EXHIBIT 10.1
GEOPHARMA, INC.
SECURED CONVERTIBLE
NOTE
PURCHASE AGREEMENT
April 5, 2007
SECURED CONVERTIBLE NOTE PURCHASE
AGREEMENT
THIS SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT (the “ Agreement ”) is made
effective as of April 5, 2007, by and between GeoPharma, Inc.,
a Florida corporation (the “ Company ”), and
Whitebox Pharmaceutical Growth Fund, Ltd., a British Virgin Islands
business company (the “ Investor ”), with
respect to the following recitals.
RECITALS
A. The Company desires to issue and
sell and the Investor desires to purchase secured convertible
promissory notes in substantially the form attached to this
Agreement as Exhibit A (collectively, the “
Notes ”), which shall be convertible on the terms
stated therein into common stock, par value $.01 per share (the
“ Common Stock ”), of the Company;
and
B. As a further inducement for
Investor to purchase the Notes, the Company desires to provide a
security interest in all assets of the Company as collateral to
further secure the performance of the Company’s obligations
under the Notes, as set forth in that certain Security Agreement in
the form attached hereto as Exhibit B (the “
Security Agreement ”).
AGREEMENT
NOW, THEREFORE
, in consideration of the respective
representations, warranties, covenants and agreements contained
herein, and for other valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Specific
Definitions . As used in this Agreement, the following terms
shall have the meanings set forth or as referenced
below:
“ Action ” shall
have the meaning ascribed to such term in
Section 4.10.
“ Additional Notes
” shall have the meaning ascribed to such term in
Section 2.2.
“ Affiliate ” of
a specified person (natural or juridical) means a person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
that person, as such terms are used in and construed under Rule 405
under the Securities Act. With respect to the Investor, any
investment fund or managed account that is managed on a
discretionary basis by the same investment manager as the Investor
will be deemed to be an Affiliate of the Investor.
“ Agreement ”
means this Agreement and all Exhibits and Schedules
hereto.
“ Bank of America Loan
Agreement ” shall have the meaning ascribed to such term
in Section 2.2.
“ Code ” shall
have the meaning ascribed to such term in
Section 4.38.
“ Common Stock ”
means the Company’s common stock, par value $0.01 per
share.
“ Conversion Price
” means the conversion price in effect on any given date,
which initially shall be equal to $4.36 but which shall be subject
to adjustment as described herein and in the Note.
“ Common Stock
Equivalents ” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that
is at any time convertible into or exercisable or exchangeable for,
or otherwise entitles the holder thereof to receive, Common
Stock.
“ Control ” shall
mean ownership of more than 50% of the shares of stock entitled to
vote for the election of directors in the case of a corporation,
and more than 50% of the voting power in the case of a business
entity other than a corporation.
“ Conversion Shares
” or “ Shares ” means the shares of Common
Stock issued or issuable upon conversion of any of the Convertible
Notes.
“ Convertible Note
” or “ Note ” means each of the promissory
notes, in the form attached hereto as Exhibit A , to be
issued by the Company to the Investor, including the Initial Note,
the Additional Note and any Subsequent Note that may be issued to
the Investor.
“ Disclosure Schedules
” means the Disclosure Schedules of the Company delivered
concurrently herewith.
“ Effective Date
” means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement
is first declared effective by the Commission.
“ Environmental Laws or
Regulations ” means any federal, state or local statute,
law, ordinance or regulation that relates to or deals with
hazardous substances, human health or the environment, and all
regulations promulgated by a regulatory body pursuant to any of the
foregoing statutes, laws, regulations, or ordinances.
“ ERISA ” shall
have the meaning ascribed to such term in
Section 4.38.
“ Evaluation Date
” shall have the meaning ascribed to such term in
Section 4.18.
“ Exchange Act ”
shall mean the Securities Exchange Act of 1934, as amended to
date.
