EXHIBIT 10.7
LOAN AND STANDBY PURCHASE AGREEMENT
Agreement made this 1st day of August, 1997, by and among IGENE
Biotechnology, Inc., a Maryland corporation (the "Company"), and the investors
listed on Schedule A attached hereto (collectively, the "Investors").
W I T N E S S E T H :
WHEREAS, the Company desires to obtain the right to borrow
certain amounts from the Investors and the Investors desire to make loans
available to the Company; and
WHEREAS, the Investors are willing to subscribe for certain Units
(as hereinafter defined), which may not be purchased pursuant to the Company's
Rights Offering (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises,
representations and warranties contained herein, the parties hereby agree as
follows:
1. LOANS. At the request of the Company made at any time or from
time to time on or prior to December 31, 1997, the Investors agree, severally
and not jointly, to lend to the Company an aggregate principal amount not to
exceed $2,000,000. Such loans (a) shall be evidenced by promissory notes (the
"Notes") in the form attached hereto as Exhibit 1, (b) shall bear interest at
the rate of 8% per annum, (c) shall be due and payable on the first to occur of
(i) the first business day after expiration of the Rights Offering (the
"Closing") and (ii) six months from the date hereof, and (d) shall be
convertible into Common Stock of the Company at a conversion price of $.10 per
share. Each loan shall be made pro rata by each Investor based on the amount
committed by each Investor as set forth on Schedule A.
2. NOTICES AND CONDITION. The Company shall give the Investors at
least two business days prior written notice of its intention to borrow under
the provisions of Section 1 hereof. The obligation of the Investors to make any
loans hereunder is subject to the condition that prior to making any such loan
the representations, warranties and covenants of the Company contained herein
shall continue to be true and correct in all material respects.
3. WARRANTS. In consideration of the Investors agreeing to make
loans as provided in Section 1 hereof and the over-subscription commitment as
provided in Section 4.2 hereof, the Company hereby issues to each Investor
warrants (the "Warrants") to purchase ten shares of Common Stock of the Company
for each $1.00 of loans committed to be made by each Investor. The Warrants
shall be at an exercise price of $.10 per share and shall expire ten years from
the date hereof.
4. RIGHTS OFFERING - SUBSCRIPTION.
4.1. RIGHTS OFFERING. The Company hereby agrees to undertake a
rights offering (the "Rights Offering") in which the Company would issue to each
holder of Common Stock (including Common Stock issuable upon conversion or
exercise of outstanding convertible notes, warrants and options of the Company
on an as- converted basis) one transferable right (a "Right") for each such
share of Common Stock. Each Right would entitle the holder to purchase prior to
the expiration date of such Right at a subscription price of $.10 per Unit (the
"Subscription Price") one unit (the "Unit") consisting of $.10 principal amount
of unsecured promissory notes (the "New Notes") and warrants (the "New
Warrants") to purchase one share of Common Stock at $.10.
4.2. OVER-SUBSCRIPTION. If the Company does not raise at least $2
million pursuant to the Rights Offering, each Investor agrees, severally and not
jointly, pro rata based on Schedule A, to purchase from the Company, at the
Subscription Price, enough Rights so that the total number of Units purchased by
the Investors shall be equal to the difference between $2 million and the
proceeds received by the Company pursuant to the Rights Offering. The closing of
the over-subscription shall be concurrently with the Closing.
4.3. PAYMENT OF SUBSCRIPTION PRICE. In lieu of paying the
Subscription Price in cash, the Investors may tender Notes valued at the
principal amount thereof. Upon any such tender, accrued interest shall
concurrently be paid in cash by the Company. The Company shall repay any
indebtedness outstanding under the Notes after giving effect to the preceding
sentence and after giving effect to any Notes which may have been converted into
Common Stock.
