Exhibit 10.35
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE
AGREEMENT (the “Agreement”), dated as of
February 14, 2008, by and between DOR BioPharma,
Inc. , a Delaware corporation (the
“Company”), and Fusion Capital Fund II,
LLC , an Illinois limited liability company (the
“Buyer”). Capitalized terms used
herein and not otherwise defined herein are defined in
Section 10 hereof.
WHEREAS:
Subject to the terms and
conditions set forth in this Agreement, the Company wishes to
sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Eight Million Five Hundred Thousand
($8,500,000) of the Company's common stock, $0.001 par value
(the “Common Stock”). The shares of
Common Stock to be purchased hereunder are referred to herein
as the "Purchase Shares."
NOW THEREFORE ,
the Company and the Buyer hereby agree as
follows:
1. PURCHASE
OF COMMON STOCK.
Subject to the terms and
conditions set forth in this Agreement, the Company has the
right to sell to the Buyer, and the Buyer has the obligation
to purchase from the Company, Purchase Shares as
follows:
(a)
Initial
Purchases; Commencement of Base and Block Purchases of Common
Stock . Within one Business Day after the
execution of this Agreement, the Buyer shall purchase from
the Company 2,777,778 Purchase Shares and a common stock
purchase warrant (the “Warrant” to
purchase 1,388,889 shares of Common Stock (the
“Warrant Shares”) in the form of Exhibit
F attached hereto and upon receipt of such Purchase
Shares and the Warrant, pay to the Company as the purchase
price therefor, via wire transfer, Five Hundred Thousand
Dollars ($500,000) (such purchase the “Initial
Purchase” and such Purchase Shares are referred to
herein as “Initial Purchase Shares” and together
with the 1,275,000 Initial Commitment Shares (as defined in
Section 4(e) hereof), are referred to herein as the
“Initial Shares”). Upon issuance and
payment therefor as provided herein, such 2,777,778 Initial
Purchase Shares shall be, validly issued and are fully paid
and nonassessable. The Initial
Purchase Shares shall be issued in certificated form and
(subject to Section 5 hereof) shall bear only the restrictive
legend set forth in Section 4(e) hereof. Thereafter, the
purchase and sale of Purchase Shares hereunder shall occur
from time to time upon written notices by the Company to the
Buyer on the terms and conditions as set forth herein
following the satisfaction of the conditions (the
“Commencement”) as set forth in Sections 6 and 7
below (the date of satisfaction of such
conditions, the "Commencement Date").
(b)
The
Company’s Right to Require Purchases
. Any time on or after the Commencement Date, the
Company shall have the right but not the obligation to direct
the Buyer by its delivery to the Buyer of Base Purchase
Notices from time to time to buy Purchase Shares (each such
purchase a “Base Purchase”) in any amount up to
Eighty Thousand Dollars ($80,000) per Base Purchase Notice
(the “Base Purchase Amount”) at the Purchase
Price on the Purchase Date. The Company may
deliver multiple Base Purchase Notices to the Buyer so long
as at least three (3) Business Days have passed since the
most recent Base Purchase was
completed. Notwithstanding the forgoing, any time
on or after the Commencement Date, the Company shall also
have the right but not the obligation by its delivery to the
Buyer of Block Purchase Notices from time to time to direct
the Buyer to buy Purchase Shares (each such purchase a
“Block Purchase”) in any amount up to One Million
Dollars ($1,000,000) per Block Purchase Notice at the Block
Purchase Price on the Purchase Date as provided
herein. For a Block Purchase Notice to be valid
the following conditions must be met: (1) the Block Purchase
Amount shall not exceed One Hundred Thousand Dollars
($100,000) per Block Purchase Notice, (2) the Company must
deliver the Purchase Shares before 11:00 a.m. eastern time on
the Purchase Date and (3) the Sale Price of the Common Stock
must not be below $0.15 (subject to equitable adjustment for
any reorganization, recapitalization, non-cash dividend,
stock split or other similar transaction) during the Purchase
Date, the date of the delivery of the Block Purchase Notice
and during the Business Day prior to the delivery of the
Block Purchase Notice. The Block Purchase Amount
may be increased to up to Two Hundred Fifty Thousand Dollars
($250,000) per Block Purchase Notice if the Sale Price of the
