1
EXHIBIT 10.14
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of __________________,
between IMMUNE RESPONSE, INC., a Colorado corporation with principal executive
offices located at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"COMPANY"), and the undersigned (the "BUYER").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Company, and the
Company desires to issue and sell to the Buyer, upon the terms and subject to
the conditions of this Agreement, (i) a 6% Exchangeable Convertible Debenture
(the "DEBENTURE"), in the form attached hereto as EXHIBIT A, and (ii) 150,000
Common Stock Purchase Warrants in the form attached hereto as EXHIBIT B (the
"WARRANTS") on the Funding Date (as defined herein);
WHEREAS, the Debenture is (i) exchangeable for 1,500 shares of
the Company's Series A 6% Convertible Preferred Stock, par value $.0001 per
share (the "PREFERRED SHARES"), and (ii) convertible into shares of the
Company's common stock, par value $.0001 per share (the "COMMON STOCK"), in
accordance with the terms set forth therein;
WHEREAS, upon the terms and subject to the designations,
preferences and rights set forth in the Company's Articles of Amendment to the
Company's Amended and Restated Articles of Incorporation in the form attached
hereto as EXHIBIT C (the "ARTICLES OF AMENDMENT"), upon issuance the Preferred
Shares shall be convertible into shares of the Common Stock; and
WHEREAS, the Warrants, upon the terms and subject to the
conditions therein, will be exercisable to purchase 150,000 shares of Common
Stock for a period of five (5) years from and after the Funding Date.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. TRANSACTION. Subject to the terms and conditions contained
herein, Buyer hereby agrees to purchase from the Company, and the Company hereby
agrees to issue and sell to the Buyer in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933,
as amended (the "SECURITIES ACT"), the Debenture and the Warrants.
B. PURCHASE PRICE; FORM OF PAYMENT.
1. The purchase price for the Debenture and the Warrants to be
purchased by Buyer hereunder shall be $1,500,000 (the "PURCHASE PRICE") less
deductions for fees and expenses.
2
2. Buyer shall pay the Purchase Price by wire transfer of
immediately available funds to the escrow agent (the "ESCROW AGENT") identified
in those certain Escrow Instructions dated as of the date hereof, a copy of
which is attached hereto as EXHIBIT D (the "ESCROW INSTRUCTIONS").
Simultaneously against receipt by the Escrow Agent of the Purchase Price, the
Company shall deliver to the Escrow Agent or its designated depository one or
more duly authorized, issued and executed certificates (in the name of Buyer or,
if the Company has been notified otherwise, in the name of Buyer's nominee)
evidencing the Debenture and the Warrants which the Buyer is purchasing. By
executing and delivering this Agreement, Buyer and the Company each hereby agree
to observe the terms and conditions of the Escrow Instructions, all of which are
incorporated herein by reference as if fully set forth herein.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made by wire transfer of immediately available funds to:
Fleet Bank
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ Division
New York, New York 10016
For the Account of: ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ LLP Attorney Trust Account
Account# 9405775163
ABA Reference# ▇▇▇-▇▇▇-▇▇▇
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Debenture and the Warrants representing the securities to be
purchased.
D. EXCHANGE OF DEBENTURES. From and after the date hereof and
until the Maturity Date (as defined in the Debenture), Buyer may, at its option
and in its sole discretion, exchange the Debenture for Preferred Shares, which
shares shall have the rights and preferences set forth in the Articles of
Amendment. Such exchange shall take place in accordance with the provisions of
Section 3 of the Debenture.
II. BUYER'S REPRESENTATIONS, WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Buyer represents and warrants to and covenants and agrees with
the Company as follows:
A. Buyer is purchasing the Debenture, Preferred Shares
issuable upon the exchange thereof, the Warrants, the Common Stock issuable upon
exercise of the Warrants (the "WARRANT SHARES") and the shares of Common Stock
issuable upon conversion of the Debenture or the Preferred Shares (in either
case, the "CONVERSION SHARES" and, collectively with the Debenture, Preferred
Shares, the Warrants and the Warrant Shares, the "SECURITIES") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
3
B. Buyer is (i) an "accredited investor" within the meaning of
Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and
sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;
D. Buyer has been furnished with or provided access to all
materials relating to the business, financial position and results of operations
of the Company, and all other materials requested by Buyer to enable it to make
an informed investment decision with respect to the Securities.
