[EXHIBIT 10.7]
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as
of March 30, 2005, by and among Med Gen, Inc., a Nevada
corporation, with headquarters located at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and each
of the purchasers set forth on the signature pages hereto (the
"Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities
registration afforded by the rules and regulations as promulgated
by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933
Act");
B. Buyers desire to purchase and the Company desires to issue
and sell, upon the terms and conditions set forth in this
Agreement (i) 8% secured convertible notes of the Company, in the
form attached hereto as Exhibit "A", in the aggregate principal
amount of One Million Five Hundred Forty Thousand Dollars
($1,540,000) (together with any note(s) issued in replacement
thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the "Notes"),
convertible into shares of common stock, par value $.001 per
share, of the Company (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in such Notes
and (ii) warrants, in the form attached hereto as Exhibit "B", to
purchase 1,540,000 shares of Common Stock (the "Warrants").
C. Each Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, such principal amount of Notes and
number of Warrants as is set forth immediately below its name on
the signature pages hereto; and
D. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, in the form attached hereto as
Exhibit "C" (the "Registration Rights Agreement"), pursuant to
which the Company has agreed to provide certain registration
rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and each of the Buyers severally
(and not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
a. Purchase of Notes and Warrants. On the Closing
------------------------------
Date (asdefined below), the Company shall issue and sell to each Buyer
and each Buyer severally agrees to purchase from the Company such
principal amount of Notes and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages
hereto.
b. Form of Payment. On the Closing Date (as defined
---------------
below), (i) each Buyer shall pay the purchase price for the Notes and
the Warrants to be issued and sold to it at the Closing (as defined
below) (the "Purchase Price") by wire transfer of immediately
available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of
Warrants as is set forth immediately below such Buyer's name on
the signature pages hereto, and (ii) the Company shall deliver
such Notes and Warrants duly executed on behalf of the Company,
to such Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or
------------
written waiver) of the conditions thereto set forth in Section 6 and
Section 7 below, the date and time of the issuance and sale of
the Notes and the Warrants pursuant to this Agreement (the
"Closing Date") shall be 12:00 noon, Eastern Standard Time on
March 30, 2005, or such other mutually agreed upon time. The
closing of the transactions contemplated by this Agreement (the
"Closing") shall occur on the Closing Date at such location as
may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the
Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the
------------------
Buyer ispurchasing the Notes and the shares of Common Stock issuable
upon conversion of or otherwise pursuant to the Notes (including,
without limitation, such additional shares of Common Stock, if
any, as are issuable (i) on account of interest on the Notes,
(ii) as a result of the events described in Sections 1.3 and
1.4(g) of the Notes and Section 2(c) of the Registration Rights
Agreement or (iii) in payment of the Standard Liquidated Damages
Amount (as defined in Section 2(f) below) pursuant to this
Agreement, such shares of Common Stock being collectively
referred to herein as the "Conversion Shares") and the Warrants
and the shares of Common Stock issuable upon exercise thereof
(the "Warrant Shares" and, collectively with the Notes, Warrants
and Conversion Shares, the "Securities") for its own account and
not with a present view towards the public sale or distribution
thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided, however, that by
making the representations herein, the Buyer does not agree to
hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an
--------------------------
"accredited investor" as that term is defined in Rule 501(a) of
Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands
----------------------
that theSecurities are being offered and sold to it in reliance upon
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 Securities.
2
d. Information. The Buyer and its advisors, if any,
-----------
have been, and for so long as the Notes and Warrants remain outstanding
will continue to be, furnished with all materials relating to the
business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any
material nonpublic information and will not disclose such
information unless such information is disclosed to the public
prior to or promptly following such disclosure to the Buyer.
Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives
shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3
below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that
-------------------
no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that
-------------------
(i) except as provided in the Registration Rights Agreement, the sale
or re-sale of the Securities has not been and is not being registered
under the 1933 Act or any applicable state securities laws, and
the Securities may not be transferred unless (a) the Securities
are sold pursuant to an effective registration statement under
the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel that shall be in form, substance and scope
customary for opinions of counsel in comparable transactions to
the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such
registration, which opinion shall be accepted by the Company,
(c) the Securities are sold or transferred to an "affiliate" (as
defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("Rule 144")) of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this
Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities
are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) ("Regulation S"), and the Buyer shall have
delivered to the Company an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in
corporate transactions, which opinion shall be accepted by the
Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any re-sale 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 defined in the ▇▇▇▇ ▇▇▇) may require
compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities
may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement. In the event that
the Company does not accept the opinion of counsel provided by
the Buyer with respect to the transfer of Securities pursuant to
an exemption from registration, such as Rule 144 or Regulation S,
within three (3) business days of delivery of the opinion to the
Company, the Company shall pay to the Buyer liquidated damages of
3
three percent (3%) of the outstanding amount of the Notes per
month plus accrued and unpaid interest on the Notes, prorated for
partial months, in cash or shares at the option of the Company
("Standard Liquidated Damages Amount"). If the Company elects to
be pay the Standard Liquidated Damages Amount in shares of Common
Stock, such shares shall be issued at the Conversion Price at the
time of payment.
