Exhibit 10.1
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SECURITIES PURCHASE AGREEMENT
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This Securities Purchase Agreement (this "Agreement") is dated as of
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December 31, 2004, among Sinovac Biotech Ltd., a West Indies corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
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including its successors and assigns, a "Purchaser" and collectively the
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"Purchasers"); and
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WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule
506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company in the aggregate, up to $3,500,000 of shares of Common Stock
and Warrants on the Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
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Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:"Action" shall have the meaning ascribed
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to such term in Section 3.1(j).
"Affiliate" means any Person that, directly or indirectly through
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one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed
under Rule 144. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of
such Purchaser.
"Closing" means the closing of the purchase and sale of the Common
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Stock and the Warrants pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
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Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Closing Price" means on any particular date (a) the last reported
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closing bid price per share of Common Stock on such date on the Trading
Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
if there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for
regular session trading on such day), or (c) if the Common Stock is not
then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the closing bid price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board (as reported by Bloomberg L.P. at 4:15 PM (New York time),
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(d) if the Common Stock is not then listed or quoted on the Trading
Market and if prices for the Common Stock are then reported in the "pink
sheets" published by the Pink Sheets LLC (formerly the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share
of the Common Stock so reported, or (e) if the shares of Common Stock are
not then publicly traded the fair market value of a share of Common Stock
as determined by a qualified independent appraiser selected in good faith
by the Purchasers of a majority in interest of the Shares then
outstanding.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the common stock of the Company, par value
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$0.001 per share, and any securities into which such common stock may
hereafter be reclassified.
"Common Stock Equivalents" means any securities of the Company or
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the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Company Counsel" means as applicable the firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇
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and the firm of ▇▇▇▇▇▇ ▇▇▇▇▇ and Associates.
"Disclosure Schedules" means the Disclosure Schedules of the
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Company delivered concurrently herewith.
"Effective Date" means the date that the Registration Statement is
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first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in
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Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
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amended.
"Exempt Issuance" means the issuance of (a) shares of Common Stock
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or options to employees, officers or directors of the Company pursuant to
any stock or option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of the
members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise of or conversion of any
securities issued hereunder, convertible securities, options or warrants
issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise or
conversion price of any such securities, and (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in
addition to the investment of funds, but shall not include a transaction
in which the Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in
securities.
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"Force Majeure" shall mean any unusual event arising from causes
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reasonably beyond the control of the Company that could not be reasonably
anticipated that causes a delay in or prevents the performance of any
obligation under this Agreement or the agreements contemplated hereby,
including but not limited to: acts of God; fire; war; terrorism;
insurrection; civil disturbance; explosion; adverse weather conditions
that could not be reasonably anticipated; unusual delay in
transportation; strikes or other labor disputes; restraint by court order
or order of public authority but specifically not including any event
resulting from the failure of the Commission or Company's transfer agent
to act or perform any function.
"FW" means ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP with offices located at 420
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
"GAAP" shall have the meaning ascribed to such term in Section
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3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed to
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such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term
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in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
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right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to such
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term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
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Section 3.1(m).
"Participation Maximum" shall have the meaning ascribed to such
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term in Section 4.13.
"Per Share Purchase Price" equals $3.00, subject to adjustment for
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reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date
of this Agreement.
"Person" means an individual or corporation, partnership, trust,
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incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
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proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term in
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Section 4.9.
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"Registration Rights Agreement" means the Registration Rights
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Agreement, dated as of the date of this Agreement, among the Company and
each Purchaser, in the form of Exhibit A hereto.
"Registration Statement" means a registration statement meeting
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the requirements set forth in the Registration Rights Agreement and
covering the resale by the Purchasers of the Shares and the Warrant
Shares.
"Required Approvals" shall have the meaning ascribed to such term
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in Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant
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to the Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
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Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant
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Shares.
"Securities Act" means the Securities Act of 1933, as amended.
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"Shares" means the shares of Common Stock issued or issuable to
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each Purchaser pursuant to this Agreement.
"Short Sales" shall include, without limitation, all "short sales"
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as defined in Rule 3b-3 of the Exchange Act.
"Subscription Amount" means, as to each Purchaser, the amounts set
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forth below such Purchaser's signature block on the signature page
hereto, in United States dollars and in immediately available funds.
"Subsidiary" shall mean the subsidiaries of the Company, if any,
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set forth on Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a
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Trading Market.
"Trading Market" means the following markets or exchanges on which
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the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the New York Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap Market.
"Transaction Documents" means this Agreement, the Warrants and the
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Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
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"Warrants" means the Common Stock Purchase Warrants, in the form
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of Exhibit B, delivered to the Purchasers at the Closing in accordance
with Section 2.2(a)(iii) hereof, which warrants shall be exercisable
immediately upon issuance for a term of two years, subject to the
Company's right to call the Warrants as set forth therein, and (a) from
the Initial Exercise Date (as defined in the Warrant) until the one year,
one Trading Day anniversary of the Initial Exercise Date, such Warrants
shall have an exercise price equal to $3.35, subject to adjustment as
provided therein and (b) from the one year, one Trading Day anniversary
of the Initial Exercise Date until the Termination Date (as defined in
the Warrant), such Warrants shall have an exercise price equal to $4.00,
subject to adjustment as provided therein.