E. Buyer acknowledges that it has had access to all press
releases issued by the Company since December 31, 1998 and has had access to
copies of the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, and all other reports and documents heretofore filed by the
Company with the Commission pursuant to the Securities Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE Act") since December 31, 1998
(collectively, the "COMMISSION FILINGS").
F. Buyer acknowledges that in making its decision to purchase
the Securities it has been given an opportunity to ask questions of and to
receive answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
G. Buyer understands that the Securities have not been
approved or disapproved by the Commission or any state securities commission and
that the foregoing authorities have not reviewed any documents or instruments in
connection with the offer and sale to it of the Securities and have not
confirmed or determined the adequacy or accuracy of any such documents or
instruments.
H. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally.
I. Neither Buyer nor its affiliates nor any person acting on
its or their behalf has the intention of entering into, at any time prior to the
conversion of the entire principal amount the Debenture or all shares of
Preferred Stock and the exercise of the Warrants, any put option, short position
or other similar instrument or position with respect to the Common Stock, and
neither Buyer nor any of its affiliates nor any person acting on its or their
behalf has or will use at any time shares of Common Stock acquired pursuant to
this Agreement to settle any put
-3-
4
option, short position or other similar instrument or position that may have
been entered into prior to the execution of this Agreement.
III. COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. CAPITALIZATION.
1. The authorized capital stock of the Company
consists of: (i) 25,000,000 shares of Common Stock, of which 1,983,233 shares
are issued and outstanding and 1,000,000 shares of preferred stock, none of
which are issued and outstanding. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, the Company has outstanding warrants to
purchase 600,000 shares of Common Stock and no stock options. The Conversion
Shares and Warrant Shares have been duly and validly authorized and reserved for
issuance by the Company, and when issued by the Company upon conversion of or in
lieu of accrued dividends on the Preferred Shares, or on exercise of the
Warrants, 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, subscription, "call", convertible debt
instruments or other similar rights to acquire the Common Stock (including the
Conversion Shares and Warrant Shares) that have been issued or granted to any
person, except as disclosed on Schedule III.A.1. hereto or otherwise previously
disclosed in writing to Buyer.
2. Except as disclosed on Schedule III.A.2. hereto,
the Company does not own or control, directly or indirectly, any interest in any
other corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity.
3. The Company has entered into an Agreement and Plan
of Reorganization, dated as of December 9, 1999 (the "MERGER AGREEMENT"), among
the Company, Opticon Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company ("ACQUISITION"), and Opticon Medical,
Inc., an Iowa corporation ("OPTICON"), pursuant to which Opticon will be merged
with and into Acquisition (the "MERGER"), and all of the outstanding capital
stock, and options, warrants and other rights exercisable for Opticon capital
stock, will be converted into the right to receive shares of Common Stock. The
Merger has received the requisite approval of shareholders of Opticon and
Acquisition, and will become effective on or prior to the Funding Date. Certain
information concerning Opticon and the Merger, as well as a copy of the Merger
Agreement, are disclosed on Schedule III.A.3 hereto.
-4-
5
B. ORGANIZATION; REPORTING COMPANY STATUS.
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado
and is duly qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company or on the consummation of any of the transactions
contemplated by this Agreement (a "MATERIAL ADVERSE EFFECT").
2. The Company has voluntarily filed with the
Commission all reports and information required to be filed by it pursuant to
all reporting obligations under 15(d) of the Exchange Act for the 12-month
period immediately preceding the date hereof. Such Common Stock is listed and
traded on The National Association of Securities Dealers electronic bulletin
board ("OTC/BB") under the symbol "IMUN" and the Company has not received any
notice regarding, and to its knowledge there is no threat, of the termination or
discontinuance of the eligibility of the Common Stock for such listing.
C. AUTHORIZED SHARES. The Company has duly and validly
authorized and reserved for issuance 2,000,000 shares of Common Stock, which
amount is sufficient in number for the conversion of the Debenture or the
Preferred Shares, assuming for the purposes of this Section III.C a Conversion
Price (as defined in the Articles of Amendment) of $2.50, and the exercise of
the Warrants. The Company understands and acknowledges the potentially dilutive
effect to the Common Stock of the issuance of the Conversion Shares and Warrant
Shares upon conversion of the Debenture or the Preferred Shares and exercise of
the Warrants, respectively. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Debenture or the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Debenture, the Articles of Amendment and the Warrants, is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Debenture and Articles of Amendment and to enter into the Documents
(as hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Articles of
Amendment with the Colorado Secretary of State's office, the issuance of the
Debenture, the Preferred Shares, the Warrants and the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares), has been duly
authorized by all necessary corporate action on the part of the Company. Each of
the Documents (as defined below) has been duly validly executed and delivered by
the Company and the Articles of Amendment have been duly filed with the Colorado
Secretary of State's office by the Company, and each instrument constitutes a
valid and binding obligation of the Company enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and
-5-
6
binding obligations of the Company enforceable against it in accordance with
their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally. For purposes of this Agreement, the term
"DOCUMENTS" means (i) this Agreement; (ii) the Registration Rights Agreement of
even date herewith between the Company and Buyer, a copy of which is annexed
hereto as EXHIBIT E (the "REGISTRATION RIGHTS AGREEMENT"); (iii) the Debenture;
(iv) the Warrants; (v) the Articles of Amendment; and (vi) the Escrow
Instructions.