“ Exempt Issuance
” means the issuance of (a) shares of Common Stock or
options to employees, officers, consultants or directors of the
Company pursuant to the Company’s 1999 Employee Stock Option
Plan, 1999 Non-Employee Director Stock Option Plan, Treasury Stock
Repurchase Plan and Annual Performance Incentive Plan (provided
that any such issuances shall not exceed 10% of the Company’s
outstanding shares and/or options, in the aggregate, in any
twelve-month period), (b) securities upon the exercise or
exchange of or conversion of any securities issued pursuant to the
Purchase Agreement and/or other securities exercisable
or
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exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date
of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of such
securities, and (c) securities issued pursuant to acquisitions
or strategic transactions approved by a majority of the
disinterested directors of the Company, provided any such issuance
shall only be to a person which is, itself or through its
subsidiaries, an operating company in a business synergistic with
or complementary to the business of the Company and in which the
Company receives benefits in addition to the investment of funds,
but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in
securities.
“ FDA ” shall
have the meaning ascribed to such term in
Section 4.36.
“ FDCA ” shall
have the meaning ascribed to such term in
Section 4.36.
“ Financial Statements
” means the Company’s audited financial statements as
of and for the year ended March 31, 2006 and any unaudited
quarterly financial statements of the Company for the quarters
ended June 30, 2006, September 30, 2006 and
December 31, 2006.
“ GAAP ” shall
have the meaning ascribed to such term in
Section 4.8.
“ Guaranty ”
means that certain Guaranty, dated as of the date hereof, by the
Company and certain of its Affiliates in favor of the Investor in
the form attached hereto as Exhibit E .
“ Hazardous Substances
” means any and all substances (whether solid, liquid or gas)
defined, listed, or otherwise classified as hazardous wastes,
hazardous substances, hazardous materials, extremely hazardous
wastes, toxic substances, toxic pollutants, contaminants,
pollutants or words of similar meaning or regulatory effect under
any Environmental Laws or Regulations or that may have a negative
impact on human health or the environment or the presence of which
on, in or under any property, is prohibited under Environmental
Law, including petroleum and petroleum products, asbestos and
asbestos-containing materials, polychlorinated biphenyls, lead and
radon, and compounds containing them (including gasoline, diesel
fuel, oil and lead-based paint), and radioactive materials,
flammables and explosives and compounds containing them.
“ Indebtedness ”
shall have the meaning ascribed to such term in
Section 4.27.
“ Indemnifiable Losses
” shall have the meaning ascribed to such term in
Section 9.1.
“ Initial Closing
” shall have the meaning ascribed to such term in
Section 3.1.
“ Initial Closing Date
” shall have the meaning ascribed to such term in
Section 3.1.
“ Initial Note ”
shall have the meaning ascribed to such term in
Section 2.1.
“ Initial Purchase
Price ” shall have the meaning ascribed to such term in
Section 2.1.
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“ Intellectual Property
” means (i) all proprietary rights, privileges and
priorities provided under U.S., state and foreign law relating to
U.S. and foreign patents and patent applications, trademarks,
service marks and registrations thereof and applications therefor,
copyrights and copyright registrations and applications, mask works
and registrations thereof, know-how, and trade secrets;
(ii) proprietary inventions, discoveries, ideas, technology,
data, information, and processes; (iii) proprietary drawings,
designs, licenses, computer programs and software, and technical
information including but not limited to proprietary information
embodied in material specifications, processing instructions,
equipment specifications, product specifications, confidential
data, electronic files, research notebooks, invention disclosures,
research and development reports and the like related thereto; and
(iv) all amendments, modifications, and improvements to any of
the foregoing.
“ Intellectual Property
Rights ” shall have the meaning ascribed to such term in
Section 4.15.
“ Knowledge ”
means actual knowledge of a fact or the knowledge which such person
could reasonably be expected to have based on reasonable inquiry.
The knowledge of an entity shall include the knowledge of the
individuals who are executive officers of such entity at the time
in question.
“ Legend Removal Date
” shall have the meaning ascribed to such term in
Section 6.13(c).
“ Liens ” means
liens, mortgages, charges, security interests, claims, voting
trusts, pledges, encumbrances, options, assessments, restrictions,
or third-party or spousal interests of any nature.
