|
NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of September 26, 2007
by and among
DUSKA THERAPEUTICS, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
Page
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ARTICLE
I
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Purchase
and Sale of Notes and Warrants
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1
|
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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
|
3
|
|
Section
2.1
|
Representations
and Warranties of the Company
|
3
|
|
Section
2.2
|
Representations
and Warranties of the Purchasers
|
13
|
| |
|
|
|
ARTICLE
III
|
Covenants
|
15
|
|
Section
3.1
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Securities
Compliance
|
16
|
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Section
3.2
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Registration
and Listing
|
15
|
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Section
3.3
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Inspection
Rights
|
16
|
|
Section
3.4
|
Compliance
with Laws
|
16
|
|
Section
3.5
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Keeping
of Records and Books of Account
|
16
|
|
Section
3.6
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Reporting
Requirements
|
16
|
|
Section
3.7
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Other
Agreements
|
17
|
|
Section
3.8
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Use
of Proceeds
|
17
|
|
Section
3.9
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Reporting
Status
|
17
|
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Section
3.10
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Disclosure
of Transaction
|
17
|
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Section
3.11
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Disclosure
of Material Information
|
18
|
|
Section
3.12
|
Pledge
of Securities
|
18
|
|
Section
3.13
|
Amendments
|
18
|
|
Section
3.14
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Distributions
|
18
|
|
Section
3.15
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Reservation
of Shares
|
18
|
|
Section
3.16
|
Transfer
Agent Instructions
|
18
|
|
Section
3.17
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Disposition
of Assets
|
19
|
|
Section
3.18
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Form
SB-2 Eligibility
|
19
|
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Section
3.19
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Restrictions
on Certain Issuances of Securities
|
19
|
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Section
3.20
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Increase
in Authorized Shares of Common Stock
|
19
|
|
Section
3.21
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Acquisition
of Assets
|
20
|
|
Section
3.22
|
Subsequent
Financings
|
20
|
| |
|
|
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ARTICLE
IV
|
Conditions
|
22
|
|
Section
4.1
|
Conditions
Precedent to the Obligation of the Company to Close and to
Sell the Securities
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22
|
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Section
4.2
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Conditions
Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities
|
23
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| |
|
|
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ARTICLE
V
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Certificate
Legend
|
25
|
|
Section
5.1
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Legend
|
25
|
| |
|
|
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ARTICLE
VI
|
Indemnification
|
26
|
|
Section
6.1
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General
Indemnity.
|
26
|
|
Section
6.2
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Indemnification
Procedure
|
26
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TABLE OF CONTENTS
(continued)
Page
| |
|
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ARTICLE
VII
|
Miscellaneous
|
27
|
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Section
7.1
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Fees
and Expenses
|
27
|
|
Section
7.2
|
Specific
Performance; Consent to Jurisdiction; Venue.
|
27
|
|
Section
7.3
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Entire
Agreement; Amendment
|
28
|
|
Section
7.4
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Notices
|
28
|
|
Section
7.5
|
Waivers
|
29
|
|
Section
7.6
|
Headings
|
29
|
|
Section
7.7
|
Successors
and Assigns
|
29
|
|
Section
7.8
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No
Third Party Beneficiaries
|
29
|
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Section
7.9
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Governing
Law
|
29
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Section
7.10
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Survival
|
30
|
|
Section
7.11
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Counterparts
|
30
|
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Section
7.12
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Publicity
|
30
|
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Section
7.13
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Severability
|
30
|
|
Section
7.14
|
Further
Assurances
|
30
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NOTE AND WARRANT PURCHASE AGREEMENT
This
NOTE AND WARRANT PURCHASE AGREEMENT dated as of September 26,
2007 (this “
Agreement ”)
by and among Duska Therapeutics, Inc., a Nevada corporation (the
“
Company ”),
and each of the purchasers of the senior 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, (i) 10% senior secured convertible
promissory notes in the aggregate principal amount of up to
$5,750,000, 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. All share numbers and
per share, exercise and conversion prices set forth in this
Agreement and the Transaction Documents assume the effectuation,
prior to the date hereof, of the reverse split of the Company as
disclosed in the Company’s Information Statement filed with
the Commission on February 28, 2007; to the extent such reverse
split was not effected prior to the date hereof, appropriate and
proportional adjustment shall be made to all share numbers and per
share, exercise and conversion prices set forth herein and in the
other Transaction Documents.