E. AUTHORIZATION OF THE SECURITIES. The authorization,
issuance, sale and delivery of the Debenture and the Preferred Shares and
Warrants has been duly authorized by all requisite corporate action on the part
of the Company. As of the Funding Date, the Debenture and the Warrants, and the
Preferred Shares, the Conversion Shares and the Warrant Shares, upon their
issuance in accordance with the Debenture, Articles of Amendment and the
Warrants, respectively, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first refusal
or other similar rights.
F. NON-CONTRAVENTION. The execution and delivery by the
Company of the Documents, the issuance of the Securities, and the consummation
by the Company of the other transactions contemplated hereby and thereby,
including, without limitation, the filing of the Articles of Amendment with the
Colorado Secretary of State's office and payment of interest under the
Debenture, 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 (or an
event which, with notice, lapse of time or both, would constitute a default)
under (i) the articles of incorporation or by-laws of the Company or (ii) any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which its properties or assets are bound, or
any law, rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets.
G. APPROVALS. No authorization, approval or consent of any
third party or entity, including, without limitation, any court or public or
governmental authority is required to be obtained by the Company for the
issuance and sale of the Securities to Buyer as contemplated by this Agreement,
except such authorizations, approvals and consents that have been obtained by
the Company prior to the date hereof.
H. COMMISSION FILINGS. None of the Commission Filings
contained at the time they were filed any untrue statement of a material fact or
omitted 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.
I. ABSENCE OF CERTAIN CHANGES. Except for the Merger as
provided on Schedule III.I, since the Balance Sheet Date (as defined in Section
III.M.), there has not occurred any change, event or development in the
business, financial condition, prospects or results of operations of the
Company, and there has not existed any condition having or reasonably likely to
have, a Material Adverse Effect.
J. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic or industry conditions known to the public
generally) that has not been fully
-6-
7
disclosed in writing to the Buyer that (i) reasonably could be expected to have
a Material Adverse Effect or (ii) reasonably could be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to the Documents.
K. ABSENCE OF LITIGATION. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. ABSENCE OF EVENTS OF DEFAULT. No "Event of Default" (as
defined in any agreement or instrument to which the Company is a party) and no
event which, with notice, lapse of time or both, would constitute an Event of
Default (as so defined), has occurred and is continuing, which could have a
Material Adverse Effect.
M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The
Company has delivered to Buyer true and complete copies of its (i) audited
balance sheet as at December 31, 1998, and the related audited statements of
operations and cash flows for the fiscal year ended December 31, 1998, (ii) its
unaudited balance sheet and related statements of operations and cash flows for
the thirteen (13) month period ending January 31, 2000, including in each case,
the related notes and schedules thereto (collectively, the "FINANCIAL
STATEMENTS"), and all management letters, if any, from the Company's independent
auditors relating to the dates and periods covered by the Financial Statements.
Each of the Financial Statements is complete and fairly stated in all material
respects, has been prepared in accordance with United States Generally Accepted
Accounting Principles ("GAAP") (subject, in the case of the interim Financial
Statements, to normal year end adjustments and the absence of footnotes) and in
conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof, and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at December 31, 1998, is hereinafter
referred to as the "BALANCE SHEET" and December 31, 1998, is hereinafter
referred to as the "BALANCE SHEET DATE". The Company has no indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise, and whether due or to become due) that would have been required to be
reflected in, reserved against or otherwise described in the Balance Sheet or in
the notes thereto in accordance with GAAP, which was not fully reflected in,
reserved against or otherwise described in the Balance Sheet or the notes
thereto or was not incurred in the ordinary course of business consistent with
the Company's past practices since the Balance Sheet Date.
