SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 8, 2000, is entered into
by and between BIOGAN INTERNATIONAL, INC., a Delaware corporation, with
headquarters located at 813 Beriault, Suite 203, Longueuil, Quebec, Canada J4G
1X7 (the "Company"), and the undersigned (referred to individually as the
"Buyer" and collectively as the "Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, INTER ALIA, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act;
WHEREAS, in consideration of the foregoing, the Buyers desire to
purchase, upon the terms and subject to the conditions of this Agreement, a 8%
Secured Convertible Debenture, in the principal amount of $2,035,000, issued by
the Company (which may be issued to each individual Buyer in series) (the
"Debentures"), the form of which is attached hereto as ANNEX I, which will be
convertible into shares of Common Stock, par value $0.001 per share of the
Company (the "Common Stock"), together with the Common Stock Purchase Warrants
described herein (the "Warrants"), upon the terms and subject to the conditions
of such Debenture, and subject to acceptance of this Agreement by the Company;
WHEREAS, as security for the performance of Company's obligations under
the Debenture, this Agreement and other documents entered into in connection
herewith, the Company has agreed to pledge 28,800,000 shares of its Common Stock
(the "Pledged Shares"), pursuant to that certain Pledge Agreement, dated the
date hereof by and among the Buyers and the Company (the "Pledge Agreement");
and
WHEREAS, as further security for the performance of Company's
obligations under the Debenture, the Company shall cause to be delivered a
Standby Letter of Credit, in the amount of $1,200,000, issued by Bank of India
(the "Letter of Credit").
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
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1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE; CERTAIN DEFINITIONS. (i) The undersigned hereby agrees to
purchase from the Company the Debentures in the amount set forth on the
signature page of this Agreement, out of a total offering of Debentures in the
principal amount of $2,035,000, and having the terms and conditions set forth
therein. The form of Debenture is attached hereto as ANNEX I (the "Certificate
of Designations"). The purchase price for the Debenture shall be as set forth on
the signature page hereto (the "Purchase Price") and shall be payable in United
States Dollars.
(ii) As used herein, the term "Securities" means the
Debentures, the Warrants and the Common Stock issuable upon conversion of both
the Debentures and the Warrants.
b. FORM OF PAYMENT. The Buyer shall pay the Purchase Price for the
Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions"). No
later than the Closing Date (as defined below), the Company shall deliver the
original Debentures duly executed on behalf of the Company to the Escrow Agent.
By signing this Agreement, the Buyer and the Company, and subject to acceptance
by the Escrow Agent, each agrees to all of the terms and conditions of, and
becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
c. METHOD OF PAYMENT. Payment into escrow of the Purchase Price for the
Debentures shall be made by wire transfer of funds to:
City National Bank
1950 Avenue of the Stars
Los Angeles, CA 90067
ABA# 122016066
For credit to the account of Law Offices of Michael S. Rosenblum
Escrow for CALP II, LLC
Account No.: 009477772
Not later than 1:00 p.m., PST time, on the date which is one (1) New York Stock
Exchange trading day after the Company shall have accepted this Agreement and
returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, each Buyer shall deposit with the Escrow Agent the purchase price for
the Debenture being acquired by it, in immediately available funds. Time is of
the essence with respect to such payment, and failure by the Buyer to make such
payment shall allow the Company to cancel this Agreement.
d. ESCROW PROPERTY. The Purchase Price and the Debentures delivered to
the Escrow Agent as contemplated by Sections 1(b) and (c) hereof are referred to
as the "Escrow Property."
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2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
Each Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), the Buyer is purchasing the Debenture and will be
acquiring the shares of Common Stock issuable upon conversion of the Debenture
or the Warrant (the "Converted Shares") for its own account for investment, and
not with a view towards the public sale or distribution thereof and not with a
view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
c. All subsequent offers and sales of the Debenture and the shares of
Common Stock representing the Converted Shares (such Common Stock sometimes
referred to as the "Shares") by the Buyer shall be made pursuant to registration
of the Shares under the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Debenture is being offered and sold
to it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Debenture.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debenture and the offer of the
Shares which have been requested by the Buyer, including ANNEX V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review (i) the Company's annual
report on Form 10-KSB for the year ending December 31, 1998, (ii) the Company's
reports on Form 10-QSB for the periods ending March 31, 1999, June 30, 1999 and
September 30, 1999 (the "SEC Reports").