"Warrant Shares" means the shares of Common Stock issuable upon
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exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, each Purchaser shall purchase from
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the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser, (a) a number of Shares equal to
such Purchaser's Subscription Amount divided by the Per Share Purchase Price and
(b) the Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate
Subscription Amounts for the Shares sold hereunder shall be up to $3,500,000.
Upon satisfaction of the conditions set forth in Section 2.3, the Closing shall
occur at the offices of FW or such other location as the parties shall mutually
agree.
2.2 Deliveries
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(a) On the Closing Date, the Company shall deliver or cause to
be delivered (or deliver at a later time as approved by the Purchaser) to
each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a certificate evidencing a number of Shares equal to
such Purchaser's Subscription Amount divided by the Per Share
Purchase Price, registered in the name of such Purchaser;
(iii) a Warrant of the form of Exhibit B, registered in
the name of such Purchaser, pursuant to which such Purchaser shall
have the right to acquire up to the number of shares of Common
Stock equal to 100% of the Shares to be issued to such Purchaser,
(iv) the Registration Rights Agreement of the form of
Exhibit A hereto duly executed by the Company; and
(v) a legal opinion of Company Counsel, in the form of
Exhibit C attached hereto.
(b) On the Closing Date, each Purchaser shall deliver or cause
to be delivered to the Company the following:
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(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire
transfer to the account as specified in writing by the Company;
and
(iii) the Registration Rights Agreement duly executed by
such Purchaser.
2.3 Closing Conditions.
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(a) The obligations of the Company hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and
on the Closing Date of the representations and warranties of the
Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing
Date shall have been performed; and
(iii) the delivery by the Purchasers of the items set
forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects on the Closing
Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the
Company required to be performed at or prior to the Closing Date
shall have been performed;
(iii) the delivery by the Company of the items set forth
in Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect
with respect to the Company since the date hereof; and
(v) From the date hereof to the Closing Date, trading in
the Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed
to by the Company, which suspension shall be terminated prior to
the Closing), and, at any time prior to the Closing Date, trading
in securities generally as reported by Bloomberg Financial Markets
shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported
by such service, or on any Trading Market, nor shall a banking
moratorium have been declared either by the United States or New
York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or
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international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each
case, in the reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Shares at the
Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
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under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries
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of the Company are set forth on Schedule 3.1(a). The Company owns,
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directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive
and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, then references in the Transaction Documents
to the Subsidiaries will be disregarded.
(b) Organization and Qualification. Each of the Company and the
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Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes
such qualification necessary, except where the failure to be so qualified
or in good standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Documents, (ii) a material
adverse effect on the results of operations, assets, business, prospects
or financial condition of the Company and the Subsidiaries, taken as a
whole, or (iii) a material adverse effect on the Company's ability to
perform in any material respect on a timely basis its obligations under
any Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse
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Effect") and no Proceeding has been instituted in any such jurisdiction
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revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
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corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
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further action is required by the Company in connection therewith other
than in connection with the Required Approvals. Each Transaction
Documents has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies.
(d) No Conflicts. The execution, delivery and performance of
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the Transaction Documents by the Company, the issuance and sale of the
Shares and the consummation by the Company of the other transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of
time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is bound
or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not
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required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) filings required
pursuant to Section 4.4 of this Agreement, (ii) the filing with the
Commission of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Shares and Warrant
Shares for trading thereon in the time and manner required thereby, and
(iv) the filing of Form D with the Commission and such filings as are
required to be made under applicable state securities laws (collectively,
the "Required Approvals").
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(f) Issuance of the Securities. The Shares and Warrants are
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duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Warrant Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company. The
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Company has reserved from its duly authorized capital stock the maximum
number of shares of Common Stock issuable pursuant to this Agreement and
the Warrants.
(g) Capitalization. The capitalization of the Company is as
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described in the Company's most recent periodic report filed with the
Commission. The Company has not issued any capital stock since such
filing other than pursuant to the exercise of employee stock options
under the Company's stock option plans, the issuance of shares of Common
Stock to employees pursuant to the Company's employee stock purchase plan
and pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as a
result of the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock,
or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock or Common Stock Equivalents. The issue and sale of
the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust
the exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights
to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company
or others is required for the issuance and sale of the Shares. There are
no stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
(h) SEC Reports; Financial Statements. The Company has filed
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all reports required to be filed by it as a foreign reporting issuer
trading on the AMEX under the Securities Act and the Exchange Act, for
the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid
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extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates,
the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations
of the Commission promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the
Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
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financial statements have been prepared in accordance with relevant
regulatorily required generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may be
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otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of
and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
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financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has
not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director
or Affiliate, except pursuant to existing Company stock option plans. The
Company does not have pending before the Commission any request for
confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
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violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any Subsidiary
or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
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adversely affects or challenges the legality, validity or enforceability
of any of the Transaction Documents or the Securities or (ii) could, if
there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is
not pending or contemplated, any investigation by the Commission
involving the Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
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the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result in
a Material Adverse Effect.
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(l) Compliance. Neither the Company nor any Subsidiary (i) is
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in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result
in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and
local laws applicable to its business except in each case as could not
have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
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possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could not have
or reasonably be expected to result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any Subsidiary has
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received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good
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and marketable title as disclosed in public filings to all real property
owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned
by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens
as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent
nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries
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have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
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Neither the Company nor any Subsidiary has received a written notice that
the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of
the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the
Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
---------
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage at least equal to
11
the aggregate Subscription Amount. To the best of Company's knowledge,
such insurance contracts and policies are accurate and complete. Neither
the Company nor any 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 without a significant increase
in cost.