N. COMPLIANCE WITH LAWS; PERMITS. The Company is in compliance
with all laws, rules, regulations, codes, ordinances and statutes (collectively
"LAWS") applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
-7-
8
O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
III.O. hereto, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company. Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or Affiliates (i) owns
any direct or indirect interest constituting more than a one percent equity (or
similar profit participation) interest in, or controls or is a director,
officer, partner, member or employee of, or consultant to or lender to or
borrower from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company, (y) engaged in a business related to the business of
the Company , or (z) a participant in any transaction to which the Company is a
party (other than in the ordinary course of the Company's business) or (ii) is a
party to any contract, agreement, commitment or other arrangement with the
Company.
P. INSURANCE. The Company maintains insurance coverage with
financially sound and reputable insurers and such insurance coverage is
adequate, consistent with industry standards and the Company's historical claims
experience, and includes coverage for such things as property and casualty,
general liability, workers' compensation, personal injury and other similar
types of insurance. The Company has not received notice from, and has no
knowledge of any threat by, any insurer (that has issued any insurance policy to
the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. SECURITIES LAW MATTERS. Based, in part, upon the
representations and warranties of Buyer set forth in Section II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to the Merger or an effective registration
statement under the Securities Act, the Company has not issued, offered or sold
the Debenture, the Preferred Shares or any shares of Common Stock (including for
this purpose any securities of the same or a similar class as the Debenture, the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year immediately preceding the date hereof,
except as disclosed on Schedule III.Q. hereto, and the Company shall not
directly or indirectly take, and shall not permit any of its directors, officers
or Affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any person or entity of the Debenture, the
Preferred Shares or shares of Common Stock or any of the other Securities), so
as to make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Buyer of the Securities as
contemplated by this Agreement. No form of general solicitation or advertising
has been used or authorized by the Company or any of its officers, directors or
Affiliates in connection with the offer or sale of the Securities as
contemplated by this Agreement or any other agreement to which the Company is a
party.
R. ENVIRONMENTAL MATTERS.
-8-
9
1. The operations of the Company are in compliance
with all applicable Environmental Laws (as defined below) and all permits issued
pursuant to Environmental Laws or otherwise;
2. the Company has obtained or applied for all
permits required under all applicable Environmental Laws necessary to operate
its business;
3. the Company is not the subject of any outstanding
written order of or agreement with any governmental authority or person
respecting (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
4. the Company has not received, since the Balance
Sheet Date, any written communication alleging that it may be in violation of
any Environmental Law or any permit issued pursuant to any Environmental Law, or
may have any liability under any Environmental Law;
5. the Company does not have any current contingent
liability in connection with any Release of any Hazardous Materials into the
indoor or outdoor environment (whether on-site or off-site);
6. except as set forth on Schedule III.R.6 hereto, to
the Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property of the
Company pending or threatened which could lead to the imposition of any
liability pursuant to any Environmental Law;
7. there is not located at any of the properties of
the Company any (A) underground storage tanks, (B) asbestos-containing material
or (C) equipment containing polychlorinated biphenyls; and,
8. the Company has provided to Buyer all
environmentally related audits, studies, reports, analyses, and results of
investigations that have been performed with respect to the currently or
previously owned, leased or operated properties of the Company.
For purposes of this Section III.R.:
"ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. App. Section 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.),
the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), and the regulations promulgated pursuant thereto.
-9-
10
"HAZARDOUS MATERIAL" means any substance, material or waste
which is regulated by the United States, Canada or any of its provinces, or any
state or local governmental authority including, without limitation, petroleum
and its by-products, asbestos, and any material or substance which is defined as
a "hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or toxic substance" under any provision of any Environmental Law.
"RELEASE" means any release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, or
leaching into the indoor or outdoor environment, or into or out of any property.
"REMEDIAL ACTION" means all actions to (x) clean up, remove,
treat or in any other way address any Hazardous Material; (y) prevent the
Release of any Hazardous Material so it does not endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; or (z)
perform pre-remedial studies and investigations or post-remedial monitoring and
care.
S. LABOR MATTERS. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
T. ERISA MATTERS. The Company and its ERISA Affiliates (as
defined below) are in compliance in all material respects with all provisions of
ERISA (as defined below) applicable to it. No Reportable Event (as defined
below) has occurred, been waived or exists as to which the Company or any ERISA
Affiliate was required to file a report with the Pension Benefits Guaranty
Corporation, and the present value of all liabilities under all Plans (based on
those assumptions used to fund such Plans) did not, as of the most recent annual
valuation date applicable thereto, exceed the value of the assets of all such
Plans (as defined below) in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
-10-
11
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of
1974, or any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under ss. 414
of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE").
