NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of April 19 , 2005
by and among
AXM PHARMA, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
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ARTICLE I
Purchase and Sale of Notes and Warrants
1
Section 1.1
Purchase and Sale of Notes and Warrants.
1
Section 1.2
Purchase Price and Closing
2
Section 1.3
Conversion Shares / Warrant Shares
2
ARTICLE II
Representations and Warranties
2
Section 2.1
Representations and Warranties of the Company
2
Section 2.2
Representations and Warranties of the Purchasers
13
ARTICLE III
Covenants
16
Section 3.1
Securities Compliance
16
Section 3.2
Registration and Listing
16
Section 3.3
Inspection Rights
16
Section 3.4
Compliance with Laws
16
Section 3.5
Keeping of Records and Books of Account
16
Section 3.6
Reporting Requirements
17
Section 3.7
Other Agreements
17
Section 3.8
Subsequent Financings; Right of First Refusal
17
Section 3.9
Use of Proceeds
17
Section 3.10
Reporting Status
17
Section 3.11
Disclosure of Transaction
17
Section 3.12
Disclosure of Material Information
17
Section 3.13
Pledge of Securities
18
Section 3.14
Amendments
18
Section 3.15
Distributions
18
Section 3.16
Reservation of Shares
18
Section 3.17
Transfer Agent Instructions
18
Section 3.18
Disposition of Assets
19
Section 3.19
Form S-3 Eligibility
19
Section 3.20
Stockholder Approval
19
Section 3.21
Reverse Stock Split
19
Section 3.22
Subsequent Financings; Right of First Offer
19
ARTICLE IV
Conditions
22
Section 4.1
Conditions Precedent to the Obligation of the Company to Close and
to Sell the Securities22
Section 4.2
Conditions Precedent to the Obligation of the Purchasers to Close
and to Purchase the Securities22
ARTICLE V
Certificate Legend
24
Section 5.1
Legend
21
ARTICLE VI
Indemnification
25
Section 6.1
General Indemnity.
25
Section 6.2
Indemnification Procedure
26
ARTICLE VII
Miscellaneous
27
Section 7.1
Fees and Expenses
27
Section 7.2
Specific Performance; Consent to Jurisdiction; Venue.
27
Section 7.3
Entire Agreement; Amendment
28
Section 7.4
Notices
28
Section 7.5
Waivers
29
Section 7.6
Headings
29
Section 7.7
Successors and Assigns
29
Section 7.8
No Third Party Beneficiaries
29
Section 7.9
Governing Law
29
Section 7.10
Survival
29
Section 7.11
Counterparts
30
Section 7.12
Publicity
30
Section 7.13
Severability
30
Section 7.14
Further Assurances
30
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT dated
as of April 19 , 2005 (this “ Agreement ”) by
and among AXM Pharma, Inc., a Nevada corporation (the "
Company "), and each of the purchasers of the secured
convertible promissory notes of the Company whose names are set
forth on Exhibit A attached hereto (each a "
Purchaser " and collectively, the " Purchasers ").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1
Purchase and Sale of Notes and Warrants .
(a)
Upon the following terms and conditions, the
Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, secured convertible
promissory notes in the aggregate principal amount of up to Five
Million Dollars ($5,000,000) bearing interest at the rate of
nine percent (9%) per annum, convertible into shares of the
Company's common stock, par value $0.001 per share (the “
Common Stock ”), in substantially the form attached
hereto as Exhibit B (the " Notes "). 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 Section 4(2) of the
U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the " Securities Act
"), including Regulation D (" Regulation D "), and/or
upon such other exemption from the registration requirements of
the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.
(b)
Upon the following terms and conditions, the
Purchasers shall be issued (i) Series A Warrants, in
substantially the form attached hereto as Exhibit C (the
" Series A Warrants "), to purchase the number of shares
of Common Stock set forth opposite such Purchaser’s name
on Exhibit A attached hereto, (ii) Series B Warrants, in
substantially the form attached hereto as Exhibit D (the
" Series B Warrants "), to purchase the number of shares
of Common Stock set forth opposite such Purchaser’s name
on Exhibit A attached hereto, and (iii) Series C
Warrants, in substantially the form attached hereto as
Exhibit E (the “ Series C Warrants ”
and, together with the Series A Warrants and the Series B
Warrants, the “ Warrants ”), to purchase the
number of shares of Common Stock set forth opposite such
Purchaser’s name on Exhibit A attached hereto.
