CONVERTIBLE SECURED PROMISSORY NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of June 10, 2008
among
BIOFORCE NANOSCIENCES HOLDINGS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
CONVERTIBLE SECURED PROMISSORY NOTE AND WARRANT
PURCHASE AGREEMENT
This
CONVERTIBLE SECURED PROMISSORY NOTE AND WARRANT PURCHASE
AGREEMENT
(the "Agreement") is dated as of June 4, 2008 by and among BioForce
Nanosciences
Holdings, Inc., a Nevada corporation (the "Company"), and each of
the Purchasers
of Units, as described below, whose names are set forth on Exhibit
A hereto
(individually, a "Purchaser" and collectively, the
"Purchasers").
The
parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Units
Section 1.1 Purchase and Sale of Notes. Upon the following terms
and
conditions, the Company shall issue and sell to the Purchasers, and
each of the
Purchasers shall purchase from the Company, the number of units
(the "Units"),
consisting of: (i) $1.00 in face amount of the Company's
convertible secured
promissory notes (the "Notes"), in substantially the form attached
hereto as
Exhibit B-1, convertible into shares of the Company's common stock,
par value
$0.001 per share (the "Common Stock"), and (ii) three warrants, in
substantially
the form attached hereto as Exhibit B-2 (the " Warrant"), set forth
opposite
such Purchaser's name on Exhibit A hereto. The Company and the
Purchasers are
executing and delivering this Agreement in accordance with and in
reliance upon
the exemption from securities registration afforded by Rule 506 of
Regulation D
("Regulation D") as promulgated by the United States Securities and
Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the
"Securities Act"), or Section 4(2) of the Securities Act.
Section 1.2 Warrants. Each of the Warrants shall have a term of
five
(5) years, have an exercise price per share equal to the Warrant
Price (as
defined in the applicable Warrant) and shall be exercisable as
stated in the
applicable Warrant.
Section 1.3 Conversion Shares. The Company has authorized and
has
reserved and covenants to continue to reserve, free of preemptive
rights and
other similar contractual rights of stockholders, a number of
shares of Common
Stock equal to one hundred twenty percent (120%) of the number of
shares of
Common Stock as shall from time to time be sufficient to effect the
conversion
of all of the Convertible Secured Promissory Notes and exercise of
the Warrants
then outstanding. Any shares of Common Stock issuable upon
conversion of the
Convertible Secured Promissory Notes and exercise of the Warrants
(and such
shares when issued) are herein referred to as the "Conversion
Shares" and the
"Warrant Shares", respectively. The Conversion Shares and the
Warrant Shares are
sometimes collectively referred to as the "Shares".
Section 1.4 Purchase Price and Closing. Subject to the terms
and
conditions hereof, in consideration of and in express reliance upon
the
representations, warranties, covenants, terms and conditions of
this Agreement,
the Company agrees to issue and sell to the Purchasers and the
Purchasers,
severally but not jointly, agree to purchase the Units for $1.00
per unit, and
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<PAGE>
for an aggregate purchase price of Three Hundred Thousand Dollars
($300,000)
(the "Purchase Price"). The closing of the purchase and sale of the
Units to be
acquired by the Purchasers from the Company under this Agreement
shall take
place at the offices of Sonnenschein, Nath & Rosenthal, LLP,
101 JFK Parkway,
Short Hills, NJ 07078-2708 (the "Closing") at 10:00 a.m., New York
time (i) on
or before June 10, 2008; provided, that all of the conditions set
forth in
Article IV hereof and applicable to the Closing shall have been
fulfilled or
waived in accordance herewith, or (ii) at such other time and place
or on such
date as the Purchasers and the Company may agree upon (the "Closing
Date").
Subject to the terms and conditions of this Agreement, at the
Closing the
Company shall deliver or cause to be delivered to each Purchaser
(x) a
Convertible Secured Promissory Note corresponding to the number of
Units set
forth opposite the name of such Purchaser on Exhibit A hereto, (y)
Warrants
corresponding to the number of Units as is set forth opposite the
name of such
Purchaser on Exhibit A attached hereto and (z) any other documents
required to
be delivered pursuant to Article IV hereof. At the Closing, each
Purchaser shall
deliver its Purchase Price in the manner indicated on Exhibit
A.