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
ss. 414 of the Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PLAN" means any pension plan (other than a Multiemployer
Plan) subject to the provision of Title IV of ERISA or ss. 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"REPORTABLE EVENT" means any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of ss. 414 of the
Internal Revenue Code.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. TAX MATTERS.
1. The Company has filed all Tax Returns which it is
required to file under applicable Laws, except for such Tax Returns in respect
of which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are complete and fairly stated in all material
respects and have been prepared in compliance with all applicable Laws; the
Company has paid all Taxes (as defined below) due and owing by it (whether or
not such Taxes are required to be shown on a Tax Return) and have withheld and
paid over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since the Balance Sheet Date, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
-11-
12
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such corporation
is or may be subject to taxation by that jurisdiction. There are no foreign,
federal, state or local tax audits or administrative or judicial proceedings
pending or being conducted with respect to the Company; no information related
to Tax matters has been requested by any foreign, federal, state or local taxing
authority; and, except as disclosed above, no written notice indicating an
intent to open an audit or other review has been received by the Company from
any foreign, federal, state or local taxing authority. There are no material
unresolved questions or claims concerning the Company's Tax liability. The
Company (A) has not executed or entered into a closing agreement pursuant to ss.
7121 of the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to or is
required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue
Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by the Company or any of its subsidiaries
or has any knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company. The Company has not been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Internal Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under
Section 341(f) of the Internal Revenue Code. The Company is not liable for the
Taxes of another person that is not a subsidiary of the Company under (A)
Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or
foreign law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, is obligated to make payments or is a party
to an agreement that could obligate it to make any payments that would not be
deductible under Section 28OG of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
V. PROPERTY. The Company has good and marketable title to all
real and personal property owned by it, free and clear of all liens,
encumbrances and defects except as are described on Schedule III.V. hereto or
such as do not materially affect the value of such property
-12-
13
and do not interfere with the use made and proposed to be made of such property
by the Company; and any real property and buildings held under lease by the
Company are held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company.
W. INTELLECTUAL PROPERTY. The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") for the conduct of its business as now being conducted as
described on Schedule III.W. hereto. The Company is not infringing upon or in
conflict with any right of any other person with respect to any Intangibles.
Except as disclosed on Schedule III.W. hereto, no claims have been asserted by
any person to the ownership or use of any Intangibles and the Company has no
knowledge of any basis for such claim.
X. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls which provide
reasonable assurance that (i) all transactions to which the Company is a party
or by which its properties are bound are executed with management's
authorization; (ii) the reported accountability of the Company's assets is
compared with existing assets at regular intervals; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with U.S. generally
accepted accounting principles consistently applied.
Y. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of
its directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. NO MISREPRESENTATION. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading.
-13-
14
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that,
upon issuance pursuant to this Agreement, the Debenture, the Preferred Shares
and the Warrants (and any shares of Common Stock issued in conversion of the
Debenture, or the Preferred Shares or exercise of the Warrants) shall have
endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Debenture, the
Preferred Shares and the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND
SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. FILINGS. The Company shall make all necessary Commission
Filings and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to the Buyer as required by all applicable Laws,
and shall provide a copy thereof to the Buyer promptly after such filing.
C. REPORTING STATUS. So long as the Buyer beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed by it with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
D. USE OF PROCEEDS. The Company shall use the net proceeds
from the sale of the Securities (excluding amounts paid by the Company for legal
fees and finder's fees in connection with such sale) solely for general
corporate and working capital purposes.
E. LISTING. Except to the extent the Company lists its Common
Stock on The New York Stock Exchange, the Company shall use its best efforts to
maintain its listing of the Common Stock on the OTC/BB.
F. RESERVED CONVERSION SHARES. The Company at all times from
and after the date hereof shall have a sufficient number of shares of Common
Stock duly and validly authorized and reserved for issuance to satisfy the
conversion, in full, of the Debenture or the Preferred Shares and upon the
exercise of the Warrants.