5. REPRESENTATIONS OF THE COMPANY. The Company represents and
warrants to the Investors as follows:
5.1. The issuance of the Notes and the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants or conversion of the Notes
(the "Conversion Shares") pursuant to the provisions of this Agreement have been
duly and validly authorized. No approval or authorization of the shareholders or
the directors of the Company or of any governmental authority or agency which
has not been obtained will be required by the Company for the issuance and sale
of the Notes, the Warrants, or the Conversion Shares as contemplated by this
Agreement, except for approval of the Amendment (as hereinafter defined). When
issued and sold to the Investors, the Warrants will be duly and validly issued,
fully paid and non- assessable, and will be free and clear of any liens or
encumbrances created by the Company. The Conversion Shares, when issued and
delivered upon exercise of the Warrants or conversion of the Notes, will be duly
and validly issued, fully paid and non-assessable.
5.2. The Company has the full corporate power and authority to
enter into this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the Notes by the
Company have been duly authorized by all necessary corporate action. This
Agreement and the Notes constitute legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms.
5.3. Neither the sale of the Notes, the Warrants (or the issuance
and delivery of the Conversion Shares), the execution and delivery of this
Agreement, nor the fulfillment of the terms set forth in this Agreement and the
consummation of the transactions contemplated by this Agreement, will (i)
conflict with or constitute a breach of, or constitute a default under or an
event which, with or without notice or lapse of time or both, would be a breach
of or default under or violation of the Certificate of Incorporation or By-Laws
of the Company or would be a breach of or default under or violation of any
agreement, document, lease or other instrument or undertaking by which the
Company is bound or to which any of its properties are subject, would be a
violation of any law, administrative regulation, judgment, order or decree
applicable to the Company, or (ii) require the consent which has not been
obtained of any other person or entity under any agreement, lease, document or
other instrument or undertaking by which the Company is bound or to which any of
its properties are subject.
5.4. At the time the Registration Statement with respect to the
Rights Offering (the "Registration Statement") becomes effective, the
Registration Statement will comply in all material respects with the
requirements of the Securities Act of 1933 and the regulations thereunder (the
"Securities Act"). The proxy statement relating to the annual meeting of
stockholders (the "Proxy Statement"),when mailed to stockholders and at the date
of the annual meting of stockholders, will comply in all material respects with
the requirements of the Securities Exchange Act of 1934 and the regulations
thereunder (the "Exchange Act"). The final prospectus included in the
Registration Statement (the "Prospectus"), at the time the Registration
Statement becomes effective and at the Closing, and the Proxy Statement when
mailed to stockholders and at the date of the annual meeting of stockholders,
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall not apply to
statements in or omissions from the Proxy Statement, Registration Statement or
the Prospectus made in reliance upon and in conformity with the information
furnished to the Company in writing by the Investors expressly for use in the
Proxy Statement, Registration Statement or in the Prospectus.
5.5. The consolidated financial statements (which term, as used
herein, includes all related notes) to be included in the Proxy Statement,
Registration Statement and the Prospectus will present fairly the financial
position of the Company and its consolidated subsidiaries at the dates indicated
and the results of operations of the Company and its consolidated subsidiaries
for the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis.
6. ACTIONS ON OR PRIOR TO CLOSING. Each of Investors, severally
and not jointly, and the Company covenant to take the following actions prior to
Closing.
6.1. CONSENTS AND REASONABLE EFFORTS. Each of the Company
and the Investors shall use its best efforts to obtain all consents, approvals,
authorizations or waivers of any public, governmental or regulatory body or
authority, and any and all consents, approvals or waivers from parties to
contracts as may be necessary for the consummation of the transactions
contemplated by this Agreement (the "Consents").
6.2. STOCKHOLDER APPROVAL. The Company shall use it best
efforts to obtain approval of the transactions contemplated by this Agreement,
including an appropriate amendment to its Certificate of Incorporation
increasing its authorized number of shares of Common Stock (the "Amendment"), by
the holders of at least two-thirds of the voting power entitled to vote at the
Company's Annual Meeting of Stockholders.
6.3. RIGHTS OFFERING. The Company shall take all steps
reasonably required to complete the Rights Offering as contemplated by this
Agreement. The commencement of the mailing of the certificates representing the
Rights to the holders of record of the Common Stock shall take place as promptly
as practicable after the day on which the Registration Statement becomes
effective.