g. Legends. The Buyer understands that the Notes
-------
and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 or Regulation S without any
restriction as to the number of securities as of a particular
date that can then be immediately sold, the Conversion Shares and
Warrant Shares may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against
transfer of the certificates for such Securities):
"The securities represented by this
certificate have not been registered under
the Securities Act of 1933, as amended. The
securities may not be sold, transferred or
assigned in the absence of an effective
registration statement for the securities
under said Act, or an opinion of counsel, in
form, substance and scope customary for
opinions of counsel in comparable
transactions, that registration is not
required under said Act or unless sold
pursuant to Rule 144 or Regulation S under
said Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of
any Security upon which it is stamped, if, unless otherwise
required by applicable state securities laws, (a) such Security
is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to
Rule 144 or Regulation S without any restriction as to the number
of securities as of a particular date that can then be
immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect
that a public sale or transfer of such Security may be made
without registration under the 1933 Act, which opinion shall be
accepted by the Company so that the sale or transfer is effected
or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or
Regulation S. The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has
been removed, in compliance with applicable prospectus delivery
requirements, if any.
h. Authorization; Enforcement. This Agreement and
--------------------------
the Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered
on behalf of the Buyer, and this Agreement constitutes, and upon
execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their
terms.
i. Residency. The Buyer is a resident of the
---------
jurisdiction set forth immediately below such Buyer's name on the
signature pages hereto.
4
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and
------------------------------
each of its Subsidiaries (as defined below), if any, is a corporation
duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, with full power
and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where
now owned, leased, used, operated and conducted. Schedule 3(a)
sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. The Company and
each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the
nature of the business conducted by it makes such qualification
necessary except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. "Material
Adverse Effect" means any of (i) a material and adverse effect on
the legality, validity or enforceability of any document executed
in connection with this financing, (ii) a material and adverse
effect on the results of operations, assets, prospects, business
or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) an adverse impairment to
the Company's ability to perform under any of the documents
executed in connection with this financing. "Subsidiaries" means
any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has
--------------------------
all requisite corporate power and authority to enter into and perform
this Agreement, the Registration Rights Agreement, the Notes and
the Warrants and to consummate the transactions contemplated
hereby and thereby and to issue the Securities, in accordance
with the terms hereof and thereof, (ii) the execution and
delivery of this Agreement, the Registration Rights Agreement,
the Notes and the Warrants by the Company and the consummation by
it of the transactions contemplated hereby and thereby (including
without limitation, the issuance of the Notes and the Warrants
and the issuance and reservation for issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise
thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company,
its Board of Directors, or its shareholders is required, (iii)
this Agreement has been duly executed and delivered by the
Company by its authorized representative, and such authorized
representative is the true and official representative with
authority to sign this Agreement and the other documents executed
in connection herewith and bind the Company accordingly, and (iv)
this Agreement constitutes, and upon execution and delivery by
the Company of the Registration Rights Agreement, the Notes and
the Warrants, each of such instruments will constitute, a legal,
valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the
--------------
authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, of which 27,136,447 shares are issued and
outstanding, 8,183,852 shares are reserved for issuance pursuant
to the Company's stock option plans, 15,000,000 shares are
reserved for issuance pursuant to securities (other than the
Notes and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 93,500,000 shares are
reserved for issuance upon conversion of the Notes and the
Additional Notes (as defined in Section 4(l)) and exercise of the
5
Warrants and the Additional Warrants (as defined in Section 4(l))
(subject to adjustment pursuant to the Company's covenant set
forth in Section 4(h) below); and (ii) 5,000,000 shares of
preferred stock, of which 0 shares are issued and outstanding.
