Company (x)
authorizes the Agent to execute any such agreements, instruments or other
documents in the Company's name and to file or record such agreements,
instruments or other documents in any appropriate filing or recording office,
(y) authorizes the Agent to file any financing statement required hereunder or
under any Mortgage, and any continuation statement or amendment with respect
thereto, in any appropriate filing office without the signature of the Company,
and (z) ratifies the filing of any financing statement, and any continuation
statement or amendment with respect thereto, filed without the signature of the
Company prior to the date hereof.
u. Acquisition of Interferon Sciences, Inc. The Company shall
acquire certain assets of the Seller pursuant to certain valid and binding
purchase and sale agreements, executed copies (together with all exhibits and
schedules thereto) of which are attached hereto as Exhibit G-1 (the "Interferon
Inventory and License Agreement") and Exhibit G-2 (the "Interferon Asset
Agreement" and together with the Interferon Inventory and License Agreement, the
"Interferon Agreements"), within ninety (90) days of the Closing. The Company
shall not make or permit to be made any amendment or modification to either
Interferon Agreement or the transactions contemplated thereby without Buyers'
prior written consent. All of the consideration (including, without limitation,
all shares of Common Stock (whether issued or issuable to Seller or otherwise as
set forth in the Interferon Agreements), the satisfaction of certain
obligations, royalties, fees for employees and for services, the assumption of
payables) to be paid by the Company in connection with the Interferon Agreements
is as set forth on Schedule 4(u) hereof.
v. Certain Accounts. The Company represents and warrants to each
Buyer that Schedule 4(v) hereto sets forth a full and complete list of every
bank and other financial institution at which the Company presently has an
account (each, an "Existing Account"). The Company shall take the following
actions with respect to these accounts:
(i) The Company shall deposit or otherwise transfer any and
all funds, including (without any limitation) those funds released from any
Existing Account that does not become a Permitted Account (as defined) pursuant
hereto, to the First Union National Bank Account Nos. 20000009652305,
2100043128724 and/or 4166-9926 (the "First Union Accounts");
(ii) The Company shall immediately deposit any funds released
from time to time from the First Union/Wachovia Investments Account No.
4167-7452
23
into an account for which the Agent has executed a Bank Agreement reasonably
satisfactory to the Buyers (any such account being a "Permitted Account");
(iii) The Company shall not deposit or otherwise transfer any
funds into any foreign account without the prior written consent of the Buyers;
provided, however, that the Company may make such deposits or transfers to such
foreign accounts in connection with ordinary course business expenses to the
extent that the aggregate balance in all such foreign accounts does not exceed
$25,000;
(iv) By no later then March 28, 2003, the Company shall cause
each Existing Account denoted with an asterisk on Schedule 4(v) to be a
Permitted Account and the Company shall deliver to the Agent (for the benefit of
the Buyers) any opinion that the Agent may reasonably request in connection with
the applicable Bank Agreement; and
(v) The Company shall not deposit or otherwise transfer any
funds to any account that is not a Permitted Account; provided, however, that
the Company may make such deposits or transfers to an Existing Account that is
not a Permitted Account to the extent that the balance in any such Existing
Account does not exceed $5,000.
Immediately upon the occurrence of a default or Event of Default or event
that with notice or lapse of time would constitute a Default or Event of
default, the company agrees that the Agent under the Account Control Agreement
or any Bank Agreement shall be authorized to send one or more "notices of
exclusive control" (as defined in the Account Control Agreement or relevant Bank
Agreement) (or an analogous notice described in the Account Control Agreement or
relevant Bank Agreement) to the depositary bank(s) party thereto prohibiting
such bank(s) from accepting any further instructions from the Company in
connection with any property held in any account therein.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agents,
and any subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at DTC, registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of the Debentures or exercise of the Warrants, as applicable and in
accordance with their respective terms (the "Irrevocable Transfer Agent
Instructions"), a form of which is attached as Exhibit H hereto. Prior to
transfer or sale pursuant to a registration statement or Rule 144 under the 1933
Act of the Conversion Shares and the Warrant Shares, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction inconsistent with the Irrevocable Transfer
Agent Instructions referred to in this Section 5 and stop transfer instructions
to give effect to Section
24
2(f) hereof (in the case of the Conversion Shares, the Warrant Shares the
Interest Shares and the Repayment Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 0000 Xxx) will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Debentures, the Warrants and the Registration
Rights Agreement. If a Buyer provides the Company with an opinion of counsel, in
generally acceptable form, to the effect that a public sale, assignment or
transfer of Securities may be made without registration under the 1933 Act or
that the Securities can be sold pursuant to Rule 144 without any restriction as
to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the
Conversion Shares, the Warrant Shares, the Interest Shares and the Repayment
Shares, promptly instruct its transfer agent to issue one or more certificates,
or credit shares to one or more balance accounts at DTC, in such name and in
such denominations as specified by such Buyer and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyers by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that the Buyers shall
be entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. The obligation of the Company to issue and sell the
Debentures and the Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.