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f. The Buyer understands that its investment in the Securities involves
a high degree of risk.
g. The 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.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. Notwithstanding the provisions hereof or of the Debenture, in no
event (except with respect to an automatic conversion of the Debenture as
provided therein) shall each Buyer be entitled to convert any Debenture to the
extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by such Buyer and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debenture), and (2) the number of
shares of Common Stock issuable upon the conversion of the Debenture with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by such Buyer and its affiliates of more than 9.99% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"). Any issuance by the Company to the Buyer in excess of the
limit contained in this Paragraph 3.i. shall be null and void, AB INITIO, and
upon notice of such invalid issuance, the Company shall correct its books and
cause its transfer agent's books to be corrected forthwith to reflect that the
Buyer's ownership of Common Stock is within the limit set forth herein. Buyer
shall immediately deliver any certificates for invalidly issued Common Stock to
the Company's transfer agent. The Company further agrees to (i) immediately
reissue certificates for Common Stock to the extent that a portion of the Common
Stock represented by said certificates have been validly issued and (ii)
immediately reissue all or a portion of those shares which were deemed invalidly
issued (at a price set forth in the original conversion notices applicable to
such shares) upon notice from the Buyer that the reissuance of such shares would
not cause such Buyer to have a beneficial ownership interest in excess of 9.99%.
The Company hereby indemnifies and holds each Buyer free and harmless in
connection with any and all liabilities, losses, costs and expenses, including,
without limitation, attorneys' fees and costs arising from or relating to claims
made by any third parties with respect to any and all purported violations by
each Buyer under Sections 13(d) and 16 resulting from a conversion(s) of
Debenture, unless such claim arises from such Buyer's default of its obligations
hereunder, or representations or warranties contained herein.
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j. Buyer represents that it neither is nor will be obligated for any
finders' fee or commission nor is it aware of any such fee or commission payable
in connection with this transaction other than as set forth on the Joint Escrow
Instructions (attached hereto as Annex II). Buyer agrees to indemnify and to
hold harmless the Company from any liability for any commission or compensation
in the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which such Buyer or any of its
officers, partners, employees, or representatives is responsible.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants and hereby covenants and agrees
with each Buyer that:
a. CONCERNING THE DEBENTURE AND THE SHARES. The Debentures have been
duly authorized and, when issued, will be duly and validly issued, fully paid
and non-assessable and will not subject the holder thereof to personal liability
by reason of being such holder. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Debentures or the Shares.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on the NASDAQ Bulletin Board market. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
c. AUTHORIZED SHARES. The Company has at February 25, 2000, 85,386,710
shares of Common Stock outstanding, and has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the Debentures
(assuming all future conversions occurred are based upon an average 5-day
closing bid of the Common Stock, as reported by Bloomberg, LP which was one-half
(1/2) of the closing bid price of the Common Stock on the Closing Date [the
"Closing Date Bid"]) and exercise of the Warrants (as defined in Section 4.k.)
at the Closing Date Bid. The Common Stock has been duly authorized and, when
issued upon conversion of the Debentures in accordance with their terms, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder.
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d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT,
DEBENTURE AND PLEDGE AGREEMENT. This Agreement, the Debenture, the Registration
Rights Agreement, the form of which is attached hereto as ANNEX IV (the
"Registration Rights Agreement"), the Pledge Agreement, the form of which is
attached hereto as ANNEX VII and the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Company, this Agreement
has been duly executed and delivered by the Company and this Agreement is, and
the Debentures, the Pledge Agreement and the Registration Rights Agreement, when
executed and delivered by or on behalf of the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject, as to enforceability, to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement, the
Debentures, the Pledge Agreement and the Registration Rights Agreement by the
Company, the issuance of the Securities, and the consummation by the Company of
the other transactions contemplated by this Agreement, the Debentures, the
Pledge Agreement and the Registration Rights Agreement do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the articles of incorporation
or by-laws of the Company, each as currently in effect, (ii) except as disclosed
in ANNEX V, any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock (except as herein set forth), (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) any listing agreement for its Common Stock,
except such conflict, breach or default which would not have a material adverse
effect on the transactions contemplated herein.