Common Stock is not below $0.25 (subject to equitable
adjustment for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction) during
the Purchase Date, the date of the delivery of the Block
Purchase Notice and during the Business Day prior to the
delivery of the Block Purchase Notice. The Block
Purchase Amount may be increased to up to Five Hundred
Thousand Dollars ($500,000) per Block Purchase Notice if the
Sale Price of the Common Stock is not below $0.50 (subject to
equitable adjustment for any reorganization,
recapitalization, non-cash dividend, stock split or other
similar transaction) during the Purchase Date, the date of
the delivery of the Block Purchase Notice and during the
Business Day prior to the delivery of the Block Purchase
Notice. The Block Purchase Amount may be increased
to up to One Million Dollars ($1,000,000) per Block Purchase
Notice if the Sale Price of the Common Stock is not below
$1.00 (subject to equitable adjustment for any
reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction) during the Purchase Date,
the date of the delivery of the Block Purchase Notice and
during the Business Day prior to the delivery of the Block
Purchase Notice. As used herein, the term
“Block Purchase Price” shall mean the lesser of
(i) the lowest Sale Price of the Common Stock on the Purchase
Date or (ii) the lowest Purchase Price during the previous
ten (10) Business Days prior to the date that the valid Block
Purchase Notice was received by the
Buyer. However, if at any time during the Purchase
Date, the date of the delivery of the Block Purchase Notice
or during the Business Day prior to the delivery of the Block
Purchase Notice, the Sale Price of the Common Stock is below
the applicable Block Purchase threshold price, such Block
Purchase shall be void and the Buyer’s obligations to
buy Purchase Shares in respect of that Block Purchase Notice
shall be terminated. Thereafter, the Company shall
again have the right to submit a Block Purchase Notice as set
forth herein by delivery of a new Block Purchase Notice only
if the Sale Price of the Common Stock is above the applicable
Block Purchase threshold price during the date of the
delivery of the Block Purchase Notice and during the Business
Day prior to the delivery of the Block Purchase
Notice. The Company may deliver multiple Block
Purchase Notices to the Buyer so long as at least two (2)
Business Days have passed since the most recent Block
Purchase was completed.
(c)
Payment for
Purchase Shares . The Buyer shall pay to the
Company an amount equal to the Purchase Amount with respect to
such Purchase Shares as full payment for such Purchase Shares
via wire transfer of immediately available funds on the same
Business Day that the Buyer receives such Purchase Shares if
they are received by the Buyer before 11:00 a.m. eastern time
or if received by the Buyer after 11:00 a.m. eastern time, the
next Business Day. The Company shall not issue any
fraction of a share of Common Stock upon any
purchase. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up or
down to the nearest whole share. All payments made
under this Agreement shall be made in lawful money of the
United States of America or wire transfer of immediately
available funds to such account as the Company may from time
to time designate by written notice in accordance with the
provisions of this Agreement. Whenever any amount
expressed to be due by the terms of this Agreement is due on
any day that is not a Business Day, the same shall instead be
due on the next succeeding day that is a Business
Day.
(d)
Purchase Price
Floor . The Company and the Buyer shall not
effect any sales under this Agreement on any Purchase Date
where the Purchase Price for any purchases of Purchase Shares
would be less than the Floor
Price. “Floor Price” means $0.10,
which shall be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other
similar transaction.
(e)
Records of
Purchases . The Buyer and the Company shall
each maintain records showing the remaining Available Amount
at any give time and the dates and Purchase Amounts for each
purchase or shall use such other method, reasonably
satisfactory to the Buyer and the Company.
(f)
Taxes
. The Company shall pay any and all transfer, stamp
or similar taxes that may be payable with respect to the
issuance and delivery of any shares of Common Stock to the
Buyer made under this Agreement.
2. BUYER'S
REPRESENTATIONS AND WARRANTIES.