All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the
shareholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as
disclosed in Schedule 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock
of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the
Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Notes, the
Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation as in effect on the date
hereof ("Certificate of Incorporation"), the Company's By-laws,
as in effect on the date hereof (the "By-laws"), and the terms of
all securities convertible into or exercisable for Common Stock
of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's
Chief Executive or Chief Financial Officer on behalf of the
Company as of the Closing Date.
d. Issuance of Shares. Subject to Stockholder
------------------
Approval, the Conversion Shares and Warrant Shares are duly authorized
and reserved for issuance and, upon conversion of the Notes and
exercise of the Warrants in accordance with their respective
terms, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect
to the issue thereof and shall not be subject to preemptive
rights or other similar rights of shareholders of the Company and
will not impose personal liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company understands
--------------------------
and acknowledges the potentially dilutive effect to the Common Stock
upon the issuance of the Conversion Shares and Warrant Shares
upon conversion of the Note or exercise of the Warrants. The
Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Notes
or exercise of the Warrants in accordance with this Agreement,
the Notes and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
f. No Conflicts. Subject to Stockholder Approval, the
------------
execution, delivery and performance of this Agreement, the
Registration Rights Agreement, the Notes and the Warrants by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation,
the issuance and reservation for issuance of the Conversion
6
Shares and Warrant Shares) will not (i) conflict with or result
in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default
(or an event which with notice or lapse of time or both could
become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to
which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws
and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject)
applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries
is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither
the Company nor any of its Subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party or by which any property or assets of
the Company or any of its Subsidiaries is bound or affected,
except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries, if any, are not being conducted,
and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of
any governmental entity. Except as specifically contemplated by
this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing
or registration with, any court, governmental agency, regulatory
agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights
Agreement, the Notes or the Warrants in accordance with the terms
hereof or thereof or to issue and sell the Notes and Warrants in
accordance with the terms hereof and to issue the Conversion
Shares upon conversion of the Notes and the Warrant Shares upon
exercise of the Warrants. Except as disclosed in Schedule 3(f),
all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing
requirements of the Over-the-Counter Bulletin Board (the "OTCBB")
and does not reasonably anticipate that the Common Stock will be
delisted by the OTCBB in the foreseeable future. The Company and
its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
g. SEC Documents; Financial Statements. Except as
-----------------------------------
disclosed in Schedule 3(g), the Company has timely filed all reports,
schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934
Act") (all of the foregoing filed prior to the date hereof and
all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has
7
delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents.
As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents,
at the time they were filed with the SEC, 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. None of the statements made in
any such SEC Documents is, or has been, required to be amended or
updated under applicable law (except for such statements as have
been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements
of the Company included in the SEC Documents complied as to form
in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes
or may be condensed or summary statements) and fairly present in
all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof
and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set
forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to December 30, 2004 and (ii)
obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally
accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the
Company.
h. Absence of Certain Changes. Since December 30,
--------------------------
2004, there has been no material adverse change and no material
adverse development in the assets, liabilities, business,
properties, operations, financial condition, results of operations
or prospects of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit,
---------------------
claim, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries, or their officers or directors in their
capacity as such, that could have a Material Adverse Effect.
Schedule 3(i) contains a complete list and summary description of
any pending or threatened proceeding against or affecting the
Company or any of its Subsidiaries, without regard to whether it
would have a Material Adverse Effect. The Company and its
Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
j. Patents, Copyrights, etc.
-------------------------
(i) The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names,
8
trade names and copyrights ("Intellectual Property") necessary to
enable it to conduct its business as now operated (and, except as
set forth in Schedule 3(j) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the
future); there is no claim or action by any person pertaining to,
or proceeding pending, or to the Company's knowledge threatened,
which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in
Schedule 3(j) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries'
current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any
person; and the Company is unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and
each of its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of their
Intellectual Property.
(ii) All of the Company's computer software and
computer hardware, and other similar or related items of automated,
computerized or software systems that are used or relied on by
the Company in the conduct of its business or that were, or
currently are being, sold or licensed by the Company to customers
(collectively, "Information Technology"), are Year 2000
Compliant. For purposes of this Agreement, the term "Year 2000
Compliant" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be
used prior to, during and after the calendar Year 2000, and the
Information Technology used during each such time period will
accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries,
including the years 1999 and 2000, and leap-year calculations,
and will not malfunction, cease to function, or provide invalid
or incorrect results as a result of the date or time data, to the
extent that other information technology, used in combination
with the Information Technology, properly exchanges date and time
data with it. The Company has delivered to the Buyers true and
correct copies of all analyses, reports, studies and similar
written information, whether prepared by the Company or another
party, relating to whether the Information Technology is Year
2000 Compliant, if any.
k. No Materially Adverse Contracts, Etc. Neither the
-------------------------------------
Company nor any of its Subsidiaries is subject to any charter, corporate
or other legal restriction, or any judgment, decree, order, rule
or regulation which in the judgment of the Company's officers has
or is expected in the future to have a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
l. Tax Status. Except as set forth on Schedule 3(l),
----------
the Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it
is subject (unless and only to the extent that the Company and
each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to
be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports
9
or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis
for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment
or collection of any foreign, federal, state or local tax.