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchasers, as of the
date hereof
and the Closing Date (except as set forth on the Disclosure
Schedule prepared in
connection with this Agreement (the "Disclosure Schedule") with
each numbered
section of the Disclosure Schedule corresponding to the section
number herein),
as follows:
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good
standing under the
laws of the State of Nevada and has the requisite corporate power
to own, lease
and operate its properties and assets and to conduct its business
as it is now
being conducted. The Company does not have any subsidiaries except
as set forth
in the Company's Form 10-KSB for the year ended December 31, 2007,
including the
accompanying financial statements (the "Form 10-KSB"), or in the
Company's Form
10-QSB for the fiscal quarter ended March 31, 2008 (the "Form
10-QSB"). The
Company and each such subsidiary is duly qualified as a foreign
corporation to
do business and is in good standing in every jurisdiction in which
the nature of
the business conducted or property owned by it makes such
qualification
necessary except for any jurisdiction(s) (alone or in the
aggregate) in which
the failure to be so qualified will not have a Material Adverse
Effect (as
defined in Section 2.1(c) hereof) on the Company's financial
condition.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this
Agreement, the
Notes, and the Warrants (collectively the "Transaction Documents")
and to issue
and sell the Notes, Shares and Warrants in accordance with the
terms hereof. The
execution, delivery and performance of the Transaction Documents by
the Company
and the consummation by it of the transactions contemplated hereby
and thereby
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<PAGE>
have been duly and validly authorized by all necessary corporate
action, or will
be so authorized prior to the Closing, and no further consent or
authorization
of the Company or its Board of Directors or stockholders will be
required as of
the Closing. This Agreement has been duly executed and delivered by
the Company,
and constitutes a valid and binding obligation of the Company
enforceable
against the Company in accordance with its terms, except as such
enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating
to, or
affecting generally the enforcement of, creditor's rights and
remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company
and
the shares thereof currently issued and outstanding as of the date
hereof are
set forth in Section 2.1(c) of the Disclosure Schedule. All of the
outstanding
shares of the Common Stock and Series A Convertible Preferred Stock
(the
"Preferred Shares") have been duly and validly authorized. Except
as set forth
on the Disclosure Schedule hereto, no shares of Common Stock are
entitled to
preemptive rights or registration rights and there are no
outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any
character
whatsoever relating to, or securities or rights convertible into,
any shares of
capital stock of the Company. There are no contracts,
commitments,
understandings, or arrangements by which the Company is or may
become bound to
issue additional shares of the capital stock of the Company or
options,
securities or rights convertible into shares of capital stock of
the Company.
The Company is not a party to any agreement granting registration
or
anti-dilution rights to any person with respect to any of its
equity or debt
securities. The Company is not a party to, and it has no knowledge
of, any
agreement restricting the voting or transfer of any shares of the
capital stock
of the Company. The offer and sale of all capital stock,
convertible securities,
rights, warrants, or options of the Company issued prior to the
Closing complied
with all applicable Federal and state securities laws, and no
stockholder has a
right of rescission or claim for damages with respect thereto which
would have a
Material Adverse Effect (as defined below). The Company has
furnished or made
available to the Purchasers true and correct copies of the
Company's Articles of
Incorporation as in effect on the date hereof (the "Articles"), and
the
Company's Bylaws as in effect on the date hereof (the "Bylaws").
For the
purposes of this Agreement, "Material Adverse Effect" means any
material adverse
effect on the business, operations, properties, prospects, or
financial
condition of the Company and its subsidiaries and/or any
condition,
circumstance, or situation that would prohibit or otherwise
materially interfere
with the ability of the Company to perform any of its obligations
under this
Agreement in any material respect.
