[EXHIBIT 10.7.1]
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
February 23, 2006, 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 Six
Hundred Thousand Dollars ($600,000) (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 600,000
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.
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a. Purchase of Notes and Warrants. On the Closing
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Date (as defined 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
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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
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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 February 23, 2006, 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
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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
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Buyer is purchasing 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
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"accredited investor" as that term is defined in Rule 501(a) of
Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands
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that the Securities 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.
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d. Information. The Buyer and its advisors, if any,
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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
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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
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(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
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Buyer liquidated damages of 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
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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
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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
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jurisdiction set forth immediately below such Buyer's name on the
signature pages hereto.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
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Company represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and
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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
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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
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authorized capital stock of the Company consists of (i) 250,000,000
shares of Common Stock, of which [ ] shares are issued and
outstanding, [ ] 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 [ ] shares are reserved for
issuance upon conversion of the Notes and exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in
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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. The Conversion Shares and
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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
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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. The execution, delivery and
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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 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
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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
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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 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
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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,
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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,
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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.
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(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, 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
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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
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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
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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 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
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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
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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 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
10
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.
(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,
11
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 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,
12
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
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
13
evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting Status; Eligibility to Use Form S-3,
----------------------------------------------
SB-2 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) ("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
14
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.
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-
15
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.
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
16
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. 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 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
17
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.
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
a specific 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
18
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 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.
19
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 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
20
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: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Law Office of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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:
21
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, 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, nor
may 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
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
22
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.
23
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.
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Delaware
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
24
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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: $________
25
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
26
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLP
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $________
Number of Warrants: ________
Aggregate Purchase Price: $________
27