(b)
Upon
the following terms and conditions, the Purchasers shall be
issued (i) Warrants, in substantially the form attached hereto
as
Exhibit C (the
“
Long Term Warrants ”),
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 Warrant Price (as defined in the Long Term
Warrants) for a term of five (5) years following the Closing Date
and (ii) Warrants, in substantially the form attached hereto
as
Exhibit D (the
“
Short Term Warrants ”
and, together with the Long Term Warrants, the “
Warrants ”),
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 Warrant Price (as defined in the Short Term
Warrants) for a term that expires on the later of (a) one (1) year
following the Closing Date and (b) the date that is the 90
th continuous
day of effectiveness of the Registration Statement permitting the
resale of all of the Warrant Shares pursuant to the Registration
Statement. The number of shares of Common Stock issuable upon
exercise of the Warrants issuable to each Purchaser is set forth
opposite such Purchaser’s name on
Exhibit A attached
hereto.
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 $5,750,000 (the “
Purchase Price ”).
The closing under this Agreement (the “
Closing ”)
shall take place on or before September 26, 2007 (the
“
Closing Date ”).
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 Platinum Long Term Growth VI,
LLC (the “
Lead Purchaser ”),
152 West 57
th Street,
54
th Floor,
New York, 10:00 a.m. New York time;
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. 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) Notes for the principal amount set
forth opposite the name of such Purchaser on
Exhibit A hereto
and (y) Warrants 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 of immediately available funds to 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 total of 44,700,000 shares of
Common Stock to effect the conversion of the Notes and any interest
accrued and outstanding thereon and exercise of the Warrants.
Within 90 days of the Closing Date, the Company shall amend its
Articles to increase the number of authorized shares of Common
Stock (the date of the effectiveness of such amendment, the
“Amendment Date”). On an after the Amendment Date, the
Company shall reserve (and hereby covenants to continue to
reserve), free of preemptive rights and other similar contractual
rights, 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 on
the Notes are herein referred to as the “
Conversion Shares ”.
Any shares of Common Stock issuable upon exercise of the Warrants
(and such shares when issued) are herein referred to as the
“
Warrant Shares ”.
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 conduct its business as it is now
being conducted. The Company does not have any direct or indirect
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 or any of the Transaction Documents 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 E attached
hereto (the “
Registration Rights Agreement ”),
the Security Agreement by and among the Company and its wholly
owned subsidiaries, on the one hand, and the Agent (as defined in
the Security Agreement), on the other hand, dated as of the date
hereof, substantially in the form of
Exhibit F attached
hereto (the “
Security Agreement ”),
the Patent, Trademark and Copyright Security Agreement by and among
the Company and its wholly owned subsidiaries, on the one hand, and
the Agent (as defined in the IP Security Agreement), on the other
hand, dated as of the date hereof, substantially in the form
of
Exhibit G attached
hereto (the “
IP Security Agreement ”)
the Guarantee to be delivered by each of the Subsidiaries, dated as
of the date hereof, substantially in the form of
Exhibit H attached
hereto (the “
Guarantee ”),
the Officer’s Certificate to be delivered by Duska
Therapeutics, Inc., dated as of the Closing Date, substantially in
the form of
Exhibit I attached
hereto (the “
Officer’s Certificate ”)
and the Irrevocable Transfer Agent Instructions (as defined in
Section 3.16 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
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, subject to the filing of an amendment to the
Articles to increase the authorized shares, (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, (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, or (iv) create or impose a
lien, mortgage, security interest, charge or encumbrance of any
nature on any property or asset of the Company or its Subsidiaries
under any agreement or any commitment to which the Company or any
of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or by which any of their respective
properties or assets are bound, 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 Company under
applicable state and federal securities laws, rules or regulations
or any registration provisions provided in the Registration Rights
Agreement). The business of the Company and its Subsidiaries is not
being conducted in violation of any laws, ordinances or regulations
of any governmental entity.