(q) Transactions With Affiliates and Employees. Except as set
-------------------------------------------
forth in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees of
the Company is presently a party to any transaction with the Company or
any Subsidiary (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 entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee
or partner, in each case in excess of $60,000 other than (i) for payment
of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) for other
employee benefits, including stock option agreements under any stock
option plan of the Company.
(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; Internal Accounting Controls. The Company
---------------------------------------------
is in material compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
of 2002 which are applicable to it as a foreign issuer as of the Closing
Date. The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient 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 GAAP 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. If applicable to a company such as the
Company, the Company has established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within
those entities, particularly during the period in which the Company's
most recently filed periodic report under the Exchange Act, as the case
may be, is being prepared. If applicable to a company such as the
Company, the Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under
the Exchange Act (such date, the "Evaluation Date"). The Company
----------------
presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of
the disclosure controls and procedures based on their evaluations as of
the Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company's internal controls (as such term is
12
defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to
the Company's knowledge, in other factors that could significantly affect
the Company's internal controls.
(s) Certain Fees. No brokerage or finder's fees or commissions
------------
are or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
-----------------
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an
-------------------
Affiliate of, and immediately after receipt of payment for the Shares,
will not be or be an Affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Company
shall conduct its business in a manner so that it will not become subject
to the Investment Company Act.
(v) Registration Rights. No Person has any right to cause the
--------------------
Company to effect the registration under the Securities Act of any
securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common
------------------------------------
Stock is registered by the filing of a Form 20-F pursuant to the Exchange
Act and pursuant to Section 12(b) of the Exchange Act, and the Company
has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that
the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
(x) Application of Takeover Protections. The Company and its
-------------------------------------
Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or
other similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
13
exercising their rights under the Transaction Documents, including
without limitation the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) Disclosure. The Company confirms that, neither the Company
----------
nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, non-public information. The
Company understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, furnished
by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under
which they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the
------------------------
Purchasers' representations and warranties set forth in Section 3.2,
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
of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of any
exchange or automated quotation system on which any of the securities of
the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company
--------
as of the Closing Date after giving effect to the receipt by the Company
of the proceeds from the sale of the Securities hereunder, (i) the
Company's fair saleable value of its assets exceeds the amount that will
be required to be paid on or in respect of the Company's existing debts
and other liabilities (including known contingent liabilities) as they
mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now
conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in respect
of its debt when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). The Company has no knowledge of any facts
or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws
of any jurisdiction within one year from the Closing Date. The SEC
14
Reports set forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" shall mean (a) any liabilities for borrowed
------------
money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness
of others, whether or not the same are or should be reflected in the
Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the
present value of any lease payments in excess of $50,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.
(bb) Form F-3 Eligibility. The Company is eligible to register
---------------------
the resale of its Common Stock by the Purchasers under Form F-3
promulgated under the Securities Act and the Company hereby covenants and
agrees to use its best efforts to maintain its eligibility to use Form
F-3 until the Registration Statement covering the resale of the Shares
shall have been filed with, and declared effective by, the Commission.
(cc) Taxes. Except for matters that would not, individually or
-----
in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid
or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
(dd) General Solicitation. Neither the Company nor any person
---------------------
acting on behalf of the Company has offered or sold any of the Shares by
any form of general solicitation or general advertising. The Company has
offered the Shares for sale only to the Purchasers and certain other
"accredited investors" within the meaning of Rule 501 under the
Securities Act.
(ee) Foreign Corrupt Practices. Neither the Company, nor to the
-------------------------
knowledge of the Company, any agent or other person acting on behalf of
the Company, has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate
funds, (iii) failed to disclose fully any contribution made by the
Company (or made by any person acting on its behalf of which the Company
is aware) which is in violation of law, or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.
(ff) Accountants. The Company's accountants are set forth on
-----------
Schedule 3.1(ff) of the Disclosure Schedule. To the Company's knowledge,
----------------
such accountants, who the Company expects will express their opinion with
respect to the financial statements to be included in the Company's
Annual Report for the year ending December 31, 2004, are a registered
public accounting firm as required by the Securities Act.
15
(gg) Acknowledgment Regarding Purchasers' Purchase of Shares.
----------------------------------------------------------
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby. The
Company further acknowledges that no Purchaser 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 advice given by any Purchaser or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchasers'
purchase of the Shares. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.
(hh) Acknowledgement Regarding Purchasers' Trading Activity.
----------------------------------------------------------
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 4.15 hereof), it is understood and
agreed by the Company (i) that none of the Purchasers have been asked to
agree, nor has any Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market
or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter parties in "derivative" transactions to which any such Purchaser
is a party, directly or indirectly, presently may have a "short" position
in the Common Stock, and (iv) that each Purchaser shall not be deemed to
have any affiliation with or control over any arm's length counter-party
in any "derivative" transaction.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
-------------------------------------------------
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or
partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to
carry out its obligations thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Documents to which
it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
16
(b) Own Account. Such Purchaser understands that the Securities
-----------
are "restricted securities" and have not been registered under the
Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or
for distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no
arrangement or understanding with any other persons regarding the
distribution of such Securities (this representation and warranty not
limiting such Purchaser's right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not
have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
-----------------
the Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants, it will be either: (i) an "accredited
investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8)
under the Securities Act or (ii) a "qualified institutional buyer" as
defined in Rule 144A(a) under the Securities Act. Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone
----------------------------
or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
--------------------
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales. Such Purchaser has not directly or indirectly,
-----------
nor has any Person acting on behalf of or pursuant to any understanding
with such Purchaser, executed any Short Sales in the securities of the
Company (including, without limitations, any Short Sales involving the
Company's securities) since such time as the Purchaser was first
contacted regarding an investment in the Company ("Discussion Time").