(d) Issuance of Shares. The Notes and the Warrants to be issued
at
the Closing have been duly authorized by all necessary corporate
action, or will
be so authorized prior to the Closing. When the Conversion Shares
and the
Warrant Shares are issued in accordance with the terms of the Notes
and the
Warrants, respectively, such shares will be duly authorized by all
necessary
corporate action and validly issued and outstanding, fully paid
and
nonassessable, and the holders shall be entitled to all rights
accorded to a
holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of
the
Transaction Documents by the Company and the consummation by the
Company of the
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<PAGE>
transactions contemplated herein and therein do not and will not
(i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with,
or constitute
a default (or an event which with notice or lapse of time or both
would become a
default) under, or give to others any rights of termination,
amendment,
acceleration or cancellation of, any agreement, mortgage, deed of
trust,
indenture, note, bond, license, lease agreement, instrument or
obligation to
which the Company is a party or by which it or its properties or
assets are
bound, (iii) create or impose a lien, mortgage, security interest,
charge or
encumbrance of any nature on any property of the Company under any
agreement or
any commitment to which the Company is a party or by which the
Company is bound
or by which any of its respective properties or assets are bound,
or (iv) result
in a violation of any federal, state, local or foreign statute,
rule,
regulation, order, judgment or decree (including Federal and state
securities
laws and regulations) applicable to the Company or any of its
subsidiaries or by
which any property or asset of the Company or any of its
subsidiaries are bound
or affected, except, in all cases other than violations pursuant to
clauses (i)
and (iv) above, for such conflicts, defaults, terminations,
amendments,
accelerations, cancellations and violations as would not,
individually or in the
aggregate, have a Material Adverse Effect. The business of the
Company and its
subsidiaries is not being conducted in violation of any laws,
ordinances or
regulations of any governmental entity, except for possible
violations which
singularly or in the aggregate do not and will not have a Material
Adverse
Effect. The Company is not required under Federal, state or local
law, rule or
regulation to obtain any consent, authorization or order of, or
make any filing
or registration with, any court or governmental agency in order for
it to
execute, deliver or perform any of its obligations under the
Transaction
Documents, or issue and sell the Notes, the Warrants, the
Conversion Shares and
the Warrant Shares in accordance with the terms hereof or thereof
(other than
any filings which may be required to be made by the Company with
the Commission
or state securities administrators subsequent to the Closing, and
any
registration statement which may be filed pursuant hereto);
provided that, for
purposes of the representation made in this sentence, the Company
is assuming
and relying upon the accuracy of the relevant representations and
agreements of
the Purchasers herein.
(f) Commission Documents, Financial Statements. The Company is
a
voluntary filer pursuant to Section 15(d) of the Securities
Exchange Act of
1934, as amended (the "Exchange Act"), and the Company has timely
filed all
reports, schedules, forms, statements and other documents required
to be filed
by it with the Commission pursuant to the reporting requirements of
the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d) of
the Exchange
Act (all of the foregoing including filings incorporated by
reference therein
being referred to herein as the "Commission Documents"). The
Company has
delivered or made available to each of the Purchasers true and
complete copies
of the Commission Documents. The Company has not provided to the
Purchasers any
material non-public information or other information which,
according to
applicable law, rule or regulation, was required to have been
disclosed publicly
by the Company but which has not been so disclosed, other than with
respect to
the transactions contemplated by this Agreement. At the times of
their
respective filings, the Form 10-KSB and the Form 10-QSB complied in
all material
respects with the requirements of the Exchange Act and the rules
and regulations
of the Commission promulgated thereunder and other federal, state
and local
laws, rules and regulations applicable to such documents, and, as
of their
respective dates, none of the Form 10-KSB and the Form 10-QSB
contained any
untrue statement of a material fact or omitted to state a material
fact required
5
<PAGE>
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 Commission
Documents comply
as to form in all material respects with applicable accounting
requirements and
the published rules and regulations of the Commission or other
applicable rules
and regulations with respect thereto. Such financial statements
have been
prepared in accordance with United States generally accepted
accounting
principles ("GAAP") applied on a consistent basis during the
periods involved
(except (i) as may be otherwise indicated in such financial
statements or the
notes thereto or (ii) in the case of unaudited interim statements,
to the extent
they may not include footnotes or may be condensed or summary
statements), and
fairly present in all material respects the financial position of
the Company
and its subsidiaries as of 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 year-end audit adjustments).