“ Material Adverse
Effect ” means any effect that may be materially adverse
to (a) the business, operations, results of operations,
prospects, assets (including intangible assets), liabilities or
condition (financial or otherwise) of the Company and its
Affiliates, taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement or any of
the Transaction Documents or any other agreement or instrument to
be entered into in connection with this Agreement.
“ Material Permits
” shall have the meaning ascribed to such term in
Section 4.13.
“ Midsummer Purchase
Agreement ” shall have the meaning ascribed to such term
in Section 6.11(a).
“ Mortgage ”
shall have the meaning ascribed to such term in
Section 6.19.
“ Notice of Acceptance
” shall have the meaning ascribed to such term in
Section 6.11(b).
“ Offer ” shall
have the meaning ascribed to such term in
Section 6.11(b).
“ Offered Securities
” shall have the meaning ascribed to such term in
Section 6.11(b).
“ Person ” means
an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
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“ Plan ” or
“ Plans ” shall have the meaning ascribed to
such term in Section 4.38.
“ Pledge Agreement
” means the Pledge Agreement between the parties hereto in
the form attached hereto as Exhibit D .
“ Proceeding ”
means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
“ Product Liability
” means any liability, claim or expense, including but not
limited to attorneys’ fees and medical expenses, arising in
whole or in part out of a breach of any express or implied product
warranty by the Company, strict liability in tort, negligent
manufacture of product, negligent provision of services, product
recall, or any other allegation of liability arising from the
design, testing, manufacture, packaging, labeling (including
instructions for use), or sale of products.
“ Purchased Securities
” means the Convertible Notes and the Conversion
Shares.
“ Real Property ”
shall have the meaning ascribed to such term in
Section 6.19.
“ Refused Securities
” shall have the meaning ascribed to such term in
Section 6.11(b).
“ Registration Rights
Agreement ” means the Registration Rights Agreement among
the Company and the Investor in the form attached hereto as
Exhibit C .
“ Registration
Statement ” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and
covering the resale by the Investor of the Conversion
Shares.
“ Required Approvals
” shall have the meaning ascribed to such term in
Section 4.5.
“ Required Minimum
” means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any
Conversion Shares issuable upon exercise or conversion in full of
all Notes, ignoring any conversion or exercise limits set forth
therein.
“ Required Shareholder
Approval Date ” shall have the meaning ascribed to such
term in Section 6.16.
“ Rule 144 ”
means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
“ Schedule of
Exceptions ” shall have the meaning ascribed to such term
in Article 4.
“ SEC ” means the
United States Securities and Exchange Commission or any other
federal agency at the time administering the Securities
Act.
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“ SEC Reports ”
shall have the meaning ascribed to such term in
Section 4.8.
“ Securities Act
” means the United States Securities Act of 1933, as amended,
and all regulations promulgated thereunder.
“ Security Agreement
” means the security agreement among the Company and the
Investor in the form attached hereto as Exhibit B , to be
executed and delivered at the Closing.
“ Shareholder Approval
” means such approval as may be required by the applicable
rules and regulations of the Nasdaq Capital Market (or any
successor) from the shareholders of the Company with respect to the
transactions contemplated by the Transaction Documents, including
the issuance of all of the Conversion Shares in excess of 19.99% of
the issued and outstanding Common Stock on the Closing
Date.
“ Short Sales ”
means all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of
Common Stock).
“ Subsequent Notes
” shall have the meaning ascribed to such term in
Section 2.3.
“ Subsequent Placement
” shall have the meaning ascribed to such term in
Section 6.11(a).
“ Subsequent Placement
Agreement ” shall have the meaning ascribed to such term
in Section 6.11(b).
“ Subsequent Placement
Documents ” shall have the meaning ascribed to such term
in Section 6.11(b).
“ Subsidiary ”
means any subsidiary of the Company as set forth on Schedule
4.1 and shall, where applicable, include any subsidiary of the
Company formed or acquired after the date hereof.
“ Trading Day ”
means a day on which the Nasdaq Stock Market (or such other Trading
Market on which the Company’s Common Stock is then traded) is
open for trading.
“ Trading Market
” means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange or the OTC Bulletin Board.