Except as set forth on Schedule 3(l), none of the Company's tax
returns is presently being audited by any taxing authority.
m. Certain Transactions. Except as set forth on
--------------------
Schedule 3(m) and except for arm's length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the
Company or any of its Subsidiaries could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers
and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
n. Disclosure. All information relating to or
----------
concerning the Company or any of its Subsidiaries set forth in this
Agreement and provided to the Buyers pursuant to Section 2(d) hereof
and otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has
not omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the
Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been
so publicly announced or disclosed (assuming for this purpose
that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by
the Company under the 1933 Act).
o. Acknowledgment Regarding Buyers' Purchase of
--------------------------------------------
Securities. The Company acknowledges and agrees that the Buyers are
----------
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Buyer or any of
their respective representatives or agents in connection with
this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to the
Buyers' purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor
----------------------
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security
10
or solicited any offers to buy any security under circumstances
that would require registration under the 1933 Act of the
issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other
issuance of the Company's securities (past, current or future)
for purposes of any shareholder approval provisions applicable to
the Company or its securities.
q. No Brokers. Except as set forth in Schedule 3(q),
----------
the Company has taken no action which would give rise to any claim by
any person for brokerage commissions, transaction fees or similar
payments relating to this Agreement or the transactions
contemplated hereby.
r. Permits; Compliance. The Company and each of its
-------------------
Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry
on its business as it is now being conducted (collectively, the
"Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits. Neither the Company
nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since December 30, 2004, neither the Company nor
any of its Subsidiaries has received any notification with
respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or
violations would not have a Material Adverse Effect.
s. Environmental Matters.
---------------------
(i) Except as set forth in Schedule 3(s), there are,
to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to
the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
11
(ii) Other than those that are or were stored, used
or disposed of in compliance with applicable law, no Hazardous Materials
are contained on or about any real property currently owned, leased
or used by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property
previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or
used by the Company or any of its Subsidiaries, except in the
normal course of the Company's or any of its Subsidiaries'
business.
(iii) Except as set forth in Schedule 3(s), there are
no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are
not in compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries
-----------------
have good and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by them
which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule
3(t) or such as would not have a Material Adverse Effect. Any
real property and facilities held under lease by the Company and
its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a
Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries
---------
are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.
Neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse
Effect. The Company has provided to Buyer true and correct
copies of all policies relating to directors' and officers'
liability coverage, errors and omissions coverage, and commercial
general liability coverage.
v. Internal Accounting Controls. The Company and each of
----------------------------
its Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors,
to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
w. Foreign Corrupt Practices. Neither the Company, nor
-------------------------
any of its Subsidiaries, nor any director, officer, agent, employee or
other person acting on behalf of the Company or any Subsidiary
has, in the course of his actions for, or on behalf of, the
Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment
12
to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended, or
made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government
official or employee.
x. Solvency. The Company (after giving effect to the
--------
transactions contemplated by this Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount
required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has
no information that would lead it to reasonably conclude that the
Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it
intend to take any action that would impair its ability to, pay
its debts from time to time incurred in connection therewith as
such debts mature. The Company did not receive a qualified
opinion from its auditors with respect to its most recent fiscal
year end and, after giving effect to the transactions
contemplated by this Agreement, does not anticipate or know of
any basis upon which its auditors might issue a qualified opinion
in respect of its current fiscal year.
y. No Investment Company. The Company is not, and upon
---------------------
the issuance and sale of the Securities as contemplated by this
Agreement will not be an "investment company" required to be
registered under the Investment Company Act of 1940 (an
"Investment Company"). The Company is not controlled by an
Investment Company.
z. Certain Registration Matters. Assuming the accuracy
----------------------------
of the Buyers' representations and warranties set forth in Section 3, no
registration under the Securities Act is required for the offer
and sale of the Conversion Shares and Warrant Shares by the
Company to the Buyers under the transaction documents. Except as
specified in Schedule 3(z), the Company has not granted or agreed
to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company
registered with the Commission or any other governmental
authority that have not been satisfied.
