EXHIBIT A
COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement') is dated as of
August 14, 2000 by and between Generex Biotechnology Corporation, a Delaware
corporation (the "Company"), and Tradersbloom Limited (the "Purchaser"), a
British Virgin Islands corporation.
The parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1 Certain Definitions.
(a) "Average Daily Price" shall be the price based on the VWAP of the
Company on the Principal Market.
(b) "Draw Down" shall have the meaning assigned to such term in Article VI
hereof.
(c) "Draw Down Exercise Date" shall have the meaning assigned to such term
in Section 6.1(b) hereof.
(d) "Draw Down Pricing Period" shall mean a period of twenty-two (22)
consecutive Trading Days beginning on the date specified in the Draw Down Notice
(as defined in Section 6.1(e); provided, however, the Draw Down Pricing Period
shall not begin before the day on which receipt of such notice is effective.
(e) "Effective Date" shall mean the date the Registration Statement of the
Company covering the Shares being subscribed for hereby is declared effective.
(f) "Material Adverse Effect" shall mean any adverse effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole and/or any condition, circumstance, or situation that would prohibit
or otherwise materially interfere with the ability of the Company to enter into
and perform any of its material obligations under this Agreement or the
Registration Rights Agreement or to perform its obligations under any other
material agreement.
(g) "Principal Market" shall mean initially the Nasdaq National Market. If
not the Nasdaq National Market, the Principal Market shall be the largest single
market by trading volume.
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(h) "Registration Statement" shall mean the registration statement under
the Securities Act of 1933, as amended, to be filed with the Securities and
Exchange Commission for the registration of the Shares pursuant to the
Registration Rights Agreement attached hereto as Exhibit A.
(i) "SEC Documents" shall mean the Company's latest Form 10-K or 10-KSB as
of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and
the Proxy Statement for its latest fiscal year as of the time in question until
such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
(j) "Shares" shall mean, collectively, the shares of Common Stock of the
Company being subscribed for hereunder and those shares of Common Stock issuable
to the Purchaser upon exercise of the Warrants.
(k) "Threshold Price" is the lowest Average Daily Price during any Draw
Down Pricing Period at which the Company will sell its Common Stock with respect
to this Agreement.
(l) "Trading Day" shall mean any day on which the Principal Market is open
for business.
(m) "VWAP" shall mean the daily volume weighted average price of the
Company's Common Stock on the OTC Bulletin Board or on any Principal Market as
reported by Bloomberg Financial using the AQR function.
(n) "Warrants" shall mean the Warrants as that term is defined in Section
5.2(f) hereof.
ARTICLE II
Purchase and Sale of Common Stock
Section 2.1 Purchase and Sale of Stock. Subject to the terms and conditions
of this Agreement, the Company may issue and sell to the Purchaser and the
Purchaser shall purchase from the Company up to Fifty Million Dollars
($50,000,000)(the "Commitment Amount") of the Company's Common Stock, $0.001 par
value per share (the "Common Stock") and the Warrants, based on up to eighteen
(18) Draw Downs of up to Five Million Dollars ($5,000,000) per Draw Down.
Section 2.2 The Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of stockholders, a sufficient number of its authorized but
unissued
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shares of its Common Stock to cover the Shares to be issued in connection with
all Draw Downs requested under this Agreement. Anything in this Agreement to the
contrary notwithstanding, the Company may not make a Draw Down to the extent
that, after such purchase by the Purchaser, the sum of the number of shares of
Common Stock beneficially owned by the Purchaser and its affiliates would result
in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of
the then outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities and Exchange Act of 1934, as amended.
Section 2.3 Purchase Price and Initial Closing. The Company agrees to issue
and sell to the Purchaser and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, the Purchaser agrees to purchase that number of the Shares to be
issued in connection with each Draw Down. The delivery of executed documents
under this Agreement and the other agreements referred to herein and the payment
of the fees set forth in Article II of the Escrow Agreement (the "Initial
Closing") shall take place at the offices of Epstein Becker & Green, P.C., 250
Park Avenue, New York, New York 10177 within fifteen (15) days from the date
hereof or (ii) such other time and place or on such date as the Purchaser and
the Company may agree upon (the "Closing Date"). Each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Initial Closing.
Section 2.4 Limitation on Shares Purchased and Sold. Notwithstanding any
other term of this Agreement, until and unless the shareholders of the Company
have approved such issuance in accordance with the rules of The Nasdaq Stock
Market, the maximum number of Shares that the Company shall be obligated or
permitted to sell and the maximum number of Shares that the Purchaser shall be
obligated or permitted to purchase pursuant to this Agreement and obligation
arising in the transactions contemplated by this Agreement shall not exceed the
number of Shares that equals nineteen and 99/100 (19.99%) percent of the total
number of shares of the Company's Common Stock issued and outstanding, adjusted
for any stock splits or similar changes in capitalization occurring after the
date hereof, measured immediately prior the execution of this Agreement.