“ Transaction Documents
” means the Notes, the Security Agreement, the Pledge
Agreement, the Registration Rights Agreement, the Guaranty, the
Security Agreement, the Intercreditor Agreement and such other
documents, instruments and agreements executed in connection with
the consummation of the transactions contemplated
hereby.
“ Variable Rate
Transaction ” shall have the meaning ascribed to such
term in Section 6.12(b).
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“ VWAP ” means,
for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed
or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding
date) on the Trading Market on which the Common Stock is then
listed or quoted for trading as reported by Bloomberg L.P. (based
on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m.
(New York City time); (b) if the OTC Bulletin Board is not a
Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board; (c) if the Common Stock is not then quoted for
trading on the OTC Bulletin Board and if prices for the Common
Stock are then reported in the “Pink Sheets” published
by Pink Sheets, LLC (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price
per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by
the Holder and reasonably acceptable to the Company.
Section 1.2 Definitional
Provisions .
(a) The words “hereof,”
“herein,” and “hereunder” and words of
similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provisions of this
Agreement.
(b) The terms defined in the
singular shall have a comparable meaning when used in the plural,
and vice versa. Terms referring to a masculine gender shall be
deemed to refer to the feminine or neuter genders, as
applicable.
(c) References to an
“Exhibit” or to a “Schedule” are, unless
otherwise specified, to one of the Exhibits or Schedules attached
to or referenced in this Agreement, and references to an
“Article” or a “Section” are, unless
otherwise specified, to one of the Articles or Sections of this
Agreement.
(d) The term “person”
includes any individual, partnership, joint venture, corporation,
limited liability company, trust, entity, unincorporated
organization or government or any department or agency
thereof.
(e) The term “dollars”
or “$” shall refer to the currency of the United States
of America.
(f) All references to time shall
refer to Minneapolis, Minnesota time.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE
NOTES
Section 2.1 Purchase and
Sale of Initial Notes . Subject to the terms and conditions of
this Agreement, the Investor agrees to purchase at the Closing, and
the Company agrees to sell and issue to the Investor at the
Closing, a Note, in substantially the form attached hereto as
Exhibit A , in the original principal amount of
$10,000,000 (the “ Initial Note ”), at a
purchase price equal to 100% of the principal amount thereof (the
“ Initial Purchase Price ”). The Initial Note
will be secured pursuant to the Security Agreement.
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Section 2.2 Purchase and
Sale of Additional Notes . Between the Closing Date and
September 30, 2007, the Investor will have the option, in its
sole discretion, to purchase an additional $5,000,000 of Notes (the
“ Additional Notes ”) on the same terms and
conditions specified in this Agreement with respect to the Initial
Note; provided , however , that the foregoing
issuance of Subsequent Notes may be extended until
December 31, 2007 if the issuance of such Additional Notes
would cause the Company to violate the debt-to-equity ratios set
forth in that certain loan and credit facility with Bank of America
entered into on February 27, 2007 (as the same may be amended,
modified or supplemented from time to time, the “ Bank of
America Loan Agreement ”). The Additional Notes will be
issued to the Investor in the original principal amount of
$5,000,000, at a purchase price equal to 100% of the principal
amount thereof. The Additional Notes will be secured pursuant to
the Security Agreement.
Section 2.3 Purchase and
Sale of Subsequent Notes . Subject to the terms and conditions
of this Agreement, on and after September 30, 2007, if
(a) the Company’s generic pharmaceutical drug revenues
exceed $3,000,000 in any quarterly period (as reflected in the
Company’s Quarterly Report on Form 10-Q or Annual Report on
Form 10-K, as applicable) and (b) the Company has received
Shareholder Approval, Investor agrees to invest an additional
$5,000,000 in Notes (the “ Subsequent Notes ”)
on the same terms and conditions specified in this Agreement with
respect to the Initial Note and the Additional Notes;
provided , however , that the foregoing issuance of
Subsequent Notes may be extended until December 31, 2007 if
the issuance of such Subsequent Notes would cause the Company to
violate the debt-to-equity ratios set forth in the Bank of America
Loan Agreement. The Subsequent Notes will be issued to the Investor
in the original principal amount of $5,000,000, at a purchase price
equal to 100% of the principal amount thereof. The Subsequent Notes
will also be secured pursuant to the Security Agreement.