aa. Breach of Representations and Warranties by the
-----------------------------------------------
Company. If the Company breaches any of the representations or
-------
warranties set forth in this Section 3, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the Company
shall pay to the Buyer the Standard Liquidated Damages Amount in
cash or in shares of Common Stock at the option of the Company,
until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time
of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts
------------
to satisfy timely each of the conditions described in Section 6 and
7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a
---------------------
Form D with respect to the Securities as required under Regulation D and
to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take
such action as the Company shall reasonably determine is
13
necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States
(or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or
prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form ▇-▇, ▇▇-▇
---------------------------------------------------
or Form S-1. The Company's Common Stock is registered under Section
-----------
12(g) of the 1934 Act. The Company represents and warrants that
it meets the requirements for the use of Form S-3 (or if the
Company is not eligible for the use of Form S-3 as of the Filing
Date (as defined in the Registration Rights Agreement), the
Company may use the form of registration for which it is eligible
at that time) for registration of the sale by the Buyer of the
Registrable Securities (as defined in the Registration Rights
Agreement). So long as the Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to
be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The
Company further agrees to file all reports required to be filed
by the Company with the SEC in a timely manner so as to become
eligible, and thereafter to maintain its eligibility, for the use
of Form S-3. The Company shall issue a press release describing
the material terms of the transaction contemplated hereby as soon
as practicable following the Closing Date but in no event more
than two (2) business days of the Closing Date, which press
release shall be subject to prior review by the Buyers. The
Company agrees that such press release shall not disclose the
name of the Buyers unless expressly consented to in writing by
the Buyers or unless required by applicable law or regulation,
and then only to the extent of such requirement.
d. Use of Proceeds. The Company shall use the net
---------------
proceeds from the sale of the Notes and the Warrants in the manner set
forth in Schedule 4(d) attached hereto and made a part hereof and
shall not, directly or indirectly, use such proceeds for (i) any
loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its
currently existing direct or indirect Subsidiaries); (ii) the
satisfaction of any portion of the Company's debt (other than
payment of trade payables and accrued expenses in the ordinary
course of the Company's business and consistent with prior past
practices), or (iii) the redemption of any Common Stock.
e. Future Offerings. Subject to the exceptions
----------------
described below, the Company will not, without the prior written
consent of a majority-in-interest of the Buyers, negotiate or contract
with any party to obtain additional equity financing (including debt
financing with an equity component) that involves (A) the
issuance of Common Stock at a discount to the market price of the
Common Stock on the date of issuance (taking into account the
value of any warrants or options to acquire Common Stock issued
in connection therewith) or (B) the issuance of convertible
securities that are convertible into an indeterminate number of
shares of Common Stock or (C) the issuance of warrants during the
period (the "Lock-up Period") beginning on the Closing Date and
ending on the later of (i) two hundred seventy (270) days from
the Closing Date and (ii) one hundred eighty (180) days from the
date the Registration Statement (as defined in the Registration
Rights Agreement) is declared effective (plus any days in which
sales cannot be made thereunder). In addition, subject to the
exceptions described below, the Company will not conduct any
equity financing (including debt with an equity component)
14
("Future Offerings") during the period beginning on the Closing
Date and ending two (2) years after the end of the Lock-up Period
unless it shall have first delivered to each Buyer, at least
twenty (20) business days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed
definitive documentation to be entered into in connection
therewith, and providing each Buyer an option during the fifteen
(15) day period following delivery of such notice to purchase its
pro rata share (based on the ratio that the aggregate principal
amount of Notes purchased by it hereunder bears to the aggregate
principal amount of Notes purchased hereunder) of the securities
being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to
in this sentence and the preceding sentence are collectively
referred to as the "Capital Raising Limitations"). In the event
the terms and conditions of a proposed Future Offering are
amended in any respect after delivery of the notice to the Buyers
concerning the proposed Future Offering, the Company shall
deliver a new notice to each Buyer describing the amended terms
and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the fifteen (15) day
period following delivery of such new notice to purchase its pro
rata share of the securities being offered on the same terms as
contemplated by such proposed Future Offering, as amended. The
foregoing sentence shall apply to successive amendments to the
terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering
pursuant to Rule 415 under the 1933 Act, an equity line of credit
or similar financing arrangement) resulting in net proceeds to
the Company of in excess of $1,500,000, or (ii) issuances of
securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not
to raise equity capital), or in connection with the disposition
or acquisition of a business, product or license by the Company.
The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan approved
by the shareholders of the Company.
f. Expenses. At the Closing, the Company shall
--------
reimburse Buyers for expenses incurred by them in connection with
the negotiation, preparation, execution, delivery and performance
of this Agreement and the other agreements to be executed in
connection herewith ("Documents"), including, without limitation,
attorneys' and consultants' fees and expenses, transfer agent
fees, fees for stock quotation services, fees relating to any
amendments or modifications of the Documents or any consents or
waivers of provisions in the Documents, fees for the preparation
of opinions of counsel, escrow fees, and costs of restructuring
the transactions contemplated by the Documents. When possible,
the Company must pay these fees directly, otherwise the Company
must make immediate payment for reimbursement to the Buyers for
all fees and expenses immediately upon written notice by the
Buyer or the submission of an invoice by the Buyer If the
Company fails to reimburse the Buyer in full within three (3)
business days of the written notice or submission of invoice by
the Buyer, the Company shall pay interest on the total amount of
fees to be reimbursed at a rate of 15% per annum.