ARTICLE III
Representations and Warranties
Section 3.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
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(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted. The Company does not have any subsidiaries and does not own more than
fifty percent (50%) of or control any other business entity except as set forth
in the SEC Documents. The Company is duly qualified to do business and is in
good standing as a foreign corporation in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect on the Company's financial condition.
(b) Authorization, Enforcement.(i) The Company has the requisite corporate
power and corporate authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, the Escrow Agreement and to
issue the Draw Down Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement and the Escrow Agreement by the Company and the consummation by it of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, and (iii) this Agreement, the
Registration Rights Agreement and the Escrow Agreement have been duly executed
and delivered by the Company and at the Initial Closing shall constitute valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. The Company has duly and validly
authorized and reserved for issuance shares of Common Stock sufficient in number
for the issuance of the Draw Down Shares.
(c) Capitalization. The authorized capital stock of the company consists of
50,000,000 shares of Common Stock, $0.001 par value per share, of which
16,296,533 shares are issued and outstanding, and 1,000,000 shares of preferred
stock, $0.001 par value per share, of which 1,000 shares are issued and
outstanding, in each case as of July 19, 2000. All of the outstanding shares of
the Company's Common Stock have been duly and validly authorized and are
fully-paid and non-assessable. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth in the SEC Documents, or on
Schedule 3.1(c) hereto, no shares of Common Stock are entitled to preemptive
rights or registration rights and 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. Furthermore, except as set forth in this Agreement and as
set forth in the SEC Documents or on Schedule 3.1(c): (i) there are no
contracts,
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commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company; (ii) the Company is not a party to any agreement granting registration
rights to any person with respect to any of its equity or debt securities; (iii)
the Company is not a party to, and it has no knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of the
Company; and (iv) the offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued prior to the
Initial Closing complied with all applicable federal and state securities laws,
and no stockholder has a right of rescission or damages with respect thereto
which would have a Material Adverse Effect on the Company's financial condition
or operating results. The Company has made available to the Purchaser true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof (the "Certificate"), and the Company's Bylaws as in effect on the
date hereof (the "Bylaws"). The Principal Market for the Common Stock in the
United States is the Nasdaq National Market, and the Company has not received
any notice from such market questioning or threatening the continued inclusion
of the Common Stock on such market.
(d) Issuance of Shares. The Shares to be issued under this Agreement have
been duly authorized by all necessary corporate action and, when paid for or
issued in accordance with the terms hereof, the Shares shall be validly issued
and outstanding, fully paid and non-assessable, and the Purchaser shall be
entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated herein do not and will not (i) violate any provision of the
Company's Certificate or Bylaws, (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 agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or other foreign statute, rule, regulation, order, judgment or
decree (including any federal and state or securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, termination, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity,
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except for possible violations which singularly or in the aggregate do not and
will not have a Material Adverse Effect. The Company is not required under any
federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, or issue and sell the Shares in accordance
with the terms hereof (other than any filings which may be required to be made
by the Company with the Securities and Exchange Commission (the "Commission") or
state securities administrators subsequent to the Initial Closing and any
registration statement which may be filed pursuant hereto); provided that, for
purpose of the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Purchaser herein.
(f) Commission Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, except as disclosed in the SEC
Documents or on Schedule 3.1(f) hereto, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "Commission Documents"). The Company has
delivered or made available to the Purchaser true and complete copies of the
Commission Documents filed with the Commission since December 31, 1998. The
Company has not provided to the Purchaser any information which, according to
applicable law, rule or regulation, should have been disclosed publicly by the
Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder applicable to such documents, and, as of their respective dates, none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with respect thereto.
Such financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements), and fairly present in all material respects the financial
position of the Company and its
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subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Subsidiaries. The SEC Documents or Schedule 3.1(g) hereto sets forth
each subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership of the
outstanding stock or other interests of such subsidiary. For the purposes of
this Agreement, "subsidiary" shall mean any corporation or other entity of which
at least a majority of the securities or other ownership interests having
ordinary voting power (absolutely or contingently) for the election of directors
or other persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and non-assessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any subsidiary for the purchase
or acquisition of any shares of capital stock of any subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence. Neither the Company nor any subsidiary is a party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.
(h) No Material Adverse Effect. Since April 30, 2000, no Material Adverse
Effect has occurred or exists with respect to the Company, except as disclosed
in the SEC Documents or on Schedule 3.1(h) hereof.