Section 2.4 Note
Conversion . The Investor may, at its option, purchase shares
of the Company’s Common Stock by converting amounts
outstanding under the Initial Note or, if applicable, the
Additional Note and the Subsequent Note, at the applicable
Conversion Price as provided therein (in each case, a “
Note Conversion Closing ”). At each Note Conversion
Closing, the Company shall issue certificates representing any
shares purchased under this Section 2.4 in a form acceptable
to the Investor and Investor’s counsel, and the Investor
shall pay the Conversion Price of $4.36 per share (subject to
adjustment as provided therein) for such shares by surrendering the
applicable Note(s) to the Company.
Section 2.5 Use of
Proceeds . The Company shall use the cash proceeds of the sale
of the Initial Notes (a) for the Company’s working
capital needs, (b) to pay any legal fees and expenses incurred
in connection with the drafting, negotiation, due diligence and
execution of this Agreement and the other Transaction Documents
(including those documents delivered in connection with the
issuance of the Note and the Conversion Shares to the Investor on
the Closing Date) and (c) to pay any commissions owed to the
placement agent as a result of the issuance of the
Notes.
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ARTICLE III
THE CLOSING
Section 3.1 Closing
.
(a) Initial Closing . The
purchase and sale of the Initial Notes shall take place at the
offices of the Company, at 10:00 a.m., on April 5, 2007, or
such other time as may be designated by the Company in writing (the
“ Initial Closing ”). At the Initial Closing,
the Company shall deliver to the Investor the Initial Note that the
Investor is purchasing against delivery to the Company by the
Investor of a check or wire transfer in the amount of
$10,000,000.00 payable to the Company’s order (or by wire of
funds in such amount to the Company’s designated bank
account).
(b) Subsequent Closings . The
purchase and sale of the Additional Notes shall occur within five
(5) business days of the Investor’s notice to the
Company of the exercise of its option to purchase the Additional
Notes. The purchase and sale of the Subsequent Notes shall occur
within five (5) business days of the satisfaction of the
conditions set forth in Section 2.3 of this
Agreement.
Section 3.2 Closing
Deliveries .
(a) Company Deliveries . On
the Initial Closing Date, the Company shall deliver or cause to be
delivered to the Investor the following:
(i) this Agreement duly executed by
the Company;
(ii) a Note registered in the name
of the Investor in the principal amount of $10,000,000;
(iii) the Security Agreement, in
substantially the form attached hereto as Exhibit B (the
“ Security Agreement ”), duly executed by the
Company;
(iv) the Registration Rights
Agreement, in substantially the form attached hereto as Exhibit
C (the “ Registration Rights Agreement ”),
duly executed by the Company;
(v) the Pledge Agreement, in
substantially the form attached hereto as Exhibit D (the
“ Pledge Agreement ”), duly executed by the
Company and certain of its Affiliates;
(vi) the Guaranty, in substantially
the form attached hereto as Exhibit E (the “
Guaranty ”), executed by the Company and certain of
its Affiliates in favor of the Investor;
(vii) the Intercreditor Agreement,
in substantially the form attached hereto as Exhibit F ,
executed by Bank of America, N.A. (the “ Intercreditor
Agreement ”); and
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(viii) the written voting
agreements, in the form attached hereto as Exhibit G (the
“ Voting Agreements ”), on the date hereof, of
certain shareholders of the Company listed on Exhibit H
attached hereto, whereby such shareholders have agreed to vote all
Common Stock over which such shareholders have voting control as of
the record date for the 2007 Annual Meeting of Shareholders of the
Company in favor of Shareholder Approval, amounting to, in the
aggregate, in excess of 25% of the issued and outstanding shares of
the Company’s Common Stock.