7. CONDITIONS TO OBLIGATIONS OF THE INVESTORS AND THE COMPANY.
The obligations of the Company and the Investors to effect the transactions
described in Section 4 of this Agreement are subject to the satisfaction of the
following conditions, unless waived in writing by the Investors and the Company.
(a) The Registration Statement shall have become effective
not later than the date the Prospectus is mailed to the stockholders of the
Company and at the Closing no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings therefor initiated
or threatened by the Securities and Exchange Commission.
(b) Holders of shares of Common Stock and Preferred Stock
representing at least two-thirds of the voting power entitled to vote at the
Annual Meeting shall have voted to approve the transactions set forth in this
Agreement and the Amendment.
(c) The Rights Offering shall have expired in accordance
with its terms.
(d) All necessary Consents shall have been obtained. The
holders of all outstanding convertible notes issued by the Company between
November 15, 1995 and May 8, 1997 shall have agreed to extend the maturity date
of such notes to the same maturity date as the New Notes. By executing this
Agreement, each Investor who holds such notes agrees to such extension.
(e) The representations, warranties and covenants of the
Company contained in this Agreement shall be true and correct in all material
respects on the Closing.
8. ACTIONS AFTER CLOSING.
(a) The Company will make generally available to its
security holders as soon as practicable, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the Securities Act) for the twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
(b) The Company will use the net proceeds received by it
from the sale of the Units in the manner specified in the Prospectus under "Use
of Proceeds."
(c) The Company agrees to indemnify and hold harmless, to
the full extent permitted by law, the Investors and each person, if any, who
controls any Investor within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against all losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to, reasonable
attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever (which fees and expenses shall be reimbursed
to the Investors on a current basis within 30 days of invoice therefor), and any
and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Proxy Statement or the Registration
Statement (or any amendment thereto), or any related preliminary prospectus or
the Prospectus, or in any amendment thereof or supplement thereto or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by an Investor expressly for use therein.
(d) Each Investor, severally and not jointly, agrees to
indemnify and hold harmless, to the full extent permitted by law, the Company
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, against all
losses, liabilities, claims, damages and expenses whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever (which fees and
expenses shall be reimbursed to the Company on a current basis within 30 days of
invoice therefor), and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Proxy Statement or the
Registration Statement (or any amendment thereto), or any related preliminary
prospectus or the Prospectus, or in any amendment thereof or supplement thereto
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information furnished in writing by such Investor
to the Company specifically for inclusion in such Proxy Statement, Registration
Statement or Prospectus and has not been corrected in a subsequent writing prior
to or concurrently with the effective date of the Registration Statement.
(e) Promptly after receipt by an indemnified party under
subsection (c) or (d) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section except to the extent that it has
been prejudiced in any material respect by such failure or from any liability
which it may have otherwise). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) in the
reasonable judgment of the indemnified party, based upon advice of its counsel,
a conflict of interest may exist between such indemnified party and the
indemnifying party with respect to such claims (in which case, the indemnified
parties shall not have the right to direct the defense of such action on behalf
of the indemnified party or parties), in any of which events such fees and
expenses shall be borne by the indemnifying parties; provided that, with respect
to clause (iii), the indemnifying party has consented in writing to the
indemnified party's choice of counsel, which consent shall not be unreasonably
withheld. In the event one or more law firms has represented both the
indemnifying party and the indemnified party (the "Joint Counsel") and the
indemnified party retains separate counsel, the indemnified party agrees that it
shall not object to the continued use of the Joint Counsel by the indemnifying
party and further agrees to waive any conflicts of interest. Under no
circumstances shall any indemnified party take a position or make an argument in
any proceeding in which such party is being indemnified that is inconsistent
with or prejudicial to any position or argument advanced by the indemnifying
party. If so requested by the indemnifying party, the indemnified party shall
appeal a judgment rendered against such indemnified party; provided that the
cost of such appeal shall be borne by the indemnifying party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section to the contrary
notwithstanding, an indemnifying party (A) shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent was not unreasonably withheld; (B) shall be
liable for the cost of appealing any judgment rendered against an indemnified
party, or for any increase in the amount of a judgment resulting from such
appeal, which consent may be withheld in the indemnifying parties' sole
discretion; and (C) shall be liable for a judgment rendered against an
indemnified party only if such judgment is final and nonappealable.