G. RIGHT OF FIRST REFUSAL. If the Company should propose (the
"PROPOSAL") to issue Common Stock or securities convertible into Common Stock at
a price less than the
-14-
15
Current Market Price (as defined in the Articles of Amendment), or debt at less
than par value or having an effective annual interest rate in excess of nine and
nine-tenths percent (9.9%) (each a "RIGHT OF FIRST REFUSAL SECURITY" and
collectively, the "RIGHT OF FIRST REFUSAL SECURITIES"), in each case on the date
of issuance during the period ending two years after the Closing Date (the
"RIGHT OF FIRST REFUSAL PERIOD"), the Company shall be obligated to offer the
Buyer on the terms set forth in the Proposal (the "OFFER") and the Buyer shall
have the right, but not the obligation, to accept such Offer on such terms. If
during the Right of First Refusal Period, the Company provides written notice to
the Buyer that it proposes to issue any Right of First Refusal Securities on the
terms set forth in the Proposal, then the Buyer shall have ten (10) business
days to accept or reject such offer in writing. If the Company fails to: (i)
issue a Proposal during the Right of First Refusal Period, (ii) offer the Buyer
the opportunity to complete the transaction as set forth in the Proposal, or
(iii) enter into an agreement with the Buyer, at such terms after the Buyer has
accepted the Offer, then the Company shall pay to the Buyer, as liquidated
damages, an amount in total equal to ten percent (10%) of the amount paid to the
Company for the Right of First Refusal Securities. The foregoing Right of First
Refusal is and shall be senior in right to any other right of first refusal
issued by the Company to any other Person (as defined in the Articles of
Amendment). Notwithstanding the foregoing, the Buyer shall have no rights under
this Section IV.G. in respect of Common Stock or any other securities of the
Company issuable (i) upon the exercise or conversion of options, warrants or
other rights to purchase securities of the Company outstanding as of the date
hereof or (ii) to officers, directors or employees of the Company or any of its
subsidiaries.
v. TRANSFER AGENT INSTRUCTIONS.
A. The Company undertakes and agrees that no instruction other
than the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Debenture or the Preferred Shares and exercise of the Warrants otherwise
shall 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 contained in this Section V.A. shall affect in any way
Buyer's obligations and agreement to comply with all applicable securities laws
upon resale of such Common Stock. If, at any time, Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company and its
counsel that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
B. The Company shall permit Buyer to exercise its right to
convert the Debenture or the Preferred Shares by telecopying an executed and
completed Notice of Conversion to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date. The Company shall transmit
the certificates evidencing the shares of Common Stock issuable upon conversion
of any principal amount of the Debenture or the Preferred Shares (together with
certificates evidencing any Preferred Shares not being so converted) to Buyer
via
-15-
16
express courier, by electronic transfer or otherwise, within five business days
after receipt by the Company of the Notice of Conversion (the "DELIVERY DATE").
Within 30 days after Buyer delivers the Notice of Conversion to the Company,
Buyer shall deliver to the Company the Debenture or the Preferred Shares being
converted.
C. The Company shall permit Buyer to exercise its right to
purchase shares of Common Stock pursuant to exercise of the Warrants in
accordance with its applicable terms of the Warrants. The last date that the
Company may deliver shares of Common Stock issuable upon any exercise of
Warrants is referred to herein as the "WARRANT DELIVERY DATE."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares, upon the conversion of the Debenture or the Preferred Shares or exercise
of the Warrants beyond the applicable Dividend Payment Due Date (as defined in
the Articles of Amendment), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Common Stock
issuable in lieu of cash dividends on the Preferred Shares, upon conversion of
the Debenture or the Preferred Shares or exercise of the Warrants in accordance
with the following schedule (where "NO. BUSINESS DAYS" is defined as the number
of business days beyond five (5) days from the Dividend Payment Due Date (as
that term is defined in the Articles of Amendment), the Delivery Date or the
Warrant Delivery Date, as applicable):
Compensation For Each $10,000 of
Debenture principal amount or 10
No. Business Days Shares of Preferred Shares Not
----------------- Converted Timely or 500 Shares of
Common Stock Issuable In Payment of
Dividends Not Issued Timely
---------------------------
1 $ 25
2 $ 50
3 $ 75
4 $100
5 $125
6 $150
7 $175
8 $200
9 $225
-16-
17
Compensation For Each $10,000 of
Debenture principal amount or 10
No. Business Days Shares of Preferred Shares Not
----------------- Converted Timely or 500 Shares of
Common Stock Issuable In Payment of
Dividends Not Issued Timely
---------------------------
10 $250
more than 10 $250 + $100 for each Business Day
Late beyond 10 business days
The Company shall pay to Buyer the compensation described above as liquidated
damages by the transfer of immediately available funds upon Buyer's demand.