15
g. Financial Information. The Company agrees to
---------------------
send the following reports to each Buyer until such Buyer transfers,
assigns, or sells all of the Securities: (i) within ten (10) days
after the filing with the SEC, a copy of its Annual Report on
Form 10-KSB its Quarterly Reports on Form 10-QSB and any Current
Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making
available or giving to the shareholders of the Company, copies of
any notices or other information the Company makes available or
gives to such shareholders.
h. Authorization and Reservation of Shares. Subject
---------------------------------------
to Stockholder Approval, the Company shall at all times have
authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the
full conversion or exercise of the outstanding Notes and Warrants
and issuance of the Conversion Shares and Warrant Shares in
connection therewith (based on the Conversion Price of the Notes
or Exercise Price of the Warrants in effect from time to time)
and as otherwise required by the Notes. The Company shall not
reduce the number of shares of Common Stock reserved for issuance
upon conversion of Notes and exercise of the Warrants without the
consent of each Buyer. The Company shall at all times maintain
the number of shares of Common Stock so reserved for issuance at
an amount ("Reserved Amount") equal to no less than two (2) times
the number that is then actually issuable upon full conversion of
the Notes and Additional Notes and upon exercise of the Warrants
and the Additional Warrants (based on the Conversion Price of the
Notes or the Exercise Price of the Warrants in effect from time
to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance ("Authorized and Reserved
Shares") is below the Reserved Amount, the Company will promptly
take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation,
calling a special meeting of shareholders to authorize additional
shares to meet the Company's obligations under this Section 4(h),
in the case of an insufficient number of authorized shares,
obtain shareholder approval of an increase in such authorized
number of shares, and voting the management shares of the Company
in favor of an increase in the authorized shares of the Company
to ensure that the number of authorized shares is sufficient to
meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within thirty (30) days following the date
on which the number of Reserved Amount exceeds the Authorized and
Reserved Shares, the Company shall pay to the Borrower the
Standard Liquidated Damages Amount, in cash or in shares of
Common Stock at the option of the Buyer. If the Buyer elects to
be paid the Standard Liquidated Damages Amount in shares of
Common Stock, such shares shall be issued at the Conversion Price
at the time of payment. In order to ensure that the Company has
authorized a sufficient amount of shares to meet the Reserved
Amount at all times, the Company must deliver to the Buyer at the
end of every month a list detailing (1) the current amount of
shares authorized by the Company and reserved for the Buyer; and
(2) amount of shares issuable upon conversion of the Notes and
upon exercise of the Warrants and as payment of interest accrued
on the Notes for one year. If the Company fails to provide such
list within five (5) business days of the end of each month, the
Company shall pay the Standard Liquidated Damages Amount, in cash
or in shares of Common Stock at the option of the Buyer, until
the list is delivered. If the Buyer elects to be paid the
Standard Liquidated Damages Amount in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time
of payment.
16
i. Listing. The Company shall promptly secure the
-------
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as any Buyer owns any of the
Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares
and Warrant Shares from time to time issuable upon conversion of
the Notes or exercise of the Warrants. The Company will obtain
and, so long as any Buyer owns any of the Securities, maintain
the listing and trading of its Common Stock on the OTCBB or any
equivalent replacement exchange, the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the
New York Stock Exchange ("NYSE"), or the American Stock Exchange
("AMEX") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly
provide to each Buyer copies of any notices it receives from the
OTCBB and any other exchanges or quotation systems on which the
Common Stock is then listed regarding the continued eligibility
of the Common Stock for listing on such exchanges and quotation
systems.
j. Corporate Existence. So long as a Buyer beneficially
-------------------
owns any Notes or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the
Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common
Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
k. No Integration. The Company shall not make any
--------------
offers or sales of any security (other than the Securities) under
circumstances that would require registration of the Securities
being offered or sold hereunder under the 1933 Act or cause the
offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its
securities.