For each $500,000 of Notes purchased pursuant to this
Agreement, such Purchaser shall receive a Series A Warrant to
purchase 300,000 shares of Common Stock at an exercise price per
share of $2.90 and a Series B Warrant to purchase 300,000 shares
of Common Stock at an exercise price per share of $3.50.
Each Purchaser shall also be entitled to receive a Series
C Warrant to purchase a number of shares of Common Stock equal
to one hundred percent (100%) of the number of Conversion Shares
issuable upon conversion of such Purchaser’s Note at an
exercise price per share equal to the Conversion Price (as
defined in the Notes). The Series A Warrants and the
Series B Warrants shall expire five (5) years following
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the Closing Date and the Series C Warrants shall
expire one (1) year following the effective date of the
registration statement providing for the resale of the
Conversion Shares and the Warrant Shares.
Section 1.2
Purchase Price and Closing .
Subject to the terms and conditions hereof, the Company
agrees to issue and sell to the Purchasers and, in consideration
of and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, the
Purchasers, severally but not jointly, agree to purchase the
Notes and Warrants for an aggregate purchase price of up to Five
Million Dollars ($5,000,000) (the “ Purchase Price
”). The closing of the purchase and sale of the
Notes and Warrants to be acquired by the Purchasers from the
Company under this Agreement shall take place at the offices of
Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the
Americas, New York, New York 10036 (the “ Closing
”) at 10:00 a.m., New York time (i) on or before April 19
, 2005; 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) its Note for the principal amount set
forth opposite the name of such Purchaser on Exhibit A
hereto and (y) a Series A Warrant, Series B Warrant and Series C
Warrant to purchase such number of shares of Common Stock as is
set forth opposite the name of such Purchaser on Exhibit
A attached hereto. At the Closing, each Purchaser
shall deliver its Purchase Price by wire transfer to an ac
count designated by the
Company.
Section 1.3
Conversion Shares / Warrant 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 its
authorized but unissued shares of Common Stock equal to one
hundred twenty percent (120%) of the aggregate number of shares
of Common Stock to effect the conversion of the Notes and any
interest accrued and outstanding thereon and exercise of the
Warrants. Any shares of Common Stock issuable upon
conversion of the Notes and any interest accrued and outstanding
thereon and exercise of the Warrants (and such shares when
issued) are herein referred to as the “ Conversion
Shares ” and the " Warrant Shares ,"
respectively. The Notes, the Warrants, the Conversion
Shares and the Warrant Shares are sometimes collectively
referred to herein as the " Securities ".
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 Schedule of Exceptions attached
hereto with each numbered 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
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conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as
defined in Section 2.1(g)) or own securities of any kind in any
other entity except as set forth on Schedule 2.1(g)
hereto. The Company and each such Subsidiary (as defined
in Section 2.1(g)) 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.
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.
(b)
Authorization; Enforcement . The
Company has the requisite corporate power and authority to enter
into and perform this Agreement, the Notes, the Warrants, the
Registration Rights Agreement by and among the Company and the
Purchasers, dated as of the date hereof, substantially in the
form of Exhibit F attached hereto (the “
Registration Rights Agreement ”), the Pledge and
Security Agreement by and among the Company and the Purchasers,
dated as of the date hereof, substantially in the form of
Exhibit G attached hereto (the “ Pledge and
Security Agreement ”), the Mortgage Agreement by and
among the Company, the Company’s wholly owned subsidiary,
AXM Pharma (Shenyang), Inc., and the Purchasers, dated as of the
date hereof, substantially in the form of Exhibit H
attached hereto (the “ Mortgage Agreement ”),
the voting agreement dated as of the date hereof signed by
certain stockholders of the Company agreeing to vote all shares
of Common Stock of the Company over which he or she has voting
control in favor of the approval to authorize the issuance of
shares of Common Stock upon conversion of the Notes and/or
exercise of the Warrants in excess of 19.99% of the number of
shares of Common Stock outstanding immediately prior to the
Closing Date, substantially in the form of Exhibit I
attached hereto (the “ Voting Agreement ”),
and the Irrevocable Transfer Agent Instructions (as defined in
Section 3.17 hereof) (collectively, the " Transaction
Documents ") and to issue and sell the Securities 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 thereby
have been duly and validly authorized by all necessary corporate
action, and, except as set forth on Schedule 2.1(b) , no
further consent or authorization of the Company, its Board of
Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents
shall constitute 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, 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 and the issued and outstanding shares of capital
stock of the Company as of the Closing Date is set forth on
Schedule 2.1(c) hereto. All of the outstanding
shares of the Common Stock and any other outstanding security of
the Company have been duly and validly authorized. Except
as set forth in this Agreement, the Commission Documents (as
defined in Section 2.1(f)) or as set forth on Schedule
2.1(c) hereto, no shares of Common Stock or any other
security of the Company are
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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.