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC FILINGS. None of the Company's SEC Reports contained, at the
time they were filed, 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 made therein in light of the circumstances under which they were
made, not misleading, except as corrected by an amended filing made prior to the
date hereof. Except as set forth on ANNEX V hereto, the Company has since June
1997 timely filed all requisite forms, reports and exhibits thereto with the
SEC.
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h. ABSENCE OF CERTAIN CHANGES. Since September 30, 1999, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in ANNEX V or in the Company's SEC Reports. Since September 30, 1998,
the Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) 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
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Reports), that has not been disclosed in writing to the Buyer that
(i) would reasonably be expected to have a material adverse effect on the
business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
j. ABSENCE OF LITIGATION. Except as set forth in ANNEX V hereto, and in
the Company's SEC Reports, which the Buyer has reviewed, there is no action,
suit, proceeding, inquiry or investigation before or by any court, public board
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition. results of operation or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the Transaction
Agreements or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, any of
the Transaction Agreements.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V hereto,
no Event of Default (or its equivalent term), as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (or
its equivalent term) (as so defined in such agreement), has occurred and is
continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
l. PRIOR ISSUES. Except as set forth in ANNEX V, during the twelve (12)
months preceding the date hereof, the Company has not issued any Common Stock or
convertible securities in capital transactions which have not been fully
disclosed in the Company's filings with the SEC. Except as set forth in ANNEX V,
all such issuances (except for issuances to Buyer) have been fully converted
into shares of common stock and there are no outstanding unconverted debt or
convertible securities from those transactions.
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m. NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set forth in ANNEX
V, the Company has no liabilities or obligations other than those disclosed in
the Company's SEC Reports or those incurred in the ordinary course of the
Company's business since December 31, 1998, and which, individually or in the
aggregate, do not or would not have a material adverse effect on the properties,
business, condition (financial or otherwise), results of operations or prospects
of the Company and its subsidiaries, taken as a whole. No event or circumstances
has occurred or exists with respect to the Company or its properties, business,
condition (financial or otherwise), results of operations or prospects, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
n. NO DEFAULT. Except as disclosed in ANNEX V, hereto, the Company is
not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust or other material instrument or agreement to which it is a party or by
which it or its property is bound.
o. 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 offer or sales of any security or solicited any offers to
buy any security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of the
Debentures may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines prior to the conversion of the Debentures. The Company's
executive officers and directors have studied and fully understand the nature of
the Securities being sold hereby and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded that, in
its good faith business judgment, such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Shares upon conversion of the Debentures is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
q. ACKNOWLEDGMENT BY COMPANY. Company represents and warrants that
neither the Buyer, nor any persons or entities representing or purporting to
represent the Buyer have made any representation or warranty which is not
contained expressly in this Agreement or any other agreements referred to
herein. Without limiting the foregoing, Company specifically acknowledges that
the Buyer has made no representations that it is a "long term" investor in the
Company, or that it intends to hold the Debentures or shares of stock in the
Company (obtained by conversions of the Debentures) for any period beyond that
which is required under the Securities Act. Company further acknowledges that
the Buyer may hedge the shares of stock in the Company prior to or after the
conversions of any of the Debentures, provided that such hedging is done in
compliance with the Securities Act, Securities Exchange Act, any rules
applicable to securities traded on the NASDAQ SmallCap and the express terms of
this Agreement, the Debentures, the Warrants and the Registration Rights
Agreement.
r. BROKERS FEE. The Company represents that it neither is nor will be
obligated for any finders' fee or commission nor is it aware of any such fee or
commission payable in connection with this transaction other than as set forth
on the Joint Escrow Instructions (attached hereto as Annex II). The Company
agrees to indemnify and to hold harmless the Buyer from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, partners, employees, or representatives is
responsible.