---------------
The Company acknowledges and agrees that each Purchaser does not make or
has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.
17
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
---------------------
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or
Rule 144, to the Company or to an affiliate of a Purchaser or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities in
the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE
OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED
IN RULE 501(a) UNDER THE SECURITIES ACT.
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "accredited investor" as
defined in Rule 501(a) under the Securities Act and who agrees to be
bound by the provisions of this Agreement and the Registration Rights
Agreement and, if required under the terms of such arrangement, such
Purchaser may transfer pledged or secured Securities to the pledgees or
secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith. Further, no notice shall be required of such pledge. At the
18
appropriate Purchaser's expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities
may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing
of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares shall
not contain any legend (including the legend set forth in Section
4.1(b)), (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Shares or Warrant
Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
are eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the
Commission). The Company shall cause its counsel to issue a legal opinion
to the Company's transfer agent promptly after the Effective Date if
required by the Company's transfer agent to effect the removal of the
legend hereunder. If all or any portion of a Warrant is exercised at a
time when there is an effective registration statement to cover the
resale of the Warrant Shares, such Warrant Shares shall be issued free of
all legends. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 4.1(c),
it will, no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a certificate
representing Shares or Warrant Shares, as the case may be, issued with a
restrictive legend (such date, the "Legend Removal Date"), deliver or
---------------------
cause to be delivered to such Purchaser a certificate representing such
Securities that is free from all restrictive and other legends. The
Company may not make any notation on its records or give instructions to
any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section. Certificates for Securities subject
to legend removal hereunder shall be transmitted by the transfer agent of
the Company to the Purchasers by crediting the account of the Purchaser's
prime broker with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Shares or Warrant Shares
(based on the Closing Price of the Common Stock on the date such
Securities are submitted to the Company's transfer agent) subject to
Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day
five (5) Trading Days after such damages have begun to accrue) for each
Trading Day after the Legend Removal Date until such certificate is
delivered without legend; provided, however, that the Company shall not
-------- -------
be obligated to pay any per Trading Day liquidated damages with respect
to delays directly caused by a Force Majeure; provided, further, the
-------- -------
Company shall use best efforts to remedy or overcome such failures as
promptly as possible. Nothing herein shall limit such Purchaser's right
to pursue actual damages for the Company's failure to deliver
certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
19
available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
4.2 Furnishing of Information. As long as any Purchaser owns
----------------------------
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
-----------
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
--------------------------------------
a.m. Eastern time on the Trading Day following the date hereof, issue a press
release reasonably acceptable to each Purchaser disclosing the material terms of
the transactions contemplated hereby and within 4 Trading Days of the date
hereof a Current Report on Form 6-K which shall have attached thereto the
Transaction Documents. The Company and each Purchaser shall consult with each
other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).
20
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
------------------------
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
4.6 Non-Public Information. The Company covenants and agrees that
-----------------------
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached
---------------- -------------
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.8 Reimbursement. If any Purchaser becomes involved in any capacity
-------------
in any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.
4.9 Indemnification of Purchasers. Subject to the provisions of this
------------------------------
Section 4.9, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
---------------
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
21
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchasers
in this Agreement or in the other Transaction Documents.
4.10 Reservation of Common Stock. As of the date hereof, the Company
----------------------------
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.
4.11 Listing of Common Stock. The Company hereby agrees to use best
------------------------
efforts to maintain the listing of the Common Stock on a Trading Market, and as
soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list all of the Shares and Warrant Shares on such Trading Market. The Company
further agrees, if the Company applies to have the Common Stock traded on any
other Trading Market, it will include in such application all of the Shares and
Warrant Shares, and will take such other action as is necessary to cause all of
the Shares and Warrant Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
4.12 Equal Treatment of Purchasers. No consideration shall be offered
-----------------------------
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
22
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.13 [INTENTIONALLY DELETED].
4.14 Subsequent Equity Sales. From the date hereof until the Effective
------------------------
Date, the Company shall be prohibited from effecting or entering into an
agreement to effect any Subsequent Financing involving a "Variable Rate
--------------
Transaction" (as defined below). The term "Variable Rate Transaction" shall mean
----------- -------------------------
a transaction in which the Company issues or sells any debt or equity securities
that are convertible into, exchangeable or exercisable for, or include the right
to receive additional shares of Common Stock either (A) at a conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock. Any Purchaser
shall be entitled to obtain injunctive relief against the Company to preclude
any such issuance, which remedy shall be in addition to any right to collect
damages.