(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 June 30, 2007, June 30, 2007 and March 31,
2007 (collectively, the “
Form 10-QSB ”)
and the Form 10-KSB for the fiscal year ended December 31, 2006
(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. Except as set forth
on
Schedule 2.1(g) hereto,
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
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, 2006, 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, 2006, 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
$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 $100,000 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. Any 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, 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 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, to the best of the
Company’s knowledge, 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. The Company has amended any agreement existing prior to
the date hereof to provide that fees payable as a result of or in
connection with this transaction shall not exceed (i) 10% of the
gross proceeds, plus (ii) $35,000 in retainers and expense
reimbursement, plus (iii) 10% warrant coverage (which warrant shall
contain a term no longer than 5 years and an exercise price not
lower than the Long Term Warrant exercise price).
(q)
Disclosure .
Except for the transactions contemplated by this Agreement, the
Company confirms that neither it nor any other person acting on its
behalf has provided any of the Purchasers or their agents or
counsel with any information that constitutes or might constitute
material, nonpublic information. 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
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 .
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. 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 is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date. The Company and
its subsidiary maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules
and forms. The Company’s certifying officers have evaluated
the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the
Exchange Act (such date, the “
Evaluation Date ”).
The Company presented in its most recently filed periodic report
under the Exchange Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s
internal control over financial reporting (as such term is defined
in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control
over financial reporting.
(u)
Material Agreements
. Except as disclosed in the Commission Documents or as set forth
on
Schedule 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
or 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 .
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
or in the Commission Documents, 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 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, 2006, 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 $100,000 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 $100,000 or
paid any obligation or liability (absolute or contingent) in
excess of $100,000, 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 $100,000, 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 $100,000;
(x)
entered
into any material transaction, whether or not in the ordinary
course of business;
(xi)
made
charitable contributions or pledges in excess of
$10,000;
(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)
Investment Company Act Status .
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)
[Reserved ]
(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) 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. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out
of the other Transaction Documents, and it shall not be necessary
for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
(cc)
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
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 if to do so would prevent the
Company from selling Securities pursuant to Regulation D and Rule
506 thereof under the Securities Act or otherwise prevent a
completed offering of Securities hereunder. The Company does not
have any registration statement pending before the Commission or
currently under the Commission’s review and except as set
forth on
Schedule 2.1(cc) hereto,
since January 1, 2007, the Company has not offered or sold any of
its equity securities or debt securities convertible into shares of
Common Stock.
(dd)
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 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.
(ee)
DTC Status
. Except as set forth on
Schedule 2.1(ff)
hereto, the Company’s transfer agent is a participant in and
the Common Stock is eligible for transfer pursuant to the
Depository Trust Company Automated Securities Transfer Program. The
name, address, telephone number, fax number, contact person and
email of the Company transfer agent is set forth on
Schedule 2.1(ee)
hereto.
(ff)
Governmental Approvals
. Except for the filing of any notice prior or subsequent to the
Closing that may be required under applicable state and/or federal
securities laws (which if required, shall be filed on a timely
basis) and the declaration of the effectiveness of any registration
statements filed by the Company pursuant to the Transaction
Documents, 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 Preferred Shares and the
Warrants, or for the performance by the Company of its obligations
under the Transaction Documents.
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)
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 arrangement (whether or
not legally binding) or intention to effect any distribution of any
of the Securities to or through any person or entity;
provided ,
however ,
that by making the representations herein, such Purchaser does not
agree to hold the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in
accordance with Federal and state securities laws applicable to
such disposition. Each Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters such
that Purchaser is capable of evaluating the merits and risks of
Purchaser’s investment in the Company, (ii) is able to bear
the financial risks associated with an investment in the Securities
and (iii) has been given full access to such records of the Company
and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct
its due diligence investigation.
(d)
Rule 144 .
Each Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the
Securities Act or an exemption from registration is available. Each
Purchaser acknowledges that such person is familiar with Rule 144
of the rules and regulations of the Commission, as amended,
promulgated pursuant to the Securities Act (“
Rule 144 ”),
and that such Purchaser has been advised that Rule 144 permits
resales only under certain circumstances. Each Purchaser
understands that to the extent that Rule 144 is not available, such
Purchaser will be unable to sell any Securities without either
registration under the Securities Act or the existence of another
exemption from such registration requirement.
(e)
General .
Each Purchaser understands that the Securities are being offered
and sold in reliance on a transactional exemption from the
registration requirements of federal and state securities
law
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