(f) The Company shall at all times while the Notes, New
Notes, Warrants or New Warrants are outstanding reserve and keep available out
of its authorized but unissued Common Stock solely for the purpose of effecting
the conversion or exercise of the foregoing securities the full number of shares
of Common Stock deliverable upon exercise or conversion thereof.
9. TRANSFER OF SECURITIES.
(a) REPRESENTATION OF INVESTORS. Each Investor severally
represents that it is an "Accredited Investor" as defined in Rule 501 of the
General Rules and Regulations under the Securities Act.
(b) INVESTMENT PURPOSE. Each Investor is acquiring the Notes
and Warrants for its own account and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the Securities Act.
(c) TRANSFER OF SECURITIES. The Notes and Warrants shall not
be transferable except upon the conditions specified in this Section 9, which
conditions are intended to insure compliance with the provisions of the
Securities Act and state securities laws in respect of the transfer of any such
securities.
(d) RESTRICTIVE LEGENDS. Unless and until otherwise
permitted by this Section 9, each Note and Warrant shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS SECURITY MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT."
(e) TERMINATION OF RESTRICTIONS. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this Section
9 upon the transferability of the Notes and Warrants shall terminate as to any
particular Notes and Warrants when(i) such Notes and Warrants shall have been
effectively registered under the Securities Act and sold by the holder thereof
in accordance with such registration, (ii) such Notes and Warrants have been
sold in accordance with Rule 144 or Rule 144A promulgated under the Securities
Act, or (iii) written opinions to the effect that such restrictions are no
longer required or necessary under any federal or state law or regulation have
been received from counsel for the holder thereof (who may be inside counsel)
and, if the Company shall so require, from counsel for the Company.
10. SURVIVAL. All representations, warranties, covenants and
agreements contained in this Agreement or in any document, exhibit, schedule or
certificate delivered in connection herewith shall survive the execution and
delivery of this Agreement and the Closing and any investigation at any time
made by the Investors or on their behalf.
11. MISCELLANEOUS PROVISIONS.
11.1. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York without
giving any effect to principles of conflicts of laws.
11.2. All notices hereunder shall be in writing and shall be
deemed to have been given at the time when hand delivered, when received if sent
by telecopier or same day or overnight recognized commercial carrier service, or
three days after being mailed by certified mail, addressed to the address below
stated of the party to which notice is given, or to such changed address as such
party may have fixed by notice:
To the Company: ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
To the Investors: At addresses set forth
on Schedule A
with a copy to
Stroock & Stroock & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
provided however, that any notice of change of address shall be effective only
upon receipt.
11.3. This Agreement shall be binding upon and inure to the
benefit of the Company, the Investors and the successors and permitted assigns
of the Investors. The Company may not assign this Agreement without the prior
written consent of the Investors. The Investors may assign all or any part of
their rights and obligations hereunder.
11.4. This Agreement and all exhibits and schedules hereto
set forth the entire understanding of the parties with respect to the
transactions contemplated hereby. This Agreement may be amended, the Company may
take any action herein prohibited or omit to take action herein required to be
performed by it, and any breach of or compliance with any covenant, agreement,
warranty or representation may be waived, only if the Company has obtained the
written consent or waiver of the Investors who have committed to make a majority
of the loans.
11.5. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.6. The headings in this Agreement are for reference
purposes only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the day and year first above written.
IGENE Biotechnology, Inc.
By: ----------------------
THE INVESTORS
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SCHEDULE A
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NAME AND ADDRESS OF INVESTORS AMOUNT OF LOANS
----------------------------- ---------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ $216,000
▇▇▇▇ Associates
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ $24,000
Stokesay ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ $630,000
Loeb Partners Corporation
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ $630,000
SRK Management
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ $500,000