(g) Subsidiaries. The Disclosure Schedule hereto sets forth
each
subsidiary of the Company, showing the jurisdiction of its
incorporation or
organization and showing the percentage of each person's ownership.
For the
purposes of this Agreement, "subsidiary" shall mean any corporation
or other
entity of which at least a majority of the securities or other
ownership
interest having ordinary voting power (absolutely or contingently)
for the
election of directors or other persons performing similar functions
are at the
time owned directly or indirectly by the Company and/or any of its
other
subsidiaries. All of the outstanding shares of capital stock of
each subsidiary
have been duly authorized and validly issued, and are fully paid
and
nonassessable. There are no outstanding preemptive, conversion or
other rights,
options, warrants or agreements granted or issued by or binding
upon any
subsidiary for the purchase or acquisition of any shares of capital
stock of any
subsidiary or any other securities convertible into, exchangeable
for or
evidencing the rights to subscribe for any shares of such capital
stock. Neither
the Company nor any subsidiary is subject to any obligation
(contingent or
otherwise) to repurchase or otherwise acquire or retire any shares
of the
capital stock of any subsidiary or any convertible securities,
rights, warrants
or options of the type described in the preceding sentence. Neither
the Company
nor any subsidiary is party to, nor has any knowledge of, any
agreement
restricting the voting or transfer of any shares of the capital
stock of any
subsidiary.
(h) No Material Adverse Change. Since March 31, 2008, the
Company
has not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed Liabilities. Neither the Company nor any of
its
subsidiaries has any liabilities, obligations, claims or losses
(whether
liquidated or unliquidated, secured or unsecured, absolute,
accrued, contingent
or otherwise) other than those incurred in the ordinary course of
the Company's
or its subsidiaries respective businesses since March 31, 2008 and
which,
individually or in the aggregate, do not or would not have a
Material Adverse
Effect on the Company or its subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or
circumstance
has occurred or exists with respect to the Company or its
subsidiaries or their
respective businesses, properties, prospects, operations or
financial condition,
which, under applicable law, rule or regulation, requires public
disclosure or
announcement by the Company but which has not been so publicly
announced or
disclosed.
6
<PAGE>
(k) Indebtedness. The Form 10-KSB or Form 10-QSB sets forth as of
a
recent date 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 $100,000 (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 $25,000 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.
(l) Title to Assets. Each of the Company and the subsidiaries
has
good and marketable title to all of its real and personal property
reflected in
the Form 10-KSB or Form 10-QSB, free and clear of any mortgages,
pledges,
charges, liens, security interests or other encumbrances, except
for those
disclosed in the Form 10-KSB or Form 10-QSB, statutory liens for
which the
payment of current taxes are not yet delinquent, or such that,
individually or
in the aggregate, do not cause a Material Adverse Effect. All
leases of the
Company and each of its subsidiaries are valid and subsisting and,
to its
knowledge, in full force and effect.
(m) Actions Pending. There is no action, suit, claim,
investigation,
arbitration, alternate dispute resolution proceeding or any other
proceeding
pending or, to the knowledge of the Company, threatened against the
Company or
any subsidiary which questions the validity of this Agreement or
any of the
other Transaction Documents or the transactions contemplated hereby
or thereby
or any action taken or to be taken pursuant hereto or thereto.