l. Subsequent Investment. The Company and the Buyers
---------------------
agree that, upon the filing by the Company of the Registration
Statement to be filed pursuant to the Registration Rights
Agreement (the "Filing Date"), the Buyers shall purchase
additional Notes (the "Filing Notes") in the aggregate principal
amount of Four Hundred Thousand Dollars ($400,000) and additional
warrants (the "Filing Warrants") to purchase an aggregate of
400,000 shares of Common Stock, for an aggregate purchase price
of Four Hundred Thousand Dollars ($400,000), with the closing of
such purchase to occur within five (5) days of the Filing Date;
provided, however, that the obligation of each Buyer to purchase
the Filing Notes and the Filing Warrants is subject to the
satisfaction, at or before the closing of such purchase and sale,
of the conditions set forth in Section 7. The Company and the
Buyers further agree that, upon the declaration of effectiveness
of the Registration Statement to be filed pursuant to the
Registration Rights Agreement (the "Effective Date"), the Buyers
shall purchase additional notes (the "Effectiveness Notes" and,
collectively with the Filing Notes, the "Additional Notes") in
the aggregate principal amount of Four Hundred Thousand Dollars
($400,000) and additional warrants (the "Effectiveness Warrants"
and, collectively with the Filing Warrants, the "Additional
17
Warrants") to purchase an aggregate of 400,000 shares of Common
Stock, for an aggregate purchase price of Four Hundred Thousand
Dollars ($400,000), with the closing of such purchase to occur
within five (5) days of the Effective Date; provided, however,
that the obligation of each Buyer to purchase the Additional
Notes and the Additional Warrants is subject to the satisfaction,
at or before the closing of such purchase and sale, of the
conditions set forth in Section 7; and, provided, further, that
there shall not have been a Material Adverse Effect as of such
effective date. The terms of the Additional Notes and the
Additional Warrants shall be identical to the terms of the Notes
and Warrants, as the case may be, to be issued on the Closing
Date. The Common Stock underlying the Additional Notes and the
Additional Warrants shall be Registrable Securities (as defined
in the Registration Rights Agreement) and shall be included in
the Registration Statement to be filed pursuant to the
Registration Rights Agreement.
m. Key Man Insurance. The Company shall use its
-----------------
best efforts to obtain, on or before five (5) business days from the
date hereof, key man life insurance on all of the Company's officers
and division heads.
n. Stockholder Approval. The Company shall file a
--------------------
proxy or information statement with the SEC no later than April 15, 2005
and use its best efforts to obtain, on or before June 15, 2005,
such approvals of the Company's stockholders as may be required
to issue all of the shares of Common Stock issuable upon
conversion or exercise of, or otherwise with respect to, the
Notes and the Warrants in accordance with Nevada law and any
applicable rules or regulations of the OTCBB and Nasdaq, either
through a reverse stock split of the Common Stock or an increase
in authorized capital (the "Stockholder Approval"). The Company
shall furnish to each Buyer and its legal counsel promptly (but
in no event less than two (2) business days) before the same is
filed with the SEC, one copy of the proxy or information
statement and any amendment thereto, and shall deliver to each
Buyer promptly each letter written by or on behalf of the Company
to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case
relating to such proxy or information statement (other than any
portion thereof which contains information for which the Company
has sought confidential treatment). The Company will promptly
(but in no event more than three (3) business days) respond to
any and all comments received from the SEC (which comments shall
promptly be made available to each Buyer). The Company shall
comply with the filing and disclosure requirements of Section 14
under the 1934 Act in connection with the Stockholder Approval.
The Company represents and warrants that its Board of Directors
has approved the proposal contemplated by this Section 4(l) and
shall indicate such approval in the proxy or information
statement used in connection with the Stockholder Approval.
o. Lockup Agreements. The Company and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall execute and deliver to the Buyers at the
Closing a Lockup Agreement in the form attached hereto pursuant
to which the Company and the Holder agree not to sell any of the
Company's Common Stock without the consent of the Investors.
p. Breach of Covenants. If the Company breaches any
-------------------
of the covenants set forth in this Section 4, and in addition to any
other remedies available to the Buyers pursuant to this
Agreement, the Company shall pay to the Buyers the Standard
Liquidated Damages Amount, in cash or in shares of Common Stock
at the option of the Company, until such breach is cured. If the
Company elects to pay the Standard Liquidated Damages Amount in
18
shares, such shares shall be issued at the Conversion Price at
the time of payment.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue
certificates, registered in the name of each Buyer or its
nominee, for the Conversion Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the
Company upon conversion of the Notes or exercise of the Warrants
in accordance with the terms thereof (the "Irrevocable Transfer
Agent Instructions"). Prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which
the Conversion Shares and Warrant Shares may be sold pursuant to
Rule 144 without any restriction as to the number of Securities
as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case
of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under
the 1933 Act or the date on which the Conversion Shares and
Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of Securities as of a particular
date that can then be immediately sold), will be given by the
Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall
affect in any way the Buyer's obligations and agreement set forth
in Section 2(g) hereof to comply with all applicable prospectus
delivery requirements, if any, upon re-sale of the Securities.