(ii) Such Buyer shall have delivered to the Company the
purchase price (less any amounts withheld pursuant to Section 4(k)) for the
Debentures and the Warrants being purchased by such Buyer at the Closing, by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
(iii) The representations and warranties of such Buyer
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 2 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date (which shall
be true and correct as of such date)), and such Buyer shall have performed,
satisfied and complied with in all material respects the covenants, agreements
and conditions
25
required by the Transaction Documents to be performed, satisfied or complied
with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. The obligation of each Buyer hereunder to purchase the
Debentures and the Warrants from the Company at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
(i) The Company shall have executed each of the
Transaction Documents and delivered the same to such Buyer.
(ii) (1) The Common Stock (x) shall be designated for
quotation or listed on the Principal Market and (y) shall not have been
suspended by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market; and (2) not later than 10 days following the Closing Date, the
Conversion Shares issuable upon conversion of the Debentures (without regard to
any limitations on conversions), the Warrant Shares issuable upon exercise of
the Warrants (without regard to any limitations on exercises) shall be listed
(subject to official notice of issuance) on the Principal Market and the maximum
number of Interest Shares and Repayment Shares issuable over the full term of
the Debentures (assuming the Company paid the maximum amount of interest
permitted to be paid in Interest Shares over the full term of the Debentures)
shall be approved for listing on the Principal Market.
(iii) The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date (which shall
be true and correct as of such date)) and the Company shall have performed,
satisfied and complied with in all material respects the covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
(iv) The Company shall have delivered to such Buyer the
opinion of Xxxxxx X. Xxxxxxxxx, Esq. counsel to the Company, dated as of the
Closing Date, in the form of Exhibit I attached hereto.
(v) The Company shall have executed and delivered to
such Buyer the Debentures and the Warrants (in such denominations as such Buyer
shall reasonably request) being purchased by such Buyer at the Closing.
26
(vi) As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Debentures, the exercise of the Warrants, and
the payment of interest in the form of Interest Shares (assuming the Company
paid the maximum amount of interest permitted to be paid in Interest Shares over
the full term of the Debentures) 6,971,256 shares of its Common Stock.
(vii) The Company shall have delivered the Irrevocable
Transfer Agent Instructions, in the form of Exhibit H attached hereto, to the
Company's transfer agent.
(viii) The Company shall have delivered to such Buyer a
secretary's certificate, dated as of the Closing Date, certifying as to (A)
adoption of the form of resolutions of the Board of Directors of the Company
consistent with Section 3(b) above (the "Resolutions"), (B) the Certificate of
Incorporation and (C) the By-laws, each as in effect at the Closing.
(ix) The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
(x) Each of the Company and the Seller shall have duly
authorized, executed and delivered the Interferon Agreements providing for the
acquisition of certain assets of Seller by the Company. The Company shall have
delivered a true and complete copy of the Interferon Agreements to each Buyer.
(xi) The Company shall have completed the purchase of
the Seller's inventory pursuant to the Interferon Inventory and License
Agreement.
(xii) The Company shall have completed, or shall
simultaneously complete, the purchase of any and all licenses necessary to sell
Seller's inventory in the United States pursuant to the Interferon Inventory and
License Agreement.
(xiii) The Bank Agreement(s) relating to the First Union
Accounts (the "First Union Bank Agreements") shall have been executed and
delivered to the Agent (for the benefit of the Buyers).