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4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. Each Buyer acknowledges that (1) the
Debentures have not been and is not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Debentures and, until such time as the Common Stock has been registered under
the 1933 Act as contemplated by the Registration Rights Agreement and sold
pursuant to an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
d. PLEDGE AGREEMENT. The parties hereto agree to enter into the Pledge
Agreement on or before the Closing Date. The Company shall execute and return
all necessary documents and certificates, including, without limitation, share
certificates for the Pledged Shares, with duly executed stock powers, necessary
to enable the Buyers to perfect the security interests granted by the Pledge
Agreement on or before the Closing Date.
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e. LETTER OF CREDIT. The Company shall cause the Bank of India to
deliver an original Letter of Credit to the Escrow Agent, in the form attached
hereto as ANNEX VIII.
f. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Debentures to the Buyer under any
United States laws and regulations, or by any domestic securities exchange or
trading market, and to provide a copy thereof to the Buyer promptly after such
filing.
g. REPORTING STATUS. So long as any Buyer beneficially holds the
Debentures, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination.
h. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Debentures (excluding amounts paid by the Company for legal fees, finder's
fees and escrow agent fees in connection with the sale of the Debentures) to (i)
purchase assets from the applicable governmental agency of the Peoples Republic
of China in connection with the consummation of that certain Share Exchange
Agreement, between Hechi Industrial Co., Ltd. and the Company, dated November
30, 1999 (the "Hechi Agreement") and (ii) to the extent that there is a balance
after payment in full for said assets, pay expenses incurred in the ordinary
course of business, including for general capital purposes.
i. CERTAIN AGREEMENTS. (i) The Company covenants and agrees that it
will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until one hundred eighty (180) days after
the Effective Date (as defined below).
(ii) The provisions of subparagraph 4.i.(i) will not apply to (w)
Common Stock issued as "restricted stock" as defined in SEC Rule 144, provided
the holder thereof holds such Common Stock for at least one year from the date
of issuance; (x) a secondary public offering of shares of Common Stock at
market; (y) an offering of convertible debentures at market or above; or (z) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition or the exchange of the capital stock
for assets, stock or other joint venture interests; provided, such securities
would not be included in the Registration Statement relating to the Shares and a
registration statement in respect of such stock shall not be filed prior to
sixty (60) days after the Effective Date.
(iii) The term "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as defined in the
Registration Rights Agreement).
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(iv) In the event the Company breaches the provisions of this Paragraph
4.i., the Conversion Price shall be amended to equal the conversion formula set
forth in Section 4.F. of the Debenture and each Buyer may, within thirty (30)
days after it receives written notice of such breach from the Company, require
the Company to immediately redeem the Debenture held by it in accordance with
Section 6(y) of the Debenture.
j. AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock equal
to two hundred percent (200%) of the number of shares of Common Stock issuable
upon conversion of all of the outstanding Debentures, and the exercise of the
Warrants.
k. WARRANTS. The Company agrees to issue to Buyer at the Closing,
transferable divisible warrants with cashless exercise provisions (the
"Warrants") for 489,000 shares of Common Stock. Such Warrants shall bear an
exercise price equal to $0.60, and shall be exercisable immediately upon
issuance, and for a period of five (5) years thereafter, in the form annexed
hereto as ANNEX VI, together with piggy-back registration rights, and demand
registration rights under the Registration Rights Agreement.
l. LIMITATION ON ISSUANCE OF SHARES. The Debenture shall provide that
the Company shall take all steps reasonably necessary to be in a position to
issue shares of Common Stock on conversion of the Debentures without violating
the "Cap Regulations". If despite taking such steps, the Company is limited in
the number of shares of Common Stock it may issue by the "Cap Regulations," to
the extent that the Company cannot issue such shares of Common Stock, due upon a
Notice of Conversion, without violating the Cap Regulations, the Company shall
immediately notify each Buyer the principal amount of its Debenture which is not
convertible as a result of said Cap Regulations (the "Debenture Balance") and
the Buyer, shall have the option, exercisable in its sole and absolute
discretion, to elect any of the remedies in Section 6 of the Debenture.