4.15 Price Protection. As to each Purchaser, from the date hereof until
----------------
the Effective date, if the Company or any Subsidiary thereof shall issue any
Common Stock or Common Stock Equivalents entitling any person or entity to
acquire shares of Common Stock at an effective price per share less than a Per
Share Purchase Price (the "Discounted Purchase Price", as further defined
---------------------------
below), within 5 Trading Days of the date thereof the Company shall issue to
such Purchaser that number of additional shares of Common Stock equal to (a) the
actual Subscription Amount paid by such Purchaser at each Closing divided by the
Discounted Purchase Price, less (b) the sum of the Shares previously issued to
such Purchaser pursuant to this Agreement. The term "Discounted Purchase Price"
-------------------------
shall mean the amount actually paid by third parties for a share of Common
Stock. The sale of Common Stock Equivalents shall be deemed to have occurred at
the time of the issuance of the Common Stock Equivalents and the Discounted
Purchase Price covered thereby shall also include the actual exercise or
conversion price thereof at the time of the conversion or exercise (in addition
to the consideration per share of Common Stock underlying the Common Stock
Equivalents received by the Company upon such sale or issuance of the Common
Stock Equivalents). If shares are issued for a consideration other than cash,
the per share selling price shall be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. The Company
may not refuse to issue a Purchaser additional Shares hereunder based on any
claim that such Purchaser or any one associated or affiliated with such
Purchaser has been engaged in any violation of law, agreement or for any other
reason, unless, an injunction from a court, on notice, restraining and or
enjoining an issuance hereunder shall have been sought and obtained and the
Company posts a surety bond for the benefit of such Purchaser in the amount of
150% of the market value of such Shares (based on the Closing Price of the
Common Stock on the date of the event giving rise to the Company's obligation
hereunder), which is subject to the injunction, which bond shall remain in
effect until the completion of litigation of the dispute and the proceeds of
which shall be payable to the Purchaser to the extent it obtains judgment.
Nothing herein shall limit a Purchaser's right to pursue actual damages for the
Company's failure to deliver Shares hereunder and such Purchaser shall have the
23
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.
On the date of closing of any transaction pursuant to which securities are
issued for a Discounted Purchase Price, the Company shall give the Purchasers
written notice thereof. By notice to the Company, a Purchaser may irrevocably
elect to defer all or part of any issuances hereunder by consecutive 75 day
periods until all Shares issuable hereunder are issued. Notwithstanding anything
to the contrary herein, this Section 4.15 shall not apply to an Exempt Issuance.
4.16 Short Sales. Each Purchaser covenants that neither it nor any
------------
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales during the period from the Discussion Time until prior
to the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.4. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser or
-----------
the Company, by written notice to the other parties, if the Closing has not been
consummated on or before December 31, 2004; provided that no such termination
--------
will affect the right of any party to ▇▇▇ for any breach by the other party (or
parties).
5.2 Fees and Expenses. The Company shall reimburse Truk Opportunity
-----------------
Fund, LLC ("Truk") the sum of $10,000 for its legal fees and expenses.
----
Accordingly, at the Closing, the Company hereby authorizes Truk to offset its
Subscription Amount by $10,000 as payment of such obligation. The Company shall
deliver, prior to the Closing, a completed and executed copy of the Closing
Statement, attached hereto as Annex A. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the delivery of the Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
-----------------
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
24
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
--------------------
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
5.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
-----------------------------
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.
5.9 Governing Law. All questions concerning the construction,
--------------
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
25
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an
action or proceeding to enforce any provisions of the Transaction Documents,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations and warranties herein shall survive
--------
the Closing and delivery of the Shares and Warrant Shares.
5.11 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
5.12 Severability. If any provision of this Agreement is held to be
------------
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
-------------------------------
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Documents and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
5.14 Replacement of Securities. If any certificate or instrument
---------------------------
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
--------
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
26
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
-----------------
or payments to any Purchaser pursuant to any Transaction Documents or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Independent Nature of Purchasers' Obligations and Rights. The
------------------------------------------------------------
obligations of each Purchaser under any Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Documents. Nothing contained herein or in any
Transaction Documents, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company through FW. FW does not represent all of
the Purchasers but only Truk, who has acted as placement agent to the
transaction. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers. Should the
Purchaser's payment hereunder be submitted to the Company Counsel, in trust or
otherwise (whether by wire transfer or otherwise), then the Purchaser agrees
that he Company Counsel shall have no accountability to the Purchaser except to
forward the funds to the Company and the Purchaser acknowledges that the Company
Counsel are merely recipients for the Company and have no lawyer's obligations
of any nature to the Purchaser. The Purchaser agrees that submission of the
payment to the Company Counsel in trust is to be deposited into the trust
account of the Company and shall be the property of the Company at that point.
The only duty the Company Counsel shall have to the Purchaser is to deliver the
subscription agreement (as delivered) and the subscription monies to the
Company, all solely at the Company's instruction. Under no circumstances shall
the Company Counsel be considered to be giving legal or other advice or services
to the Purchaser and no communication between the Purchaser and such Company
Counsel shall be considered advice (at the most only administrative subscription
assistance on behalf of the Company) but the Purchaser shall rely solely and
exclusively on his own judgment and the advice of his own counsel.
27
5.18 Liquidated Damages. The Company's obligations to pay any partial
------------------
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.19 Construction. The parties agree that each of them and/or their
------------
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Page Follows)
28
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
SINOVAC BIOTECH LTD. Address for Notice:
-------------------- -------------------
By:
--------------------------------------
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]
29
[PURCHASER SIGNATURE PAGES TO SVA SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser:
--------------------------------------------------------
Signature of Authorized Signatory of Purchaser:
-----------------------------
Name of Authorized Signatory:
--------------------------------------------------
Title of Authorized Signatory:
-------------------------------------------------
Email Address of Purchaser:
---------------------------------------------
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Shares:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
30
Annex A
-------
CLOSING STATEMENT
-----------------
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $3,500,000 of Common Stock and
Warrants from Sinovac Biotech Ltd., a West Indies corporation (the "Company").