Except as set
forth in the Form 10-KSB or Form 10-QSB, there is no action, suit,
claim,
investigation, arbitration, alternate dispute resolution proceeding
or any other
proceeding pending or, to the knowledge of the Company, threatened,
against or
involving the Company, any subsidiary or any of their respective
properties or
assets. There are no outstanding orders, judgments, injunctions,
awards or
decrees of any court, arbitrator or governmental or regulatory body
against the
Company or any subsidiary or any officers or directors of the
Company or
subsidiary in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in
accordance with all
applicable federal, state and local governmental laws, rules,
regulations and
ordinances, except for such noncompliance that, individually or in
the
aggregate, would not cause a Material Adverse Effect. The Company
and each of
its subsidiaries have all franchises, permits, licenses, consents
and other
governmental or regulatory authorizations and approvals necessary
for the
conduct of its business as now being conducted by it unless the
failure to
possess such franchises, permits, licenses, consents and other
governmental or
regulatory authorizations and approvals, individually or in the
aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. The Company and each of the subsidiaries has
accurately
prepared and filed all federal, state and other tax returns
required by law to
7
<PAGE>
be filed by it, has paid or made provisions for the payment of all
taxes shown
to be due and all additional assessments, and adequate provisions
have been and
are reflected in the financial statements of the Company and the
subsidiaries
for all current taxes and other charges to which the Company or any
subsidiary
is subject and which are not currently due and payable. None of the
federal
income tax returns of the Company or any subsidiary have been
audited by the
Internal Revenue Service. The Company has no knowledge of any
additional
assessments, adjustments or contingent tax liability (whether
federal or state)
of any nature whatsoever, whether pending or threatened against the
Company or
any subsidiary for any period, nor of any basis for any such
assessment,
adjustment or contingency.
(p)
Certain Fees. No brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any
Purchaser
with respect to the transactions contemplated by this
Agreement.
(q) Disclosure. Neither this Agreement or the Disclosure
Schedule
nor any other documents, certificates or instruments furnished to
the Purchasers
by or on behalf of the Company or any subsidiary in connection with
the
transactions contemplated by this Agreement contain any untrue
statement of a
material fact or omit to state a material fact necessary in order
to make the
statements made herein or therein, in the light of the
circumstances under which
they were made herein or therein, not misleading. It is understood
that this
representation is qualified by the fact that the Company has not
delivered to
the Purchasers, and has not been requested to deliver, a private
placement or
similar memorandum or any written disclosure of the types of
information
customarily furnished to purchasers of securities.
(r) Operation of Business. The Company and each of the
subsidiaries
owns or possesses all patents, trademarks, domain names (whether or
not
registered) and any patentable improvements or copyrightable
derivative works
thereof, websites and intellectual property rights relating
thereto, service
marks, trade names, copyrights, licenses and authorizations as set
forth in the
Form 10-KSB or Form 10-QSB, and all rights with respect to the
foregoing, which
are necessary for the conduct of its business as now conducted
without any
conflict with the rights of others.
(s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization,
certificates,
consents, licenses, orders and permits or other similar
authorizations of all
governmental authorities, or from any other person, that are
required under any
Environmental Laws. The Form 10-KSB or Form 10-QSB describes all
material
permits, licenses and other authorizations issued under any
Environmental Laws
to the Company or its subsidiaries. "Environmental Laws" shall mean
all
applicable laws relating to the protection of the environment
including, without
limitation, all requirements pertaining to reporting, licensing,
permitting,
controlling, investigating or remediating emissions, discharges,
releases or
threatened releases of hazardous substances, chemical substances,
pollutants,
contaminants or toxic substances, materials or wastes, whether
solid, liquid or
gaseous in nature, into the air, surface water, groundwater or
land, or relating
to the manufacture, processing, distribution, use, treatment,
storage, disposal,
transport or handling of hazardous substances, chemical substances,
pollutants,
contaminants or toxic substances, material or wastes, whether
solid, liquid or
gaseous in nature. The Company has all necessary governmental
approvals required
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<PAGE>
under all Environmental Laws and used in its business or in the
business of any
of its subsidiaries. The Company and each of its subsidiaries are
also in
compliance with all other limitations, restrictions, conditions,
standards,
requirements, schedules and timetables required or imposed under
all
Environmental Laws. Except for such instances as would not
individually or in
the aggregate have a Material Adverse Effect, there are no past or
present
events, conditions, circumstances, incidents, actions or omissions
relating to
or in any way affecting the Company or its subsidiaries that
violate or may
violate any Environmental Law after the Closing Date or that may
give rise to
any environmental liability, or otherwise form the basis of any
claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under
any
Environmental Law, or (ii) based on or related to the manufacture,
processing,
distribution, use, treatment, storage (including without limitation
underground
storage tanks), disposal, transport or handling, or the emission,
discharge,
release or threatened release of any hazardous substance.