If a Buyer provides the Company with (i) an opinion of counsel in
form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of
such Securities may be made without registration under the 1933
Act and such sale or transfer is effected or (ii) the Buyer
provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and,
in the case of the Conversion Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates,
free from restrictive legend, in such name and in such
denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Buyers, by vitiating the
intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic
loss and without any bond or other security being required.
19
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Notes
and Warrants to a Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are
for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
b. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the
applicable Buyer shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at
that time(except for representations and warranties that speak as
of aspecific date), and the applicable Buyer shall have performed,
satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the applicable
Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Notes and
Warrants at the Closing is subject to the satisfaction, at or
before the Closing Date of each of the following conditions,
provided that these conditions are for such Buyer's sole benefit
and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the
Buyer.
b. The Company shall have delivered to such Buyer duly
executed Notes (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form
and substance satisfactory to a majority-in-interest of the Buyers,
shall have been delivered to and acknowledged in writing by the
Company's Transfer Agent.
d. 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 Closing Date as though made at such time
(except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied
and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Buyer shall have received a certificate
20
or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by
such Buyer including, but not limited to certificates with
respect to the Company's Certificate of Incorporation, By-laws
and Board of Directors' resolutions relating to the transactions
contemplated hereby.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of
the transactions contemplated by this Agreement.
f. No event shall have occurred which could
reasonably be expected to have a Material Adverse Effect on the
Company.
g. The Conversion Shares and Warrant Shares shall
have been authorized for quotation on the OTCBB and trading in the
Common Stock on the OTCBB shall not have been suspended by the SEC
or the OTCBB.
h. The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer and in substantially
the same form as Exhibit "D" attached hereto.
i. The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing
Date.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. THIS AGREEMENT SHALL BE ENFORCED,
-------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT
OF LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS
AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER
AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS
MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON
SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH
21
DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT
SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION
WITH SUCH DISPUTE.
b. Counterparts; Signatures by Facsimile. This
-------------------------------------
Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and
the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. This
Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
c. Headings. The headings of this Agreement are
--------
for convenience of reference only and shall not form part of, or
affect the interpretation of, this Agreement.
d. Severability. In the event that any provision
------------
of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and
----------------------------
the instruments referenced herein contain the entire understanding of
the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein,
neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be
charged with enforcement.
f. Notices. Any notices required or permitted to be
-------
given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight
delivery service) or by facsimile and shall be effective five
days after being placed in the mail, if mailed by regular United
States mail, or upon receipt, if delivered personally or by
courier (including a recognized overnight delivery service) or by
facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Med Gen, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
22
With a copy to:
Law Office if ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to a Buyer: To the address set forth immediately below
such Buyer's name on the signature pages hereto.
With copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the parties and their successors
and assigns. Neither the Company nor any Buyer shall assign this
Agreement or any rights or obligations hereunder without the
prior written consent of the other. Notwithstanding the
foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates,"
as that term is defined under the 1934 Act, without the consent
of the Company.
h. 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,
normay any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of
--------
the Company and the agreements and covenants set forth in Sections
3, 4, 5 and 8 shall survive the closing hereunder notwithstanding any
due diligence investigation conducted by or on behalf of the Buyers.
The Company agrees to indemnify and hold harmless each of the
Buyers and all their officers, directors, employees and agents
for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3
and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall
---------
have the right to review a reasonable period of time before issuance
of any press releases, SEC, OTCBB or NASD filings, or any other
public statements with respect to the transactions contemplated
23
hereby; provided, however, that the Company shall be entitled,
without the prior approval of each of the Buyers, to make any
press release or SEC, OTCBB (or other applicable trading market)
or NASD filings with respect to such transactions as is required
by applicable law and regulations (although each of the Buyers
shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a
copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and
------------------
perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. No Strict Construction. The language used in
----------------------
this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction
will be applied against any party.
m. Remedies. The Company acknowledges that a breach
--------
by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this
Agreement, that the Buyers shall be entitled, in addition to all
other available remedies at law or in equity, and in addition to
the penalties assessable herein, to an injunction or injunctions
restraining, preventing or curing any breach of this Agreement
and to enforce specifically the terms and provisions hereof,
without the necessity of showing economic loss and without any
bond or other security being required.
24
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date
first above written.
MED GEN, INC.
______________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Delaware
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
25
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
▇.▇. ▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_______
Number of Warrants: _______
Aggregate Purchase Price: $_______
26
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
27
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLP
____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $______
Number of Warrants: ______
Aggregate Purchase Price: $______
28