(i) No Undisclosed Liabilities. Except as disclosed in the SEC Documents or
on Schedule 3.1(i) hereto, neither the Company nor any of its subsidiaries has
any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
that would be required to be disclosed on a balance sheet of the Company or any
subsidiary (including the notes thereto) in conformity with GAAP which are not
disclosed in the Commission Documents, other than those incurred in the ordinary
course of the Company's or its subsidiaries respective businesses since such
date and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. Since April 30, 2000, no event
or circumstance has occurred or exists with respect to the Company or its
businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement
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prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the SEC Documents.
(k) Indebtedness. The SEC Documents or Schedule 3.1(k) hereto sets forth as
of the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any subsidiary, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $250,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $250,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Commission Documents, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated in the SEC Documents
or on Schedule 3.1(1) hereto or such that do not cause a Material Adverse Effect
on the Company's financial condition or operating results. All said leases of
the Company and each of its subsidiaries are valid and subsisting and in full
force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as set forth in the SEC Documents or on Schedule
3.1(m) hereto, there is no action, suit, claim, investigation or proceeding
pending or, to the knowledge of the Company, threatened, against or involving
the Company, any subsidiary or any of their respective properties or assets.
There are no outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against the Company or
any subsidiary.
(n) Compliance with Law. The business of the Company and the subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the SEC Documents or on Schedule 3.1(n) hereto or such
that do not cause a Material Adverse Effect. The Company and each of its
subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct
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of their respective businesses as now being conducted by them unless the failure
to possess such franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each subsidiary has filed all Tax Returns which
it is required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
No claim has been made by a taxing authority in a jurisdiction where the
Company does not file tax returns that the Company or any subsidiary is or may
be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; and (B) has not agreed to or is required to make any adjustments
pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method initiated
by the Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code
during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal
Revenue Code.
The Company has not made an election underss. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
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party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is it a party to an agreement that could
obligate it to make any payments that would not be deductible under ss. 280G of
the Internal Revenue Code.
For purposes of this Section 3.1(o):
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with respect to
Taxes, including any schedules attached thereto and including any amendment
thereof.
(p) Certain Fees. Except as set forth on Schedule 3.1(p) hereto, no
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary with respect to the transactions contemplated by
this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchaser by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements made herein or therein, in the
light of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. Except as set forth in the SEC Documents and on
Schedule 3.1(r) hereto, the Company and each of the subsidiaries owns or
possesses all patents, trademarks, service marks, trade names, copyrights,
licenses and authorizations as set forth in the SEC Documents and on Schedule
3.1(r) hereto, and all rights with respect to the foregoing, which are necessary
for the conduct of its business as now conducted without any conflict with the
rights of others.
(s) Regulatory Compliance. The Company has all necessary licenses,
registrations and permits to conduct its business as now being conducted in all
states where the Company conducts its business.
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(t) Books and Records. The records and documents of the Company and its
subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and the subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any subsidiary.
(u) Material Agreements. Except as set forth in the SEC Documents, or on
Schedule 3.1(u) hereto, neither the Company nor any subsidiary is a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement on Form S-1 or other applicable form
(collectively, "Material Agreements") if the Company was registering its
securities under the Securities Act of 1933, as amended (the "Securities Act").
The Company and each of its subsidiaries has in all material respects performed
all the obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. No written or oral
contract, instruments, agreement, commitment, obligation, plan or arrangement of
the Company or of any subsidiary limits or shall limit the payment of dividends
on the Company's Common Stock.
(v) Transactions with Affiliates. Except as set forth in the SEC Documents
or on Schedule 3.1(v) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions exceeding $100,000 between (a) the Company, any subsidiary or any
of their respective customers or suppliers on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediately family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply with
all applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person (other than the Purchaser), so as
to bring the issuance and sale of the Shares and\or Warrants under the
registration provisions of the Securities Act and applicable state securities
laws. Neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of
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Regulation D under the Securities Act) in connection with the offer or sale of
the Shares.
(x) Governmental Approvals. Except as set forth in the SEC Documents or on
Schedule 3.1(x) hereto, and except for the filing of any notice prior or
subsequent to the Initial Closing that may be required under applicable federal
or state securities laws (which if required, shall be filed on a timely basis),
including the filing of a registration statement or statements pursuant to this
Agreement, no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares, or for the
performance by the Company of its obligations under this Agreement.
(y) Employees. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth in the SEC Documents or on Schedule 3(y) hereto. Except as set forth
in the SEC Documents or on Schedule 3(y) hereto, neither the Company nor any
subsidiary is in breach of any employment contract, agreement regarding
proprietary information, noncompetition agreement, nonsolicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since the date of the
July 31, 1999, Form 10-K, no officer, consultant or key employee of the Company
or any subsidiary whose termination, either individually or in the aggregate,
could have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in SEC Documents or
in Schedule 3.1(z) hereto, since April 30, 2000 neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or any rights,
options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and
volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
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(iv) declared or made any payment or distribution of cash or other property
to stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchaser or its representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(viii) made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) suffered any material damage, destruction or casualty loss, whether or
not covered by insurance;
(xii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or
(xiii) effected any two or more events of the foregoing kind which in the
aggregate would be material to the Company and its subsidiaries.