-------
All funds will be wired into a Company trust account maintained by ▇▇▇▇▇▇
▇▇▇▇▇▇, counsel to the Company. All funds will be disbursed in accordance with
this Closing Statement.
Disbursement Date: December , 2004
----
I. PURCHASE PRICE
--------------
Gross Proceeds to be Received in Trust $
II. DISBURSEMENTS
-------------
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
-----------------
Bank Name: Royal Bank of Canada
Bank Address: Hastings & ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Transit Number: 06550 003
Account Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ Client's Trust U.S. Account
Re: Sinovac Biotech Ltd.
Account Number: 400 413 1
ABA#: 021 000 021
Swift Code: ▇▇▇▇▇▇▇▇
To:
-------------------------------------
31
Schedule 3.1(a) - Subsidiaries
------------------------------
Name of Subsidiary Percentage Ownership State of Incorporation
------------------ -------------------- ----------------------
Sinovac Biotech Co., Ltd. 51% (*) People's Republic of China
Tangshan Yian Biological 100% People's Republic of China
Engineering Co., Ltd.
Sinovac Biotech (Canada) Ltd. 100% British Columbia, Canada
(*) On November 30, 2004, the Company entered into a share purchase agreement
(the "Share Purchase Agreement") with China Bioway Biotech Group Co., Ltd.
("Bioway"), Beijing ▇▇▇▇▇▇ Co., Ltd. ("▇▇▇▇▇▇") and Shenzhen Bio-Port Co., Ltd.
("Shenzhen") to acquire 13,000,000 (9.73%) of the issued and outstanding shares
of Sinovac Biotech Co., Ltd. ("Sinovac (Beijing)"), the majority owned
subsidiary of the Company, owned by Bioway, 3,890,000 (2.91%) of the issued and
outstanding shares of Sinovac (Beijing) owned by ▇▇▇▇▇▇ and 10,580,000 (7.92%)
of the issued and outstanding shares of Sinovac (Beijing) owned by Shenzhen in
exchange for US$1,570,000 in cash to Bioway, US$470,000 in cash to ▇▇▇▇▇▇ and
US$1,270,000 to Shenzhen. The closing date is set for December 30, 2004 (the
"Closing Date"), or on such earlier or later Closing Date as may be agreed to in
advance and in writing by each of the parties to the Share Purchase Agreement.
If the Closing Date has not occurred by January 30, 2005, subject to an
extension as may be mutually agreed to by the parties for a maximum of 14 days
per extension, then the parties shall each have the option to terminate the
Share Purchase Agreement by delivery of written notice to the other parties. The
Company's Board of Directors approved the entering into the Share Purchase
Agreement to acquire the additional 20.56% of the issued and outstanding shares
of Sinovac (Beijing) on November 30, 2004.
32
Schedule 3.1(g) - Capitalization
--------------------------------
The information on this Schedule 3.1(g) modifies the representation and
warranty set forth in Section 3.1(g) of the Securities Purchase Agreement:
As of December 31, 2004, the Company's issued and outstanding shares of
common stock is 35,815,015 shares.
On November 13, 2003, the Company granted 3,000,000 stock options to
acquire 3,000,000 shares of common stock of the Company at a price of $1.31 per
share and expiring on November 13, 2008. On April 14, 2004, the Company granted
2,000,000 stock options to acquire 2,000,000 shares of common stock of the
Company at a price of $4.55 per share and expiring on April 14, 2009. On June 9,
2004, the Company cancelled 4,500 stock options that were granted on April 14,
2004 and granted 4,500 stock options to acquire 4,500 shares of common stock of
the Company at a price of $3.36 per share expiring on June 9, 2009.
As of December 31, 2004, there have been 40,500 stock options exercised
by optionees.
On February 24, 2004, the Company issued 3,800,000 share purchase
warrants to various investors pursuant to 3,800,000 units (each a "Unit") issued
in a private placement. Each Unit consisted of one share of common stock, one
non-transferable share purchase warrant entitling the holder thereof to acquire
one additional share of common stock of the Company at a price of $1.50 per
share until November 14, 2005, and one non-transferable piggyback share purchase
warrant entitling the holder thereof to acquire on additional share of common
stock of the Company at a price of $3.00 per shares until November 14, 2005,
only if the share purchase warrants are first exercised.
On March 19, 2004, the Company issued 379,200 share purchase warrants to
various finder's pursuant to 379,200 units (each a "Unit") issued as a finder's
fee in connection with the private placement closed on February 24, 2004. Each
Unit consisted of one share of common stock, one non-transferable share purchase
warrant entitling the holder thereof to acquire one additional share of common
stock of the Company at a price of $1.50 per share until November 14, 2005, and
one non-transferable piggyback share purchase warrant entitling the holder
thereof to acquire on additional share of common stock of the Company at a price
of $3.00 per shares until November 14, 2005, only if the share purchase warrants
are first exercised.
On November 13, 2004, the Board of Directors of the Company authorized
the extension of the expiry date of the share purchase warrants issued in the
private placement offering closed on February 24, 2004, and the associated
finder's fee share purchase warrants issued on March 19, 2004 (the "Warrants"),
which were set to expire on November 14, 2004, until February 28, 2005 along
with increasing the exercise price of such Warrants by $0.05 every month
starting on November 15, 2004 for an exercise price of $1.55 on November 15,
2004, $1.60 on December 15, 2004, $1.65 on January 15, 2005, and $1.70 on
February 15, 2005.