Furthermore, except as set forth in this Agreement and as
set forth on Schedule 2.1(c) hereto, 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.
Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell
restricted securities or as provided on Schedule 2.1(c)
hereto, the Company is not a party to or bound by any agreement
or understanding granting registration or anti-dilution rights
to any person with respect to any of its equity or debt
securities. Except as set forth on Schedule 2.1(c)
, the Company is not a party to, and it has no knowledge of, any
agreement or understanding restricting the voting or transfer of
any shares of the capital stock of the Company.
(d)
Issuance of Securities . The Notes
and the Warrants to be issued at the Closing have been duly
authorized by all necessary corporate action and, when paid for
or issued in accordance with the terms hereof, the Notes shall
be validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind. When the
Conversion Shares and Warrant Shares are issued and paid for in
accordance with the terms of this Agreement and as set forth in
the Notes and Warrants, such shares will be duly authorized by
all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of refusal of any kind 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, the performance by the Company of its obligations under
the Notes and the consummation by the Company of the
transactions contemplated hereby and thereby, and the issuance
of the Securities as contemplated hereby, do not and will not
(i) violate or conflict with any provision of the Company's
Articles of Incorporation (the “ Articles ”)
or Bylaws (the “ Bylaws ”), each as amended
to date, or any Subsidiary's comparable charter documents, (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 or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, or
(iii) 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, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate,
have a Material Adverse Effect (other than violations pursuant
to clauses (i) or (iii) (with respect to federal and state
securities laws)). Neither the Company nor any of its
Subsidiaries is required under federal, state, foreign 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 Securities in accordance with the terms
hereof (other than any filings, consents and approvals which may
be required to be made by the
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Company under applicable state and federal
securities laws, rules or regulations or any registration
provisions provided in the Registration Rights Agreement).
(f)
Commission Documents, Financial
Statements . The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) 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 (all of the foregoing including filings
incorporated by reference therein being referred to herein as
the " Commission Documents "). At the times of
their respective filings, the Form 10-QSB for the fiscal
quarters ended September 30, 2004, June 30, 2004 and March 31,
2004 (collectively, the " Form 10-QSB ") and the Form
10-KSB for the fiscal year ended December 31, 2004 (the “
Form 10-KSB ”) 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 the Form 10-QSB and Form 10-KSB did not
contain any untrue statement of a material fact or omit 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.
As of their respective dates, the financial statements of
the Company included in the Commission Documents complied 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 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 . Schedule 2.1(g)
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 of the outstanding
stock or other interests of such Subsidiary. 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 except
as set forth on Schedule 2.1(g) hereto. Neither the
Company nor any Subsidiary is party to, nor has any
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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
December 31, 2004, the Company has not experienced or suffered
any Material Adverse Effect, except as disclosed on Schedule
2.1(h) hereto.
(i)
No Undisclosed Liabilities . Except
as disclosed on Schedule 2.1(i) hereto, neither the
Company nor any of its Subsidiaries has incurred 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 or which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.
(j)
No Undisclosed Events or Circumstances .
Since December 31, 2004, except as disclosed on
Schedule 2.1(j) hereto, 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.
(k)
Indebtedness . Schedule
2.1(k) hereto sets forth as of the date hereof 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 $300,000 (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 valid title to all of
its real and personal property reflected in the Commission
Documents, free and clear of any mortgages, pledges, charges,
liens, security interests or other encumbrances, except for
those indicated on Schedule 2.1(l) hereto or such that,
individually or in the aggregate, do not cause a Material
Adverse Effect. All said leases of the Company and each of
its Subsidiaries are valid and subsisting and in full force and
effect.