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer, each holder of Debentures and Warrants and each affiliate of any Buyer
holding Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of
27
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and
disbursements, but excluding amounts covered by Section 4(m)(ii) hereof (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty made by the Company in the Transaction Documents or (b) any breach
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents, (c) the exercise or enforcement of any of the rights of
the Buyers under the Pledge and Security Agreement or the foreclosure, sale,
liquidation or other disposition of, or realization upon, the Collateral
including, without limitation, the transfer of the Collateral to the Buyers, or
(d) any cause of action, suit or claim brought or made against such Indemnitee
(other than a cause of action, suit or claim which is (x) brought or made by the
Company and (y) is not a shareholder derivative suit) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities or (iii) the status of such Buyer, such holder of Debentures
and Warrants and any such affiliate of any Buyer holding Securities as an
investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 8 shall be the same as those set forth in
Sections 6(a) and (d) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and the
Company's rights to assume the defense of claims.
9. MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR
28
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended or waived other than by an instrument in writing signed
by the Company and the holders of at least 60% of the outstanding principal
amount of the Debentures or Conversion Shares, as applicable. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the Debentures then outstanding. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration also is offered
to all of the parties to the Transaction Documents or holders of the Conversion
Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
Hemispherx Biopharma, Inc.
One Penn Center
0000 XXX Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
29
With copies to:
Xxxxxx X. Xxxxxxxxx, Esq.
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Transfer Agent:
Continental Stock Transfer & Trust Company
0 Xxxxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to a Buyer, to it at the address and facsimile number set forth
on the Schedule of Buyers, with copies to such Buyer's representatives as set
forth on the Schedule of Buyers, or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttal evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Securities; provided, however, that
such successor or assignee shall deliver the forms specified in Section 4(m)(ii)
as if it were a "Buyer." The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the holders
of at least 60% of the outstanding principal amount of the Debentures, including
by merger or consolidation. A Buyer may assign some or all of its rights and
obligations hereunder without the consent of the Company; provided, however,
that the transferee has agreed in writing to be bound by the applicable
provisions of this Agreement and provided, further, that such assignment shall
be in connection with a transfer of all or a portion of the Debentures and
Warrants held by such Buyer and subject to the terms and conditions of the
Warrants and Debentures, as applicable. Any such assignment shall only be
effective upon the Company's receipt of written notice thereof. Any Buyer shall
be entitled to pledge the Securities in connection with a bona fide margin
account or other loan secured by the Securities and the
30
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Investor effecting a pledge of Securities shall
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) of this Agreement;
provided that in order to make any sale, transfer or assignment of Securities,
such Investor and its pledgee makes such disposition in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive
until such time as no Debentures remain outstanding. Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to (i)
file a Form 8-K, substantially in the form attached hereto as Exhibit J, after
the Closing, (ii) make any press release or other public disclosure of
information that previously has been publicly disclosed (other than pursuant to
a breach of this paragraph), and (iii) make any press release or other public
disclosure with respect to such transactions in the form as is required by
applicable law and regulations.
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l), the Company shall remain obligated to reimburse any
nonbreaching Buyer for the expenses described in Section 4(k) above.
m. Placement Agent. The Company acknowledges that it has
engaged one or more placement agents in connection with the sale of the
Debentures and the Warrants and that the total amount of compensation of each
such agent has been disclosed in writing to
31
each Buyer. Other than fees paid by Buyers, the Company shall be responsible for
the payment of any placement agent's fees, financial advisory fees, or brokers'
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated hereby. The
Company shall pay, and hold each Buyer harmless against, any liability, loss or
expense (including, without limitation, attorney's fees and out-of-pocket
expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any person having any rights under any provision of this
Agreement shall be entitled to enforce such rights to recover damages by reason
of any breach of any provision of this Agreement and to exercise all other
rights granted by law. Furthermore, the Company recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief to the
Buyers. The Company therefore agrees that the Buyers shall be entitled to seek
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages and without posting a bond or other security.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to any Buyer hereunder or pursuant to any of the other
Transaction Documents, or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
[signature page follows]
32
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY:
HEMISPHERX BIOPHARMA, INC.