As of December 31, 2004, there have been 991,782 share purchase warrants
exercised to acquire 991,782 shares of common stock of the Company.
33
On August 24, 2004, the Company issued 12,500 shares of common stock to a
corporation for services rendered.
On October 12, 2004, the Company entered into a Pledge, Escrow and
Promissory Note Agreement with ▇▇▇▇ ▇▇▇▇, the CFO and a director of the Company,
whereby ▇▇▇▇ ▇▇▇▇ has agreed to grant the Company security on 3,000,000 common
shares in the capital of the Company owned by ▇▇▇▇ ▇▇▇▇ as security for the
amount of US$1,849,000 owed by ▇▇▇▇ ▇▇▇▇ to the Company, and whereby ▇▇▇▇ ▇▇▇▇
is to make payments in accordance with the Pledge, Escrow and Promissory Note
Agreement.
On October 12, 2004, the Company entered into a Pledge, Escrow and
Indemnity Agreement with ▇▇▇▇▇▇ ▇▇▇▇, a director of the Company, whereby ▇▇▇▇▇▇
▇▇▇▇ has agreed to grant the Company security on 1,500,000 common shares in the
capital of the Company owned by ▇▇▇▇▇▇ ▇▇▇▇ as security for the amount of
9,000,000 RMB that the Company owes to the China Venture Fund on demand (the
"Loan"), which Loan was acquired by the Company in the course of acquiring
Tangshan Yian Biological Engineering Co., Ltd. from ▇▇▇▇▇▇ ▇▇▇▇ and for which
▇▇▇▇▇▇ ▇▇▇▇ agreed to indemnify and pay the Company for all payments and costs
of the Loan as and when incurred by the Company and within 30 days of demand for
any indemnity.
On October 14, 2004, the Company and ▇▇▇▇▇▇ ▇▇▇▇ entered into a Letter
Agreement whereby the Company and ▇▇▇▇▇▇ ▇▇▇▇ have agreed that the Company will
not be required to pay the US$2,200,000.00 that it owes to ▇▇▇▇▇▇ ▇▇▇▇, which
was part of the consideration to be paid by the Company to Hepiong Wang for the
purchase of 100% of the issued and outstanding shares of Tangshan Yian
Biological Engineering Co., Ltd. ("Tangshan Yian"), and which is due and payable
on January 30, 2005, until ▇▇▇▇▇▇ ▇▇▇▇ first pays the US$2,600,000.00 that he
owes to Tangshan Yian, which is now a wholly-owned subsidiary of the Company.
Except for this Securities Purchase Agreement, the Company expect to
receive subscriptions to acquire up to 500,000 units (each a "Unit") of the
Company at a price of $3.00 per Unit. Each Unit consists of one share of common
stock of the Company and one non-transferable share purchase warrant (each a
"Warrant"). Each Warrant will entitle the eligible owner to purchase one
additional common share of the Company (each a "Warrant Share") for the period
commencing upon the date of issuance of the Units by the Board and expiring on
the earlier of:
(a) October 15, 2006; and
(b) fifteen (15) business days from date that the Company provides
notice in writing to the Subscriber that: (i) the Company has
registered on a Form F-1, or other appropriate registration
statement, the Warrant Shares underlying the Warrants; (ii) the
Company being a reporting and trading issuer listed in good
standing on a public trading forum; and (iii) the Company's common
shares have been trading or traded at a price of US$5.00 or more
for a period of ten (10) days.
(the "Warrant Exercise Period")
34
The Warrant Shares shall have an exercise price of U.S. $3.35 per Warrant Share
for the first twelve (12) months, and if still available after twelve (12)
months, the Warrant Shares shall have an exercise price of U.S. $4.00 per
Warrant Share until October 15, 2006.
Other Arrangements under which the Company may become bound to issue Securities
-------------------------------------------------------------------------------
1. Shares of common stock of the Company to be issued in accordance
with the Warrants and Piggyback Warrants issued on February 24,
2004 and March 19, 2004.
2. Certain finder's fees payable to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, which includes,
but is not limited to, shares of common stock of the Company and
warrants to acquire shares of common stock of the Company in
accordance with Consulting Services and Finder's Fee Agreement
entered into between the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
3. Certain finder's fees payable to Gemstone Securities LLC, which
includes, but is not limited to, warrants to acquire shares of
common stock of the Company.
4. Certain finder's fees payable to Credit Suisse Advisory Partners
AG, which includes, but is not limited to, warrants to acquire
shares of common stock of the Company in accordance with the
Financial Advisory Agreement entered into between the Company and
Credit Suisse Advisory Partners AG.
35
Schedule 3.1(h) - SEC Reports; Financial Statements
---------------------------------------------------
The information on this Schedule 3.1(h) modifies the representation and
warranty set forth in Section 3.1(h) of the Securities Purchase Agreement:
1. The Company makes no representation or warranty regarding whether
it may have failed to file reports required to be filed by it under the Exchange
Act (the "SEC Reports") for the two years preceding the date hereof on a timely
basis. The Company does represent and warrant that, if it has failed to file
reports required to be filed by it under the Exchange Act for the two years
preceding the date hereof on a timely basis that its failure will not result in
a Material Adverse Effect.