(aa) Use of Proceeds. The proceeds from the sale of the Shares will be used
by the Company and its subsidiaries for general corporate purposes.
(bb) Acknowledgment Regarding Purchaser's Purchase of Shares. Company
acknowledges and agrees that Purchaser is acting solely in the capacity of arm's
length purchaser with respect to this Agreement and the transactions
contemplated hereunder. The Company further acknowledges that the Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereunder and any advice given by the Purchaser or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereunder is merely incidental to the Purchaser's purchase of the Shares. The
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Company further represents to the Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its own representatives and counsel.
Section 3.2 Representations and Warranties of the Purchaser. The Purchaser
hereby makes the following representations and warranties to the Company:
(a) Organization and Standing of the Purchaser. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of British Virgin Islands.
(b) Authorization and Power. The Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Shares
being sold to it hereunder. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
(c) No Conflicts. The execution, delivery and performance of this Agreement
and the consummation by the Purchaser of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of such
Purchaser's charter documents or bylaws or (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 agreement, indenture or instrument to which
the Purchaser is a party, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to the Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser). The Purchaser is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or to purchase the Shares in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, the Purchaser is assuming and relying upon
the accuracy of the relevant representations and agreements of the Company
herein.
(d) Financial Risks. The Purchaser acknowledges that it is able to bear the
financial risks associated with an investment in the Shares and that it has been
given full access to such records of the Company and the subsidiaries and to the
officers of the Company and the subsidiaries as it has deemed necessary or
appropriate to conduct its due diligence investigation. The Purchaser is capable
of evaluating the risks and merits of an investment in the Shares by virtue of
its experience as an investor and its knowledge, experience, and sophistication
in financial and business matters and the Purchaser is capable of bearing the
entire loss of its investment in the Shares.
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(e) Accredited Investor. The Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
(f) Compliance With Law. The Purchaser's trading and distribution
activities with respect to the Shares will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the Principal Market.
(g) General. The Purchaser understands that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the suitability of the Purchaser to acquire the Shares.
ARTICLE IV
Covenants
The Company covenants with the Purchaser as follows:
Section 4.1 Securities Compliance. The Company shall take all necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares and the Warrants
to the Purchaser or subsequent holders. The Company and the Purchaser agree that
a pre-Closing filing with Nasdaq is not required.
Section 4.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or another Principal Market and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD.
Section 4.3 Registration Statement. The Company shall cause to be filed the
Registration Statement, which Registration Statement shall provide for the
resale by the Purchaser to the public in accordance with this Agreement. The
Company shall cause such Registration Statement to be declared effective by the
Commission as expeditiously as practicable. Before the Purchaser shall be
obligated to accept a Draw Down request from the Company, the Company shall
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have caused a sufficient number of shares of Common Stock to be registered to
cover the Shares to be issued in connection with such Draw Down.
Section 4.4 Escrow Arrangement. The Company and the Purchaser shall enter
into an escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow
Agent") in the Form of Exhibit B hereto respecting payment against delivery of
the Shares.
Section 4.5 Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 4.6 Keeping of Records and Books of Account. The Company shall keep
and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 4.7 Amendments. The Company shall not amend or waive any provision
the Certificate of Incorporation, Bylaws of the Company in any way that would
adversely affect the dividend rights or voting rights of the holders of the
Shares.
Section 4.8 Other Agreements. The Company shall not enter into any
agreement the terms of which such agreement would restrict or impair the ability
to perform of the Company or any subsidiary under this Agreement or the
Certificate of Incorporation of the Company.
Section 4.9 Notice of Certain Events Affecting Registration; Suspension of
Right to Request a Draw Down. The Company will immediately notify the Purchaser
upon the occurrence of any of the following events in respect of the
Registration Statement or related prospectus in respect of the Shares: (i)
receipt of any request for additional information from the Commission or any
other federal or state governmental authority during the period of effectiveness
of the Registration Statement the response to which would require any amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) the happening
of any event that makes any statement made in the Registration Statement or
related prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in the
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Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Purchaser any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Purchaser any Draw Down Notice during the
continuation of any of the foregoing events.
Section 4.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the obligation to deliver to the Purchaser such shares of stock
and/or securities as the Purchaser is entitled to receive pursuant to this
Agreement.