(t) Books and Record Internal Accounting Controls. The books
and
records of the Company and its subsidiaries accurately reflect in
all material
respects the information relating to the business of the Company
and the
subsidiaries, the location and collection of their assets, and the
nature of all
transactions giving rise to the obligations or accounts receivable
of the
Company or any subsidiary. The Company and each of its subsidiaries
maintain a
system of internal accounting controls sufficient, in the judgment
of the
Company, 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
actions is taken with respect to any differences.
(u) Material Agreements. Neither the Company nor any subsidiary is
a
party to any written or oral contract, instrument, agreement,
commitment,
obligation, plan or arrangement, a copy of which would be required
to be filed
with the Commission as an exhibit to a registration statement on
Form S-3 or
applicable form (collectively, "Material Agreements") if the
Company or any
subsidiary were registering securities under the Securities Act.
The Company and
each of its subsidiaries has in all material respects performed all
the
obligations required to be performed by them to date under the
foregoing
agreements, have received no notice of default and are not in
default under any
Material Agreement now in effect, the result of which could cause a
Material
Adverse Effect. No written or oral contract, instrument, agreement,
commitment,
obligation, plan or arrangement of the Company or of any subsidiary
limits or
shall limit the payment of dividends on the Company's Preferred
Shares, other
preferred stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
Commission Documents, there are no loans, leases, agreements,
contracts, royalty
agreements, management contracts or arrangements or other
continuing
transactions between (a) the Company or any subsidiary on the one
hand, and (b)
on the other hand, any officer, employee, consultant or director of
the Company,
or any of its subsidiaries, or any person owning any capital stock
of the
Company or any subsidiary or any member of the immediate family of
such officer,
employee, consultant, director or stockholder or any corporation or
other entity
controlled by such officer, employee, consultant, director or
stockholder, or a
member of the immediate family of such officer, employee,
consultant, director
or stockholder.
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<PAGE>
(w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied
and will
comply with all applicable federal and state securities laws in
connection with
the offer, issuance and sale of the Notes, Shares and Warrants
hereunder.
Neither the Company nor, to its knowledge, anyone acting on its
behalf, directly
or indirectly, has or will, prior to the Closing Date sell, offer
to sell or
solicit offers to buy any of the Notes, Shares or Warrants to, or
solicit offers
with respect thereto from, or enter into any preliminary
conversations or
negotiations relating thereto with, any person, or has taken or
will, prior to
the Closing Date, take any action so as to bring the issuance and
sale of any of
the Notes, Shares and Warrants under the registration provisions of
the
Securities Act and applicable state securities laws, and neither
the Company nor
any of its affiliates, nor, to its knowledge, any person acting on
its or their
behalf, has engaged in any form of general solicitation or general
advertising
(within the meaning of Regulation D under the Securities Act) in
connection with
the offer or sale of any of the Notes, Shares and Warrants.
(x) Governmental Approvals. Except for the filing of any notice
prior or subsequent to the Closing Date that may be required under
applicable
state and/or Federal securities laws (which if required, shall be
filed on a
timely basis), including the filing of a Form D, no authorization,
consent,
approval, license, exemption of, filing or registration with any
court or
governmental department, commission, board, bureau, agency or
instrumentality,
domestic or foreign, is or will be necessary for, or in connection
with, the
execution or delivery of the Notes and the Warrants, or for the
performance by
the Company of its obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of
its employees.
Neither the Company nor any subsidiary has any employment contract,
agreement
regarding proprietary information, non-competition agreement,
non-solicitation
agreement, confidentiality agreement, or any other similar contract
or
restrictive covenant, relating to the right of any officer,
employee or
consultant to be employed or engaged by the Company or such
subsidiary. No
officer, consultant or key employee of the Company or any
subsidiary whose
termination, either individually or in the aggregate, could have a
Material
Adverse Effect, has terminated or, to the knowledge of the Company,
has any
present intention of terminating his or her employment or
engagement with the
Company or any subsidiary.