By:
--------------------------
Name:
Title:
BUYERS:
PORTSIDE GROWTH & OPPORTUNITY FUND
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
XXXXXXXX, L.P.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
33
SCHEDULE OF BUYERS
Debentures and Warrants:
Aggregate
Principal Purchase
Amount Price of First
Investor Investor Address of Debentures Number of Payment
Name and Facsimile Number Debentures and Warrants Warrants Amount
---- -------------------- ---------- ------------ -------- ------
Portside c/o Ramius Capital Group, L.L.C. $2,713,000 $2,325,000 371,644 $1,050,000
Growth & 000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxxxxx Xxx Xxxx, XX 00000
Fund Attention: Xxxxxxx Xxxxx
Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
Xxxxxxxx c/o Xxxxxx Xxxxxx, LP $2,713,000 $2,325,000 371,644 $1,050,000
L.P. 000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Xxxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Residence: Cayman Islands
Investor's
Second Third Representatives'
Investor Payment Payment Address
Name Amount Amount and Facsimile Number
------------ ------ ------ --------------------
Portside $775,000 $500,000 Xxxxxxx Xxxx & Xxxxx LLP
Growth & 000 Xxxxx Xxxxxx
Xxxxxxxxxxx Xxx Xxxx, XX 00000
Fund Attn: Xxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxxxx
L.P. $775,000 $500,000 Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
INDEX OF DEFINED TERMS
19.99% Rule ............................................................. 7
1933 Act ................................................................ 1
1934 Act ................................................................ 10
Account Control Agreement ............................................... 20
Agent ................................................................... 20
Agreement ............................................................... 1
AMEX .................................................................... 16
Business Day ............................................................ 2
Buyer ................................................................... 1
Buyer's Purchase Price .................................................. 2
Bylaws .................................................................. 8
Cash Collateral Account ................................................. 20
Cash Collateral Bank .................................................... 20
Certificate of Incorporation ............................................ 8
Change in Law ........................................................... 18
Closing ................................................................. 2
Closing Date ............................................................ 2
Code .................................................................... 17
Collateral .............................................................. 21
Common Stock ............................................................ 1
Company ................................................................. 1
Conversion Shares ....................................................... 1
Debentures .............................................................. 1
Environmental Laws ...................................................... 12
Form 8-K ................................................................ 16
Hazardous Materials ..................................................... 13
Indemnified Liabilities ................................................. 27
Indemnitees ............................................................. 27
Intellectual Property ................................................... 12
Interferon Agreements ................................................... 23
Interferon Asset Agreement .............................................. 23
Interferon Inventory and License Agreement .............................. 23
Irrevocable Transfer Agent Instructions ................................. 24
Letter of Credit ........................................................ 20
Material Adverse Effect ................................................. 6
Minimum Rating .......................................................... 20
Moody's ................................................................. 20
Mortgage ................................................................ 21
Mortgages ............................................................... 21
NASDAQ .................................................................. 16
Non-U.S. Debenture Holder ............................................... 18
Non-U.S. Equity Holder .................................................. 18
NYSE .................................................................... 16
Payment Date ............................................................ 3
Permits ................................................................. 13
Personal Property Collateral ............................................ 21
Phase I ESA ............................................................. 22
Phase II ESA ............................................................ 22
Principal Market ........................................................ 16
Properties .............................................................. 21
Real Property Collateral ................................................ 21
Registration Rights Agreement ........................................... 1
Regulation D ............................................................ 1
Reporting Period ........................................................ 15
Resolutions ............................................................. 26
S&P ..................................................................... 20
SEC ..................................................................... 1
SEC Documents ........................................................... 10
Securities .............................................................. 3
Security Agreement ...................................................... 20
Segregated Account ...................................................... 2
Seller .................................................................. 21
Stockholder Approval .................................................... 16
Stockholder Meeting Deadline ............................................ 16
Subsidiaries ............................................................ 6
Survey .................................................................. 22
Taxes ................................................................... 18
Title Insurance Policy .................................................. 22
Transaction Documents ................................................... 7
Warrant Shares .......................................................... 1
Warrants ................................................................ 1