Section 4.11 Limitation on Future Financing. The Company agrees that,
except as set forth below and pursuant to any options, warrants or convertible
securities outstanding on the date hereof, it will not enter into any sale of
its securities for cash at a discount to the current market price until the
earlier of (i) eighteen (18) months from the effective date of the Registration
Statement or (ii) sixty (60) days after the entire $50,000,000 of Shares
(Excluding the Shares underlying the Warrants) have been purchased by Purchaser.
The foregoing shall not prevent or limit the Company from engaging in any sale
of securities (i) in a registered public offering by the Company which is
underwritten by one or more established investment banks, (ii) in one or more
private placements where the purchasers do not have registration rights, (iii)
pursuant to any presently existing or future employee benefit plan which plan
has been or is approved by the Company's stockholders, (iv) pursuant to any
compensatory plan for a full-time employee or key consultant, (v) in connection
with a strategic partnership or other business transaction, the principal
purpose of which is not simply to raise money, or (vi) to which Purchaser gives
its written approval.
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ARTICLE V
Conditions to Initial Closing and Draw Downs
Section 5.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and sell the Shares
to the Purchaser is subject to the satisfaction or waiver, at or before the
Initial Closing and as of each Draw Down Exercise Date, of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Initial Closing and as
of each Draw Down Exercise Date as though made at that time, except for
representations and warranties that speak as of a particular date.
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all material covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Initial Closing and as of
each Draw Down Exercise Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
Section 5.2 Conditions Precedent to the Obligation of the Purchaser to
Close. The obligation hereunder of the Purchaser to enter into this Agreement
and to purchase Shares, is subject to the satisfaction or waiver, at or before
the Initial Closing, of each of the conditions set forth below. These conditions
are for the Purchaser's sole benefit and may be waived by the Purchaser at any
time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Initial Closing as
though made at that time (except for representations and warranties that speak
as of a particular date).
(b) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
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(d) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Purchaser or the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.
(e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser shall
have received an opinion of counsel to the Company, dated the date of Initial
Closing, in the form of Exhibit C hereto, and such other certificates and
documents as the Purchaser or its counsel shall reasonably require incident to
the Initial Closing.
(f) Warrants. In lieu of a minimum Draw Down commitment by the Company, the
Purchaser shall receive at the Initial Closing a warrant certificate to purchase
up to a number of shares equal to $2,500,000 divided by the closing bid price of
the Common Stock on the date immediately preceding the date hereof (the
"Warrant"). The Warrant shall have a term of three years from the date hereof
and an exercise price equal to 115% of the closing bid price of the Company's
Common Stock on the date immediately preceding the date hereof. The Common Stock
underlying the Warrant will be registered in the Registration Statement referred
to in Section 4.3 hereof. The Warrant shall be in the form of Exhibit E hereto.
Section 5.3 Conditions Precedent to the Obligation of the Purchaser to
Accept a Draw Down and Purchase the Shares. The obligation hereunder of the
Purchaser to accept a Draw Down request and to acquire and pay for the Shares is
subject to the satisfaction, at or before each Draw Down Exercise Date, of each
of the conditions set forth below.
(a) Satisfaction of Conditions to Initial Closing. The Company shall have
satisfied, or the Purchaser shall have waived, at the Initial Closing, the
conditions set forth in Section 5.2 hereof
(b) Effective Registration Statement. The Registration Statement
registering the Shares shall have been declared effective by the Commission and
shall remain effective on each Draw Down Exercise Date.
(c) No Suspension. Trading in the Company's Common Stock shall not have
been suspended by the Commission or the Principal Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down Notice),
and, at any time prior to such Draw Down Notice, trading in securities generally
as reported on the Principal Market shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
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reported on the Principal Market unless the general suspension or limitation
shall have been terminated prior to the delivery of such Draw Down Notice.
(d) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to perform the
Company's obligations shall have occurred.
(e) Opinion of Counsel The Purchaser shall have received a "down-to-date"
letter from the Company's counsel, confirming that there is no change from the
counsel's previously delivered opinion, or else specifying with particularity
the reason for any change.
(f) Future Financing.The Company shall have not completed any financing
prohibited by Section 4.11 unless, prior to the Company delivering the first
Draw Down Notice after any such financing, the Company pays the Purchaser the
sum of $100,000 as liquidated damages.
ARTICLE VI
Draw Down Terms
Section 6.1 Draw Down Terms. Subject to the satisfaction of the conditions
set forth in this Agreement, the parties agree as follows:
(a) The Company, may, in its sole discretion, issue and exercise a draw
down (a "Draw Down") during each Draw Down Pricing Period, which Draw Down the
Purchaser will be obligated to accept.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing Period.