(b) Investor Deliveries . On
the Initial Closing Date, the Investor shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by
the Investor;
(ii) the Registration Rights
Agreement duly executed by the Investor;
(iii) the Intercreditor Agreement,
in substantially the form attached hereto as Exhibit F ,
duly executed by the Investor; and
(iv) the payment of the Initial
Purchase Price by the Investor, in the manner specified in
Section 3.1 above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
Attached hereto as Schedule A is the
Schedule of Exceptions containing sections numbered to correspond
to the sections of this Article 4 (the “ Schedule of
Exceptions ”). Except as specifically set forth in the
corresponding section of such Schedule of Exceptions (or in any
other section of the Schedule of Exceptions so long as the
applicability of such disclosure to the particular representation
and warranty which such disclosure is intended to modify is
reasonably apparent), the Company and its Affiliates hereby
represents and warrants to the Investor as follows as of the date
hereof and as of the Closing Date:
Section 4.1 Subsidiaries
. All of the direct and indirect subsidiaries (the “
Subsidiaries ”) of the Company are set forth on
Schedule 4.1 . The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary
free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. If the Company has
no subsidiaries, then all other references to the Subsidiaries or
any of them in the Transaction Documents shall be
disregarded.
Section 4.2 Organization and
Qualification . The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
Each of the Company and the Subsidiaries is duly
qualified
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to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes
such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not have
or reasonably be expected to result in a Material Adverse Effect,
and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
Section 4.3 Authorization;
Enforcement . The Company has the requisite corporate power and
authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution
and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on
the part of the Company and no further action is required by the
Company, its board of directors or its shareholders in connection
therewith other than in connection with the Required Approvals (as
defined in Section 4.5 below). Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company
and, when delivered in accordance with the terms hereof and
thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by
applicable law.
Section 4.4 No Conflicts
. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Purchased
Securities and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not
(i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or
an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals
(as defined in Section 4.5 below), conflict with or result in
a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or
governmental authority to which the Company or any Subsidiary is
subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably
be expected to result in a Material Adverse Effect.
Section 4.5 Filings,
Consents and Approvals . The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance
by the Company of the Transaction
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Documents, other than (i) filings required
pursuant to Section 6.14 of this Agreement, (ii) the
filing with the Commission of the Registration Statement,
(iii) application(s) to each applicable Trading Market for the
listing of the Securities for trading thereon in the time and
manner required thereby, and (iv) the filing of Form D with
the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “
Required Approvals ”).
Section 4.6 Issuance of the
Securities . The Purchased Securities are duly authorized and,
when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the
Transaction Documents. The Conversion Shares, when issued in
accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer
provided for in the Transaction Documents. The Company has reserved
from its duly authorized capital stock the maximum number of shares
of Common Stock issuable pursuant to this Agreement and the other
Transaction Documents.
Section 4.7
Capitalization . The capitalization of the Company is as set
forth on the Schedule of Exceptions, which Schedule of Exceptions
shall also include the number of shares of Common Stock owned of
record, and, to the knowledge of the Company, beneficially, by
Affiliates of the Company as of the date hereof. The Company has
not issued any capital stock since its most recently filed periodic
report under the Exchange Act, other than pursuant to the exercise
of employee stock options under the Company’s stock option
plans, the issuance of shares of Common Stock to employees pursuant
to the Company’s employee stock purchase plans and pursuant
to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic
report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the
Transaction Documents. Except as set forth on the Schedule of
Exceptions or as a result of the purchase and sale of the Purchased
Securities, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Purchased Securities will not obligate the
Company to issue shares of Common Stock or other securities to any
Person (other than the Investor) and will not result in a right of
any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities.
All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive
rights or similar rights to subscribe for or purchase securities.
No further approval or authorization of any shareholder, the Board
of Directors of the Company or others is required for the issuance
and sale of the Purchased Securities. There are no stockholder
agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company
is a party (other than those contemplated in connection with the
Transaction Documents) or, to the knowledge of the Company, between
or among any of the Company’s shareholders.
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Section 4.8 SEC Reports;
Financial Statements . The Company has filed all reports,
schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively
referred to herein as the “ SEC Reports ”) on a
timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of
the Securities Act and the Exchange Act, as applicable, and none of
the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of
the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“
GAAP ”), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit
adjustments.
Section 4.9 Material
Changes; Undisclosed Events, Liabilities or Developments .
Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof,
(i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its
shareholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the
Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
Except for the issuance of the Purchased Securities contemplated by
this Agreement or as set forth on Schedule 4.9 , no event,
liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities
laws at the time this representation is made or deemed made that
has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.
Section 4.10 Litigation
. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the
13
Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an
“ Action ”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Purchased Securities or
(ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action which has
resulted in a final judgment involving a claim of violation of or
liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge
of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any
current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.
Section 4.11 Labor
Relations . No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to
result in a Material Adverse Effect. None of the Company’s or
its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or
such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and
the Company and its Subsidiaries believe that their relationships
with their employees are good. No executive officer, to the
knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the
continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local
and foreign laws and regulations relating to employment and
employment practices, terms and conditions of employment and wages
and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 4.12 Compliance
. Neither the Company nor any Subsidiary (i) is in default
under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor
has the Company or any Subsidiary received notice of a claim that
it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has
been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state
and local laws applicable to its business and all such laws that
affect the environment, except in each case as could not have or
reasonably be expected to result in a Material Adverse
Effect.
Section 4.13 Regulatory
Permits . The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the
SEC
14
Reports, except where the failure to possess
such permits could not reasonably be expected to result in a
Material Adverse Effect (“ Material Permits ”),
and neither the Company nor any Subsidiary has received any notice
of proceedings relating to the revocation or modification of any
Material Permit.
Section 4.14 Title to
Assets . The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them
and good and marketable title in all personal property owned by
them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens that do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens
for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are
in compliance in all material respects.
Section 4.15 Patents and
Trademarks . The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property
rights and similar rights necessary or material for use in
connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the “ Intellectual Property
Rights ”). Neither the Company nor any Subsidiary has
received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 4.16 Insurance .
The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses
in which the Company and the Subsidiaries are engaged, including,
but not limited to, directors and officers insurance coverage at
least equal to the aggregate Subscription Amount. Neither the
Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business without a
significant increase in cost.
Section 4.17 Transactions
With Affiliates and Employees . Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to
the knowledge of the Company, none of the employees of the Company
is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such
employee or, to the knowledge of the
15
Company, any entity in which any officer,
director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in each case in excess of
$100,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee
benefits, including stock option agreements under any stock option
plan of the Company.
Section 4.18 Sarbanes-Oxley;
Internal Accounting Controls . 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
the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with
management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences. 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.
Section 4.19 Certain
Fees . Except for fees payable to Rodman & Renshaw,
LLC, no brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the
Transaction Documents. The Investor shall have no obligation with
respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions
contemplated by the Transaction Documents.
Section 4.20 Private
Placement . Assuming the accuracy of the Investor
representations and warranties set forth in Article 5, no
registration under the Securities Act is required for the offer and
sale of the Purchased Securities by the Company to the Investor as
contemplated hereby. The issuance and sale of the Purchased
Securities hereunder does not contravene the rules and regulations
of the Trading Market.
Section 4.21 Investment
Company . The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act of 1940,
as amended.
16
Section 4.22 Registration
Rights . Other than each of the Investor, no Person has any
right to cause the Company to effect the registration under the
Securities Act of any securities of the Company, other than
registration statements which have already been filed and declared
effective.
Section 4.23 Listing and
Maintenance Requirements . The Company’s Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to
its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the
Company received any notification that the Commission is
contemplating terminating such registration. The Company has not,
in the 12 months preceding the date hereof, received notice from
any Trading Market on which the Common Stock is or has been listed
or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.
Section 4.24 Application of
Takeover Protections . The Company and its board of directors
have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s
articles of incorporation (or similar charter documents) or the
laws of its state of incorporation that is or could become
applicable to the Investor as a result of the Investor and the
Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Purchased Securities
and the Investor’s ownership of the Purchased
Securities.
Section 4.25 Disclosure
. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf
has provided the Investor or its agents or counsel with any
information that it believes constitutes or might constitute
material, non-public information. The Company understands and
confirms that the Investor will rely on the foregoing
representation in effecting transactions in securities of the
Company. All disclosure furnished by or on behalf of the Company to
the Investor regarding the Company, its business and the
transactions contemplated hereby, including the SEC Reports and the
Disclosure Schedules to this Agree