(z) Absence of Certain Developments. Except as set forth in the
Form
10-KSB, the Form 10-QSB or on Schedule 2.1(c) hereto, since March
31, 2008,
neither the Company nor any subsidiary has:
(i) issued any stock, bonds or other corporate securities or
any rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities
incurred in the
ordinary course of business which are comparable in nature and
amount to the
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current liabilities incurred in the ordinary course of business
during the
comparable portion of its prior fiscal year, as adjusted to reflect
the current
nature and volume of the Company's or such subsidiary's
business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than
current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or
purchased or
redeemed, or made any agreements so to purchase or redeem, any
shares of its
capital stock;
(v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of
business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other
intangible assets or
intellectual property rights, or disclosed any proprietary
confidential
information to any person except to customers in the ordinary
course of business
or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business,
or suffered
the loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material
transaction,
whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$25,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
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(aa) Public Utility Holding Company Act and Investment Company
Act
Status. The Company is not a "holding company" or a "public utility
company" as
such terms are defined in the Public Utility Holding Company Act of
1935, as
amended. The Company is not, and as a result of and immediately
upon the Closing
will not be, an "investment company" or a company "controlled" by
an "investment
company," within the meaning of the Investment Company Act of 1940,
as amended.
(bb) ERISA. No liability to the Pension Benefit Guaranty
Corporation
has been incurred with respect to any Plan (as defined below) by
the Company or
any of its subsidiaries which is or would be materially adverse to
the Company
and its subsidiaries. The execution and delivery of this Agreement
and the
issuance and sale of the Notes and Warrants will not involve any
transaction
which is subject to the prohibitions of Section 406 of ERISA or in
connection
with which a tax could be imposed pursuant to Section 4975 of the
Internal
Revenue Code of 1986, as amended, provided that, if any of the
Purchasers, or
any person or entity that owns a beneficial interest in any of the
Purchasers,
is an "employee pension benefit plan" (within the meaning of
Section 3(2) of
ERISA) with respect to which the Company is a "party in interest"
(within the
meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and
408(e) of ERISA, if applicable, are met. As used in this Section
2.1(ac), the
term "Plan" shall mean an "employee pension benefit plan" (as
defined in Section
3 of ERISA) which is or has been established or maintained, or to
which
contributions are or have been made, by the Company or any
subsidiary or by any
trade or business, whether or not incorporated, which, together
with the Company
or any subsidiary, is under common control, as described in Section
414(b) or
(c) of the Code.
(cc) Dilutive Effect. The Company understands and acknowledges
that
its obligation to issue Conversion Shares upon conversion of the
Notes in
accordance with this Agreement and the Certificate of Designation
and its
obligations to issue the Warrant Shares upon the exercise of the
Warrants in
accordance with this Agreement and the Warrants, is, in each case,
absolute and
unconditional regardless of the dilutive effect that such issuance
may have on
the ownership interest of other stockholders of the Company.
(dd) No Integrated Offering. Neither the Company, nor any of
its
affiliates, nor any person acting on its or their behalf, has
directly or
indirectly made any offers or sales of any security or solicited
any offers to
buy any security under circumstances that would cause the offering
of the Shares
pursuant to this Agreement to be integrated with prior offerings by
the Company
for purposes of the Securities Act which would prevent the Company
from selling
the Shares pursuant to Rule 506 under the Securities Act, or any
applicable
exchange-related stockholder approval provisions, nor will the
Company or any of
its affiliates or subsidiaries take any action or steps that would
cause the
offering of the Shares to be integrated with other offerings. The
Company does
not have any registration statement pending before the Commission
or currently
under the Commission's review and since August 31, 2007, the
Company has not
offered or sold any of its equity securities or debt securities
convertible into
shares of Common Stock.
(ee) Sarbanes-Oxley Act. The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley
12
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Act"), and the rules and regulations promulgated thereunder, that
are effective,
and intends to comply with other applicable provisions of the
Sarbanes-Oxley
Act, and the rules and regulations promulgated thereunder, upon
the
effectiveness of such provisions.
(ff) Independent Nature of Purchasers. The Company acknowledges
that
the obligations of each Purchaser under the Transaction Documents
are several
and not joint with the obligations of any other Purchaser, and no
Pu