The price per share paid by the Purchaser shall be based on the Average Daily
Price on each separate Trading Day during the Draw Down Pricing Period. The
number of shares of Common Stock purchased by the Purchaser with respect to each
Draw Down shall be determined on a daily basis during each Draw Down Pricing
Period and settled on, (i) as to the 1st through the 11th Trading Days after a
Draw Down Pricing Period commences, on the 13th Trading Day after a Draw Down
Pricing Period commences and (ii) as to the 12th through the 22nd Trading Days
after a Draw Down Pricing Period, the 24th Trading Day after a Draw Down Pricing
Period (each, a "Draw Down Exercise Date"). In connection with each Draw Down
Pricing Period, the Company may set an Average Daily Price below which the
Company will not sell any Shares (the "Threshold Price"). If the Average Daily
Price on any day within the Draw Down Pricing Period is less than the Threshold
Price, the amount of Draw Down and the number of shares to be purchased shall be
reduced as set forth in Section 6.1(d) below.
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(c) There shall be a maximum of eighteen (18) Draw Downs during the terms
of this Agreement. The Company shall have the right to issue and exercise a Draw
Down of up to $5,000,000 of the Company's Common Stock per Draw Down (the
"Investment Amount"), subject to the limitations set forth immediately below.
The minimum Draw Down shall be $250,000, except that if the remaining Commitment
Amount is less than $250,000, then the Investment Amount shall equal such
remaining Commitment Amount.
(d) The maximum dollar amount of each Draw Down during any Draw Down
Pricing Period shall be the lesser of $5,000,000 and an amount determined
pursuant to the following formula: Average Stock Price: Average of the Average
Daily Prices for the 22 Trading Days prior to the Draw Down Notice date. Average
Trading Volume: Average daily trading volume for the 45 Trading Days prior to
the Draw Down Notice date. Maximum dollar amount of each Draw Down: 20% of
(Average Stock Price x (Average Trading Volume x 22)). The number of Shares of
Common Stock to be issued in connection with each Draw Down shall be equal to
the sum of the quotients (for each Trading Day within the Draw Down Pricing
Period) of (x) 1/22nd of the Draw Down amount and (y) 90% of the Average Daily
Price of the Common Stock on each Trading Day within the Draw Down Pricing
Period. If the Average Daily Price on a given Trading Day is less than the
Threshold Price, then the Purchaser's Draw Down will be reduced by 1/22nd for
each Trading Day and such Trading Day shall be withdrawn from the Draw Down
Pricing Period.
(e) The Company must inform the Purchaser by delivering a Draw Down Notice,
in the form of Exhibit D hereto, via facsimile transmission in accordance with
Section 9.4 as to the amount of the Draw Down the Company wishes to exercise
before the first day of the Draw Down Pricing Period; provided, however,
notwithstanding anything herein to the contrary, such notice shall be deemed
effective on the day received only if such notice is received prior to 1:00 EST
on such date (the "Draw Down Notice"). The Company may set the Threshold Price,
if any, in such Draw Down Notice. At no time shall the Purchaser be required to
purchase more than the scheduled Draw Down amount for a given Draw Down Pricing
Period or if the amount of a given Draw Down is reduced pursuant to Section
6.1(d) so that if the Company chooses not to exercise the maximum permitted Draw
Down in a given Draw Down Pricing Period the Purchaser shall not be obligated to
purchase more than the scheduled maximum amount in a subsequent Draw Down
Pricing Period.
(f) On or before each Draw Down Exercise Date, the Shares purchased by the
Purchaser shall be delivered to The Depository Trust Company ("DTC") on the
Purchaser's behalf. At the election of the Purchaser, the Shares shall be
credited by the Company to the DTC account designated by the Purchaser upon
receipt by the Escrow Agent of payment for the Draw Down into the Escrow Agent's
trust account as provided in the Escrow Agreement. The Escrow Agent shall be
directed to pay 95% of the purchase price to the Company,
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net of One Thousand Five Hundred Dollars ($1,500) as escrow expenses to the
Escrow Agent, and 5% to the placement agent. The delivery of the Shares into the
Purchaser's DTC account in exchange for payment therefor shall be referred to
herein as "Settlement".
ARTICLE VII
Termination
Section 7.1 Termination by Mutual Consent. The term of this Agreement shall
be eighteen (18) months from the Effective Date.
Section 7.2 Other Termination.
(a) The Purchaser may terminate this Agreement upon one (1) Trading Day's
notice if (i) an event resulting in a Material Adverse Effect has occurred, (ii)
the Common Stock is de-listed from the Nasdaq National Market or (iii) the
Company files for protection from creditors under any applicable law.
(b) The Company may terminate this Agreement upon one (1) Trading Day's
notice if the Purchaser shall fail to make payment for a properly noticed Draw
Down on or before each Draw Down Exercise Date.