Nothing herein shall limit Buyer's right to pursue actual damages for the
Company's failure to issue and deliver Common Stock to Buyer, and in addition to
any other remedies which may be available to Buyer, in the event the Company
fails for any reason to effect delivery of such shares of Common Stock within
five business days after the relevant Dividend Payment Due Date, the Delivery
Date or the Warrant Delivery Date, as applicable, Buyer shall be entitled to
rescind the relevant Notice of Conversion or exercise of Warrants by delivering
a notice to such effect to the Company whereupon the Company and Buyer shall
each be restored to their respective original positions immediately prior to
delivery of such Notice of Conversion on delivery.
VI DELIVERY INSTRUCTIONS.
The Securities shall be delivered by the Company to the Escrow
Agent pursuant to Section I.B. hereof on a "delivery-against-payment basis" at
the closing of the transactions contemplated hereby.
VII FUNDING DATE.
The date and time of the issuance and sale of the Debenture
and the Warrants (the "FUNDING Date") shall be the date hereof or such other
date as shall be mutually agreed upon in writing. The issuance and sale of the
Debenture and the Warrants shall occur on the Funding Date, at the offices of
the Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent shall not be authorized to release to the Company the Purchase
Price and to Buyer the Debenture and the Warrants unless the conditions set
forth in VIII.C. and IX.G hereof have been satisfied.
VIII CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Buyer understands that the Company's obligation to sell
the Securities on the Funding Date to Buyer pursuant to this Agreement is
conditioned upon:
-17-
18
A. Delivery by Buyer to the Escrow Agent of the Purchase Price
on the Funding Date.
B. The accuracy in all material respects on the Funding Date
of the representations and warranties of Buyer contained in this Agreement as if
made on the Funding Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by Buyer in all material respects on or before the Funding Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Funding Date;
C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
IX CONDITIONS TO BUYER'S OBLIGATIONS.
The Company understands that Buyer's obligation to purchase
the Securities on the Funding Date pursuant to this Agreement is conditioned
upon:
A. Delivery by the Company to the Escrow Agent on or before
the Funding Date of one or more certificates evidencing the Securities;
B. The accuracy in all respects on the Funding Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Funding Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Funding Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Funding Date;
C. Buyer having received an opinion of counsel for the
Company, dated the Funding Date, in form, scope and substance satisfactory to
the Buyer.
D. There not having occurred (i) any general suspension of
trading in, or limitation on prices listed for, the Common Stock on the OTC/BB,
(ii) the declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof.
E. There not having occurred any event or development, and
there being in existence no condition, having or which reasonably and
foreseeably could have a Material Adverse Effect.
-18-
19
F. The Company shall have delivered to Buyer (as provided in
the Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses incurred in connection with the transactions contemplated by this
Agreement, including without limitation, attorneys fees and disbursements.
G. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.
H. A simultaneous consummation of a purchase of at least
$1,225,000 in Series A Preferred by an unrelated third party.
I. Simultaneous consummation of the Merger.
X TERMINATION.
A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Funding Date, by the mutual written consent
of the Company and Buyer.
B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Funding Date shall not have occurred at or
prior to 5:00 p.m., New York City time, on March 7, 2000; PROVIDED, HOWEVER,
that the right to terminate this Agreement pursuant to this Section X.B.(i)
shall not be available to any party whose failure to fulfill any of its
obligations under this Agreement has been the cause of or resulted in the
failure of the Funding Date to occur at or before such time and date or (ii) any
court or public or governmental authority shall have issued an order, ruling,
judgment or writ, or there shall be in effect any Law, restraining, enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement.
C. TERMINATION BY BUYER. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by Buyer at any time prior
to the Funding Date, if (i) the Company shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by the Company with respect to any representation or warranty made
by it in this Agreement, or (iii) there shall have occurred any event or
development, or there shall be in existence any condition, having or reasonably
and foreseeably likely to have a Material Adverse Effect.
D. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
Company at any time prior to the Funding Date, if (i) Buyer shall have failed to
comply with any of its covenants or agreements contained in this Agreement or
(ii) there shall have been a breach by Buyer with respect to any representation
or warranty made by it in this Agreement.
-19-
20
XI SURVIVAL; INDEMNIFICATION.
A. The representations, warranties and covenants made by each
of the Company and Buyer in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Funding Date and
the consummation of the transactions contemplated hereby for a period of three
(3) years from and after the Funding Date or such later date as when all of the
Debenture or the Preferred Shares have been converted to Common Stock In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under the provisions of this Agreement or otherwise, whether at
law or in equity, irrespective of any investigation made by or on behalf of such
party on or prior to the Funding Date.