2. The Company makes no representation or warranty regarding whether
the SEC Reports when filed contained untrue statements of 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. However, the Company represents and warrants
that if any untrue statement or omission was made in the SEC Reports, the untrue
statement or omission will not result in a Material Adverse Effect.
36
Schedule 3.1(i) - Material Changes
----------------------------------
The information on this Schedule 3.1(i) modifies the representation and
warranty set forth in Section 3.1(i) of the Securities Purchase Agreement:
On November 30, 2004, the Company entered into a share purchase agreement
(the "Share Purchase Agreement") with China Bioway Biotech Group Co., Ltd.
("Bioway"), Beijing ▇▇▇▇▇▇ Co., Ltd. ("▇▇▇▇▇▇") and Shenzhen Bio-Port Co., Ltd.
("Shenzhen") to acquire 13,000,000 (9.73%) of the issued and outstanding shares
of Sinovac Biotech Co., Ltd. ("Sinovac (Beijing)"), the majority owned
subsidiary of the Company, owned by Bioway, 3,890,000 (2.91%) of the issued and
outstanding shares of Sinovac (Beijing) owned by ▇▇▇▇▇▇ and 10,580,000 (7.92%)
of the issued and outstanding shares of Sinovac (Beijing) owned by Shenzhen in
exchange for US$1,570,000 in cash to Bioway, US$470,000 in cash to ▇▇▇▇▇▇ and
US$1,270,000 to Shenzhen. The closing date is set for December 30, 2004 (the
"Closing Date"), or on such earlier or later Closing Date as may be agreed to in
advance and in writing by each of the parties to the Share Purchase Agreement.
If the Closing Date has not occurred by January 30, 2005, subject to an
extension as may be mutually agreed to by the parties for a maximum of 14 days
per extension, then the parties shall each have the option to terminate the
Share Purchase Agreement by delivery of written notice to the other parties. The
Company's Board of Directors approved the entering into the Share Purchase
Agreement to acquire the additional 20.56% of the issued and outstanding shares
of Sinovac (Beijing) on November 30, 2004.
On December 16, 2004, the Company entered into an Avian Flu Vaccine
Co-Development Agreement with the Chinese Centre of Disease Control and
Prevention ("China CDC"). The two parties intend to apply for government funding
for this Avian Flu Vaccine Co-Development project. Under the terms of the
agreement, the new drug certificate, production license and patents will be
applied for by the Company and as a result, the commercial rights will be owned
by the Company.
37
Schedule 3.1(m) - Regulatory Permits
------------------------------------
1. Document from the Ministry of Science & Technology of the People's
Republic of China - Exhibit 99.5 to the Form 6-K filed on February 4,
2004.
2. Test Reports of National Institute for the Control of Pharmaceutical &
Biological Products - Exhibit 99.6 to the Form 6-K filed on February 4,
2004.
3. Certificate issued from the Food & Drug Administration of the PRC -
Exhibit 99.7 to the Form 6-K filed on February 4, 2004.
4. Certificate of Good Manufacturing Practices for Pharmaceutical Products
with respect to Inactivated Hepatitis A Vaccine (Small Volume Parenteral
Solution) issued on March 5, 2002 and remaining valid until March 5,
2003.
5. Certificate of Good Manufacturing Practices for Pharmaceutical Products
with respect to Inactivated Hepatitis A Vaccine issued on May 7, 2003 and
remaining valid until May 6, 2008.
38
Schedule 3.1(p) - Insurance
---------------------------
The information on this Schedule 3.1(p) modifies the representation and
warranty set forth in Section 3.1(p) of the Securities Purchase Agreement:
The Company does not maintain any insurance agreements or arrangements.
39
Schedule 3.1(s) - Certain Fees
------------------------------
The information on this Schedule 3.1(s) modifies the representation and
warranty set forth in Section 3.1(s) of the Securities Purchase Agreement:
The Company will be paying certain finder's fees to Gemstone Securities
LLC, which includes cash and warrants to acquire shares of common stock of the
Company with respect to the transaction contemplated by the Securities Purchase
Agreement. In addition, the Company will be paying certain finder's fees to
Credit Suisse Advisory Partners AG, which includes cash and warrants to acquire
shares of common stock of the Company with respect to the transaction
contemplated by the Securities Purchase Agreement.
40
Schedule 3.1(v) - Registration Rights
-------------------------------------
The information on this Schedule 3.1(v) modifies the representation and
warranty set forth in Section 3.1(v) of the Securities Purchase Agreement:
The Company is required under the Registration Rights Agreement which is
Exhibit A to the Securities Purchase Agreement to register the Securities to be
issued under the Securities Purchase Agreement. In addition, the Company may be
required in a possible future financing(s) to register securities issued by the
Company in accordance with the Financial Advisory Agreement entered into between
the Company and Credit Suisse Advisory Partners AG.
41
Schedule 3.1(ee) - Accountants
------------------------------
The Company's accountants are ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Ltd.
42
Schedule 4.7 - Use of Proceeds
------------------------------
The information on this Schedule 4.7 modifies the representation and
warrant set forth in Section 4.7 of the Securities Purchase Agreement:
The Company will be using some or all of the net proceeds from the sale
of the Securities hereunder for working capital purposes and for the acquisition
of the additional 20.56% of Sinovac Biotech Co., Ltd. from China Bioway Biotech
Group Co., Ltd., Beijing ▇▇▇▇▇▇ Co., Ltd. and Shenzhen Bio-Port Co., Ltd.
43