Section 7.3 Effect of Termination. In the event of termination by the
company or the Purchaser, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Sections 9.1 and 9.2, and
Article VIII herein. Nothing in this Section 7.3 shall be deemed to release the
Company or the Purchaser from any liability for any breach under this Agreement,
or to impair the rights of the Company and the Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchaser (and its directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorney's fees, charges and disbursements) incurred by the Purchaser
as a result of any inaccuracy in or breach of the representations, warranties or
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covenants made by the Company herein. The Purchaser agrees to indemnify and hold
harmless the Company and its directors, officers, affiliates, agents, successors
and assigns from and against any and all losses, liabilities, deficiencies,
costs, damages and expenses (including, without limitation, reasonable attorneys
fees, charges and disbursements) incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Purchaser herein. Notwithstanding anything to the contrary herein, the
Purchaser shall be liable under this Section 8.1 for only that amount as does
not exceed the net proceeds to such Purchaser as a result of the sale of Shares
pursuant to the Registration Statement.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of counsel to the indemnified party a conflict of interest
between it and the indemnifying party may exist with respect of such action,
proceeding or claim, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until
the indemnifying party elects in writing to assume and does so assume the
defense of any such claim, proceeding or action, the indemnified party's costs
and expenses arising out of the defense, settlement or compromise of any such
action, claim or proceeding shall be losses subject to indemnification
hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any settlement negotiations or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the indemnified party which
relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not be liable for any settlement
of any action, claim or proceeding effected without its prior
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written consent. Notwithstanding anything in this Article VIII to the contrary,
the indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim. The indemnification required by this Article
VIII shall be made by periodic payments of the amount thereof during the course
of investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, within ten (10) Trading Days of written notice
thereof to the indemnifying party so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to indemnification. The
indemnity agreements contained herein shall be in addition to (a) any cause of
action or similar rights of the indemnified party against the indemnifying party
or others, and (b) any liabilities the indemnifying party may be subject to.
ARTICLE IX
Miscellaneous
Section 9.1 Fees and Expenses. Each of the parties shall bear its own
expenses related to the transactions contemplated by this Agreement; provided,
that the Company shall pay, at the Initial Closing, the attorneys and escrow
fees and expenses (inclusive of disbursements and out-of-pocket expenses)
incurred by the Purchaser of $25,000 in connection with the preparation,
negotiation, execution and delivery of this Agreement and the transactions
contemplated hereunder. In addition, the Company shall pay all reasonable fees
and expenses incurred by the Purchaser in connection with any subsequent
amendments, modifications or waivers of this Agreement, the Escrow Agreement or
the Registration Rights Agreement or incurred in connection with the enforcement
of this Agreement, the Escrow Agreement and the Registration Rights Agreement,
including, without limitation, all reasonable attorneys fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Shares pursuant hereto.
Section 9.2 Specific Enforcement. The Company and the Purchaser acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.
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Section 9.3 Entire Agreement; Amendment. This Agreement, together with the
Registration Rights Agreement and the Escrow Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein, neither the Company nor the Purchaser
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought and no condition to closing any Draw Down in favor
of the Purchaser may be waived by the Purchaser.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company: Generex Biotechnology Corporation
33 Harbor Square, Suite 202
Ontario, M5J 2G2
Toronto, Canada
Facsimile Number: (416) 364-9363
Attention: Anna Gluskin
With copies to: Eckert Seamans Chern & Mellott, LLC
1515 Market Street, 9th Floor
Philadelphia, Pennsylvania
Fax: (215) 851-8383
Tel: (215) 851-8400
Attention: Joseph Chicco, Esq.
If to Purchaser: c/o Dr. Dr. Batliner & Partner
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Fax: 011-075-236-0405
Attention: Hans Gassner
with copies to: Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Telephone Number: (212) 351-3771
Fax: (212) 661-0989
Attention: Robert F. Charron, Esq.
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Any party hereto may from time to time change its address for notices by
giving written notice of such changed address to the other party hereto in
accordance herewith.
Section 9.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Initial Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Governing Law/Arbitration. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York,
without giving effect to the choice of law provisions. Any dispute under this
Agreement or any Exhibit attached hereto shall be submitted to arbitration under
the American Arbitration Association (the "AAA") in New York City, New York, and
shall be finally and conclusively determined by the decision of a board of
arbitration consisting of three (3) members (hereinafter referred to as the
"Board of Arbitration") selected as according to the rules governing the AAA.
The Board of Arbitration shall meet on consecutive business days in New York
City, New York, and shall reach and render a decision in writing (concurred in
by a majority of the members of the Board of Arbitration) with respect to the
amount, if any, which the losing party is required to pay to the other party in
respect of a claim filed. In connection with rendering its decisions, the Board
of Arbitration shall adopt and follow the laws of the State of New York. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. The Board of Arbitration shall
be authorized and is directed to enter a default judgment against any party
refusing to participate in the
26
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arbitration proceeding within thirty days of any deadline for such
participation. Any decision made by the Board of Arbitration (either prior to or
after the expiration of such thirty (30) calendar day period) shall be final,
binding and conclusive on the parties to the dispute, and entitled to be
enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The prevailing party shall be awarded its costs,
including attorneys' fees, from the non-prevailing party as part of the
arbitration award. Any party shall have the right to seek injunctive relief from
any court of competent jurisdiction in any case where such relief is available.