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5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Debentures in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Debentures in such amounts as specified from
time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by each Buyer in connection with each
conversion of its Debenture. The Company warrants that no instruction other than
such instructions referred to in this Section 5 and stop transfer instructions
to give effect to Section 4(a) hereof prior to registration and sale of the
Shares under the 1933 Act will be given by the Company to the transfer agent and
that the Shares shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this Agreement) permit the transfer of the Securities and, in the case of the
Shares, promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.
b. (i) The Company will permit each Buyer to exercise its right to
convert its Debenture by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company and
delivering within three (3) business days thereafter, the original Notice of
Conversion, together with the original share certificate, by express courier.
(ii) The term "Conversion Date" means, with respect to any conversion
elected by the holder of the Debentures after the Effective Date, the date
specified in the Notice of Conversion, provided the copy of the Notice of
Conversion is telecopied to or otherwise delivered to the Company in accordance
with the provisions hereof so that is received by the Company on or before such
specified date. The Conversion Date for any mandatory conversion at maturity
shall be the Maturity Date of the Debentures.
(iii) The Company shall, at its expense, take all actions and use all
means necessary and diligent to cause its transfer agent to transmit the
certificates representing the Shares issuable upon conversion of any Debentures
to the Buyer via express courier, by electronic transfer or otherwise, within
three (3) business days after receipt by the Company of the later of (i) receipt
by the Company of the copy of the original Notice of Conversion (and the
original Debenture upon the final conversion) and (ii) the Conversion Date (the
"Delivery Date").
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<PAGE>
c. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer in the event that due entirely to the Company's
failure to issue and deliver the Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond five (5) business days from Delivery Date):
Late Payment For Each $10,000
of principal and interest of Debenture
No. Business Days Late Being Converted
---------------------- --------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$200 for each Business
Day Late beyond 5 days from
The Delivery Date
The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit each Buyer's
right to pursue actual damages or to cause the Company to redeem its Debentures
as provided below for the Company's actions or inactions resulting in the
transfer agent's failure to issue and deliver the Common Stock to the Buyer.
Furthermore, in addition to any other remedies which may be available to the
Buyer, in the event that the Company fails to deliver such shares of Common
Stock within five (5) business days after the Delivery Date, the Buyer will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the Buyer shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. In the event the Company's actions or inactions result in
the transfer agent's failure to issue and deliver the Common Stock to the Buyer
within ten (10) days after the Delivery Date, each Buyer may, at its option,
require the Company (without limiting its other remedies hereunder) to
immediately redeem the remaining interest and principal balance of its Debenture
in accordance with Section 6(y) of the Debenture.
d. If, by the relevant Delivery Date, the Company fails for any reason
to deliver the Shares to be issued upon conversion of the Debentures and after
such Delivery Date, the holder of the Debentures being converted (a "Converting
Holder") purchases, in an open market transaction or otherwise, shares of Common
Stock (the "Covering Shares") in order to make delivery in satisfaction of a
sale of Common Stock by the Converting Holder made after a Conversion Date (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay
to the Converting Holder, in addition to all other amounts contemplated in other
provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Buyer in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000. The remedies set forth in
paragraphs 5(c) and (d) shall be cumulative.
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<PAGE>
e. In lieu of delivering physical certificates representing the
unlegended securities issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. The original Debenture shall be delivered by the Buyer to the
Company simultaneous with the final Notice of Conversion.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, on a delivery against payment basis, no later
than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Debentures shall occur
on the date (the "Closing Date") which is the first NYSE trading day after the
fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9
hereof or such other date and time as is mutually agreed upon by the Company and
the Buyer.