(m)
Actions Pending . There is no
action, suit, claim, investigation, arbitration, alternate
dispute resolution proceeding or 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 any of the
transactions contemplated hereby or thereby or any action taken
or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m)
hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other
proceeding pending or,
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to the knowledge of the Company, threatened
against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the
aggregate, would reasonably be expected, if adversely
determined, to have a Material Adverse Effect. 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, which individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.
(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 as set forth in the Commission Documents or on
Schedule 2.1(n) hereto or such that, individually or in
the aggregate, the noncompliance therewith could not reasonably
be expected to have 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 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.
Except as disclosed on Schedule 2.1(o) hereto or in
the Commission Documents, 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 . Except as set forth
on Schedule 2.1(p) hereto, the Company has not employed
any broker or finder or incurred any liability for any brokerage
or investment banking fees, commissions, finders' structuring
fees, financial advisory fees or other similar fees in
connection with the Transaction Documents.
(q)
Disclosure . To the best of the
Company's knowledge, neither this Agreement or the Schedules
hereto 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.
(r)
Operation of Business . Except as
set forth on Schedule 2.1(r) hereto, the Company and each
of the Subsidiaries owns or possesses the rights to all patents,
trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable
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derivative works thereof, websites and
intellectual property rights relating thereto, service marks,
trade names, copyrights, licenses and authorizations which are
necessary for the conduct of its business as now conducted
without any conflict with the rights of others.
(s)
Environmental Compliance . Except
as set forth on Schedule 2.1(s) hereto or in the
Commission Documents, 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. “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. To the best of the Company’s
knowledge, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the
Company’s business or the business of any of its
subsidiaries. To the best of the Company’s
knowledge, 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 Records; Internal Accounting
Controls . The records and documents 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's board of directors, to provide reasonable assurance
that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate actions are taken
with respect to any differences.
(u)
Material Agreements . Except for
the Transaction Documents (with respect to clause (i) only), as
disclosed in the Commission Documents or as set forth on
Schedule
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2.1(u) hereto, or as would not be
reasonably likely to have a Material Adverse Effect, (i) the
Company and each of its Subsidiaries have performed all
obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement, filed or required to be filed
with the Commission (the " Material Agreements "), (ii)
neither the Company nor any of its Subsidiaries has received any
notice of default under any Material Agreement and, (iii) to the
best of the Company's knowledge, neither the Company nor any of
its Subsidiaries is in default under any Material Agreement now
in effect.
(v)
Transactions with Affiliates .
Except as set forth on Schedule 2.1(v) hereto and
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, any Subsidiary or any of their respective customers or
suppliers 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 at least 5% of the
outstanding 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
which, in each case, is required to be disclosed in the
Commission Documents or in the Company’s most recently
filed definitive proxy statement on Schedule 14A, that is not so
disclosed in the Commission Documents or in such proxy
statement.
(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 Securities hereunder. Neither the
Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy any of
the Securities or similar securities to, or solicit offers with
respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action
so as to bring the issuance and sale of any of the Securities
under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor
any of its affiliates, nor 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 Securities.
(x)
Employees . Neither the Company nor
any Subsidiary has any collective bargaining arrangements or
agreements covering any of its employees, except as set forth on
Schedule 2.1(x) hereto. Except as set forth on
Schedule 2.1(x) hereto, 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 required to be
disclosed in the Commission Documents that is not so disclosed.
No officer, consultant or key employee of the Company or
any Subsidiary whose termination, either individually or in the
aggregate, would be reasonably likely to have a Material Adverse
Effect, has terminated or, to
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the knowledge of the Company, has any present
intention of terminating his or her employment or engagement
with the Company or any Subsidiary.
(y)
Absence of Certain Developments .