The prevailing party in such injunctive action shall be awarded its costs,
including attorney's fees, from the non-prevailing party.
Section 9.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. Execution may be made by delivery by
facsimile.
Section 9.11 Publicity. Prior to the Initial Closing, neither the Company
nor the Purchaser shall issue any press release or otherwise make any public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement. After the Initial
Closing, the Company may issue a press release or otherwise make a public
statement or announcement with respect to this Agreement or the transactions
contemplated hereby or the existence of this Agreement; provided, that prior to
issuing any such press release, making any such public statement or
announcement, the Company obtains the prior consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed.
Section 9.12 Severability. The provisions of this Agreement are severable
and, in the event that any court or officials of any regulatory agency of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision or part of a
provision of this Agreement and this Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein.
Section 9.13 Further Assurances. From and after the date of this Agreement,
upon the request of the Purchaser or the Company, each of the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
Section 9.14 Effectiveness of Agreement. This Agreement shall become
effective only upon satisfaction of the conditions precedent to the Initial
Closing set forth in Article I of the Escrow Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of this 14th day of
August 2000.
GENEREX BIOTECHNOLOGY
CORPORATION
By: /s/ Anna Gluskin
------------------------------------
Name: Anna Gluskin
Title: President and CEO
Tradersbloom Limited
By: /s/ Hans Gassner
------------------------------------
Hans Gassner, Authorized Signatory
28
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SCHEDULES TO ARTICLE III
1. Schedule 3.1(c) (Capitalization).
At August 1, 2000, the Company had outstanding options and warrants to
purchase 5,533,451 shares of common stock at prices ranging from $2.50 to
$21.82, with a weighted average exercise price of $6.63. These figures do
not include a warrant to purchase 1,530,020 shares for nominal
consideration that the Company may be required to issue to Sands Brothers &
Co., Ltd. pursuant to an arbitration award received by Sands in October
1999, as described in the SEC Documents.
2. Schedules 3.1(f) (Commission Documents; Financial Statements) and 3.1(g)
(Subsidiaries)
No exceptions or additions.
3. Schedules 3.1(i) (Undisclosed Liabilities) and 3.1(k) (Indebtedness)
The Company has refinanced certain mortgage indebtedness appearing on its
4/30/00 balance sheet, without any material change in its indebtedness.
4. Schedule 3.1(l) (Title to Assets)
No exceptions or additions.
5. Schedule 3.1(m) (Actions Pending)
The Company is a defendant in an action pending in Toronto, Ontario, in
which Arnold Beckett, a former advisor and consultant, seeks payment for
services. The amount involved is not material and, accordingly, the
litigation is not disclosed in the SEC Documents.
6. Schedule 3.1(n) (Compliance with Law)
No exceptions or additions.
7. Schedule 3.1(p) (Certain Fees)
Cash commissions will be paid to Ladenburg Thalmann (5%) and Edmund Chavez
(2%) as and when shares are purchased by the Purchaser. In addition,
Ladenburg Thalmann will receive a number of Warrants equal to the number of
Warrants issued to the Purchaser pursuant to Section 5.2(f), and Edmund
Chavez will receive 40% of that number of Warrants.
<PAGE>
8. Schedule 3.1 (r) (Operation of Business)
The Company entered into a Supply Agreement effective July 19, 2000, with
Valois, S.A. for the supply of valves for its RapidMist(TM) device, and has
issued 35,000 shares of common stock to Valois pursuant to that agreement.
9. Schedules 3.1(v) (Transactions with Affiliates), 3.1(x) (Government
Approvals) and 3.1(y) (Employees)
No exceptions or additions.
10. Schedule 3.1(z) (Certain Developments)
(i) In addition to issuances of securities described in SEC Documents,
the Company has, since April 30, 2000, issued or authorized to be
issued 45,000 shares upon the exercise of outstanding warrants,
35,000 shares to Valois, S.A. as described above, and 4,300 shares
to certain advisors in compensation for services. The Company has
also granted options to purchase a total of 1,379,500 shares under
its Year 2000 Stock Option Plan.
(ii) The Company has incurred secured indebtedness in connection with
refinancing certain mortgages.
(iii) Agreement with Valois, S.A. described above. The Company also is
negotiating supply agreements with Bespak, Inc. (actuators) and
Presspart Group Ltd. (cans) for its RapidMist(TM)device which are
expected to be signed prior to or shortly following Closing.
2