(ii) The closing of the purchase and issuance of Debentures shall occur
on the Closing Date, at the offices of the Escrow Agent and shall take place no
later than 12:00 Noon, PST, on such day or such other time as is mutually agreed
upon by the Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property (as defined in
the Escrow Agreement) only upon satisfaction of the conditions set forth in
Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Debentures on the Closing Date and to the Buyer pursuant to this Agreement is
conditioned upon:
a. The receipt and acceptance by the Buyer of this Agreement as
evidenced by execution of this Agreement by the Buyer for Two Million Dollars
($2,000,000) in aggregate principal amount of the Debentures (or such lesser
amount as the Company, in its sole discretion, shall determine on the Closing
Date);
14
<PAGE>
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the Purchase Price for the Debentures in
accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date, and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date;
d. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Debentures on the Closing Date is conditioned upon:
a. Acceptance by the Company of this Agreement for the sale of
Debentures, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the Debentures, in
accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date and the performance by the Company on or before the
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date and as to Debentures, the conditions set
forth in Paragraph 4g; and
d. On the Closing Date, Buyer having received (i) an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX III attached hereto,
(ii) the Registration Rights Agreement, (iii) the Warrants, (iv) the Pledge
Agreement and (v) the Letter of Credit.
e. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
f. From and after the date hereof to and including the Closing Date,
the trading of the Common Stock shall not have been suspended by the SEC, or the
NASD and trading in securities generally on the New York Stock Exchange,
NASDAQ/Small Cap, or Bulletin Board, as applicable, shall not have been
suspended or limited, nor shall minimum prices been established for securities
traded on NASDAQ/Small Cap or Bulletin Board, as applicable, nor shall there be
any outbreak or escalation of hostilities involving the United States or any
material adverse change in any financial market that in either case in the
reasonable judgment of the Buyer makes it impracticable or inadvisable to
purchase the Debentures.
15
<PAGE>
10. GOVERNING LAW; MISCELLANEOUS.
a. This Agreement and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws of the
State of California for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Any litigation based thereon, or arising out of, under, or in connection with,
this agreement or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Company or Buyer shall be brought and
maintained exclusively in the state or Federal courts of the State of
California, sitting in the City of Los Angeles. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal Courts of the
State of California for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this Agreement and the related agreements entered into
in connection herewith.
b. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
d. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
e. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
h. Except as otherwise set forth herein, all costs and expenses,
including reasonable attorneys' fees, incurred by the Buyer in the enforcement
of this Agreement or any agreements related thereto, shall be paid by the
Company upon demand.
11. NOTICES. Any notice or communication required or permitted by this
Agreement shall be given in writing addressed as follows:
COMPANY: BIOGAN INTERNATIONAL, INC.
813 Beriault, Suite 203, Longueuil
Quebec, Canada J4G 1X7
ATTN: CEO
Telecopier No.: (450) 651-8049
Telephone No.: (450) 651-6701
with a copy to:
Jaak Olesk, Esq.
270 N. Canon Drive, Suite 203
Beverly Hills, California 90265
Telephone: (310) 288-0693
Facsimile: (310) 288-0863
BUYER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Law Offices of Michael S. Rosenblum
1875 Century Park East, Suite 700
Los Angeles, CA 90067
Telecopier No. (310) 286-2100
16
<PAGE>
All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Debentures and the Purchase Price, and
shall inure to the benefit of the Buyer and its successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
AGGREGATE PURCHASE PRICE OF THE DEBENTURES: $2,035,000*
*As detailed below
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of this ______th day of March,
2000.
Printed Names of Buyers
By: See Annexed
-----------
(Signature of Authorized Person)
---------------------------------------
Printed Name and Title
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
BIOGAN INTERNATIONAL, INC., a Delaware corporation
By: /S/ GILLES LaVERDIERE
--------------------------------------------------
Title: President
Date:
--------------------------------------------------
<PAGE>
ANNEX TO SIGNATURE PAGE
PRINCIPAL AMOUNT
----------------
$35,000 Carbon Mesa Partners, LLC, a Nevada
limited liability company
By: /S/ MICHAEL ROSENBLUM
--------------------------------
Manager
$2,000,000 CALP II, LLC, a Bermuda
limited liability company
By: /S/ MARK VALENTINE
--------------------------------
Manager
ADDRESS: c/o Thomson Kernaghan & Co.
365 Bay Street, Suite 1000, 10th Fl.
Toronto, Ontario M5H 2V2
Telephone No.: (416) 860-4160
Telecopier No.: (416) 860-8313
<PAGE>
ANNEX I DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI COMMON STOCK PURCHASE WARRANT
ANNEX VII PLEDGE AGREEMENT
ANNEX VIII LETTER OF CREDIT