Except as set forth in the Commission Documents or
provided on Schedule 2.1(y) hereto, since December 31,
2004, neither the Company nor any Subsidiary has:
(i)
issued any stock, bonds or other corporate securities or any right,
options or warrants with respect thereto;
(ii)
borrowed any amount in excess of $300,000 or
incurred or become subject to any other liabilities in excess of
$100,000 (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable
in nature and amount to the 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 business of the Company and its Subsidiaries;
(iii)
discharged or satisfied any lien or encumbrance in excess of
$250,000 or paid any obligation or liability (absolute or
contingent) in excess of $250,000, 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, in each case in excess of $50,000
individually or $100,000 in the aggregate;
(v)
sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, in each case in excess of $250,000,
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 in excess of $250,000, 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 material 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 $500,000;
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(x)
entered into any 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;
or
(xiv)
entered into an agreement, written or otherwise, to take any of the
foregoing actions.
(z)
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.
(aa)
ERISA . No liability to the Pension
Benefit Guaranty Corporation has been incurred with respect to
any Plan 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 Securities will not involve any
transaction which is subject to the prohibitions of Section 406
of the Employee Retirement Income Security Act of 1974, as
amended (“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(aa), 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.
(bb)
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
Purchaser shall be responsible in any way for the performance of
the obligations of any other Purchaser under the Transaction
Documents. The Company acknowledges that the decision of
each Purchaser to purchase Securities pursuant to this Agreement
has been made by such Purchaser independently of any other
purchase and independently of any information, materials,
statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations,
condition (financial or otherwise)
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or prospects of the Company or of its
Subsidiaries which may have made or given by any other Purchaser
or by any agent or employee of any other Purchaser, and no
Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or
arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained
herein, or in any Transaction Document, and no action taken by
any Purchaser pursuant hereto or 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.
The Company acknowledges that for reasons of
administrative convenience only, the Transaction Documents have
been prepared by counsel for one of the Purchasers and such
counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own
individual counsel with respect to the transactions contemplated
hereby. The Company acknowledges that it 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. The
Company acknowledges that such procedure with respect to the
Transaction Documents in no way creates a presumption that the
Purchasers are in any way acting in concert or as a group with
respect to the Transaction Documents or the transactions
contemplated hereby or thereby.
(cc)
No Integrated Offering
No Integrated Offering" \f C \l "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 the
offering of the Securities 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 Securities pursuant to Regulation D and Rule 506 thereof
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 Securities 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 October
1, 2004, the Company has not offered or sold any of its equity
securities or debt securities convertible into shares of Common
Stock.
(dd)
Sarbanes-Oxley Act
. The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the
“ Sarbanes-Oxley 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.
(ee)
Dilutive Effect . The Company
understands and acknowledges that the number of Conversion
Shares issuable upon conversion of the Notes and the Warrant
Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion
of the Notes in accordance with this Agreement and the Notes 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.
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(ff)
Delisting Notification . The
Company has not received notice (written or oral) from the
American Stock Exchange to the effect that the Company is not in
compliance with the listing or maintenance requirements of such
exchange and the Company has no reason to believe that it will
be delisted in the foreseeable future.
Section 2.2
Representations and Warranties of the
Purchasers . Each of the Purchasers hereby represents
and warrants to the Company with respect solely to itself and
not with respect to any other Purchaser as follows as of the
date hereof and as of the Closing Date:
(a)
Organization and Standing of the
Purchasers . If the Purchaser is an entity, such
Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation or organization.
(b)
Authorization and Power . Each
Purchaser has the requisite power and authority to enter into
and perform the Transaction Documents and to purchase the
Securities being sold to it hereunder. The execution,
delivery and performance of the Transaction Documents by each
Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required.
When executed and delivered by the Purchasers, the other
Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser
in accordance with their 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)
No Conflict . The execution,
delivery and performance of the Transaction Documents by the
Purchaser and the consummation by the Purchaser of the
transactions contemplated thereby and hereby do not and will not
(i) violate any provision of the Purchaser’s charter or
organizational documents, (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
Purchaser is a party or by which the Purchaser’s
respective properties or assets are bound, or (iii) 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
Purchaser or by which any property or asset of the Purchaser are
bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and
state securities laws) above, except, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate,
materially and adversely affect the Purchaser’s ability to
perform its obligations under the Transaction Documents.
(d)
Acquisition for Investment . Each
Purchaser is purchasing the Securities solely for its own
account and not with a view to or for sale in connection with
distribution. Each Purchaser does not have a present
intention to sell any of the Securities, nor a present
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arrangement (whether or not legally bi
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