B. The Company hereby agrees to indemnify and hold harmless
the Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "BUYER INDEMNITEES"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES"), and agrees to reimburse the Buyer Indemnitees for all
out-of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1 any misrepresentation, omission of fact or breach
of any of the Company's representations or warranties
contained in this Agreement or the other Documents, or the
annexes, schedules or exhibits hereto or thereto or any
instrument, agreement or certificate entered into or delivered
by the Company pursuant to this Agreement or the other
Documents; or
2 any failure by the Company to perform any of its
covenants, agreements, undertakings or obligations set forth
in this Agreement or the other Documents, or the annexes,
schedules or exhibits hereto or thereto or any instrument,
agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Documents.
C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "COMPANY INDEMNITEES"), from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel), in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:
1 any misrepresentation, omission of fact, or breach
of any of Buyer's representations or warranties contained in
this Agreement or the other Documents, or the annexes,
schedules or exhibits hereto or thereto or any instrument,
agreement or
-20-
21
certificate entered into or delivered by Buyer pursuant to
this Agreement or the other Documents; or
2 any failure by Buyer to perform in any material
respect any of its covenants, agreements, undertakings or
obligations set forth in this Agreement or the other Documents
or any instrument, certificate or agreement entered into or
delivered by Buyer pursuant to this Agreement or the other
Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party and the Indemnifying
Party reasonably shall have concluded that representation of the Indemnified
Party and the Indemnifying Party by the same legal counsel would not be
appropriate due to actual or, as reasonably determined by legal counsel to the
Indemnified Party, potentially differing interests between such parties in the
conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (z) the Indemnifying Party shall
have failed to employ legal counsel reasonably satisfactory to the Indemnified
Party within a reasonable period of time after notice of the commencement of
such Claim. If the Indemnified Party employs separate legal counsel in
circumstances other than as described in clauses (x), (y) or (z) above, the
fees, costs and expenses of such legal counsel shall be borne exclusively by the
Indemnified Party. Except as provided above, the Indemnifying Party shall not,
in connection with any Claim in the same jurisdiction, be liable for the fees
and expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall not,
without the prior written consent of the Indemnified Party (which consent shall
not unreasonably be withheld), settle or compromise any Claim or consent to the
entry of any judgment that does not include an unconditional release of the
Indemnified Party from all liabilities with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
-21-
22
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such state. Each of the parties consents to the
jurisdiction of the United States District Court for the Southern District of
New York in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto. This Agreement may be signed in one
or more counterparts, each of which shall be deemed an original. The headings of
this Agreement are for convenience of reference and shall not form part of, or
affect the interpretation of, this Agreement. 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. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XIII NOTICES.
Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be sent by facsimile with a copy delivered personally or sent
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, as follows:
(1) if to the Company, to:
IMMUNE RESPONSE, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇. ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
-22-
23
(2) if to the Buyer, to
with a copy to:
(3) if to the Escrow Agent, to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The Company, the Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV CONFIDENTIALITY.
Each of the Company and Buyer agrees to keep confidential and not
to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 10 of Rule
601 of Regulation S-K under the Securities Act and the Exchange Act).
XV ASSIGNMENT.
-23-
24
This Agreement shall not be assignable by either of the parties
hereto without the prior written consent of the other party, and any attempted
assignment contrary to the provisions hereby shall be null and void; provided,
however, that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any affiliate of Buyer who furnishes to the Company the
representations and warranties set forth in Section II hereof and otherwise
agrees to be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first written above.
THE COMPANY:
------------
IMMUNE RESPONSE, INC.
By:
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
BUYER:
------
By:
----------------------------------
-24-
25
EXHIBIT A
Debenture
26
EXHIBIT B
Common Stock Purchase Warrant
27
EXHIBIT C
Certificate of Amendment
28
EXHIBIT D
Escrow Instructions
29
EXHIBIT E
Registration Rights Agreement
30
SCHEDULE III.A.1
RIGHTS TO ACQUIRE COMMON STOCK
31
SCHEDULE III.A.2
SUBSIDIARIES
32
SCHEDULE III.I
MATERIAL ADVERSE EFFECTS
33
SCHEDULE III.O.
RELATED PARTY TRANSACTIONS
34
SCHEDULE III.Q.
SECURITIES LAW MATTERS
35
SCHEDULE III.R.6.
ENVIRONMENTAL MATTERS
36
SCHEDULE III.V.
PROPERTY
37
SCHEDULE III.W.
INTELLECTUAL PROPERTY