The
Buyer represents and warrants to the Company that as of the
date hereof and as of the Commencement Date:
(a)
Investment
Purpose . The Buyer is entering into this
Agreement and acquiring the Securities (the Purchase Shares
(including the Initial Purchase Shares), the Commitment Shares
(as defined in Section 4(e) hereof), the Warrant and the
Warrant Shares are collectively referred to herein as the
"Securities"), for its own account for investment only and not
with a view towards, or for resale in connection with, the
public sale or distribution thereof; provided however, by
making the representations herein, the Buyer does not agree to
hold any of the Securities for any minimum or other specific
term other than as set forth in Section 4(e) with respect to
the Commitment Shares.
(b)
Accredited
Investor Status . The Buyer is an
"accredited investor" as that term is defined in Rule
501(a)(3) of Regulation D.
(c)
Reliance on
Exemptions . The Buyer understands that the
Securities are being offered and sold to it in reliance on
specific exemptions from the registration requirements of
United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and
the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer
set forth herein in order to determine the availability of
such exemptions and the eligibility of the Buyer to acquire
the Securities.
(d)
Information
. The Buyer has been furnished with all materials
relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the
Securities that have been reasonably requested by the Buyer,
including, without limitation, the SEC Documents (as defined
in Section 3(f) hereof). The Buyer understands that
its investment in the Securities involves a high degree of
risk. The Buyer (i) is able to bear the economic
risk of an investment in the Securities including a total
loss, (ii) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits
and risks of the proposed investment in the Securities and
(iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the
financial condition and business of the Company and others
matters related to an investment in the
Securities. Neither such inquiries nor any other
due diligence investigations conducted by the Buyer or its
representatives shall modify, amend or affect the Buyer's
right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer has sought
such accounting, legal and tax advice as it has considered
necessary to make an informed investment decision with respect
to its acquisition of the Securities.
(e)
No
Governmental Review . The Buyer understands
that no United States federal or state agency or any other
government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities
nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
(f)
Transfer or
Sale . The Buyer understands that except as
provided in the Registration Rights Agreement (as defined in
Section 4(a) hereof): (i) the Securities have not been and are
not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered
thereunder or (B) an exemption exists permitting such
Securities to be sold, assigned or transferred without such
registration; (ii) any sale of the Securities made in reliance
on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any
resale of the Securities under circumstances in
which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person
is under any obligation to register the Securities under the
1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
(g)
Validity;
Enforcement . This Agreement has been duly
and validly authorized, executed and delivered on behalf of
the Buyer and is a valid and binding agreement of the Buyer
enforceable against the Buyer in accordance with its terms,
subject as to enforceability to general principles of equity
and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors'
rights and remedies.
(h)
Residency
. The Buyer is a resident of the State of
Illinois.
(i)
No
Prior Short Selling . The Buyer represents
and warrants to the Company that at no time prior to the date
of this Agreement has any of the Buyer, its agents,
representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) "short
sale" (as such term is defined in Section 242.200 of
Regulation SHO of the Securities Exchange Act of 1934, as
amended (the "1934 Act")) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with
respect to the Common Stock.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to the Buyer that as of the
date hereof and as of the Commencement Date:
(a)
Organization and
Qualification . The Company and its
"Subsidiaries" (which for purposes of this Agreement means any
entity in which the Company, directly or indirectly, owns 50%
or more of the voting stock or capital stock or other similar
equity interests) are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction
in which they are incorporated, and have the requisite
corporate power and authority to own their properties and to
carry on their business as now being
conducted. Except as set forth in Schedule 3(a),
each of the Company and its Subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or
the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure
to be so qualified or be in good standing could not reasonably
be expected to have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any
material adverse effect on any of: (i) the business,
properties, assets, operations, results of operations or
financial condition of the Company and its Subsidiaries, if
any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations under the Transaction
Documents (as defined in Section 3(b) hereof). The
Company has no Subsidiaries except as set forth on Schedule
3(a).
(b)
Authorization;
Enforcement; Validity . (i) The Company has
the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Registration
Rights Agreement, the Warrant and each of the other agreements
entered into by the parties on the Commencement Date and
attached hereto as exhibits to this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof, (ii) the
execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation,
the issuance of the Initial Shares and the Warrant and the
reservation for issuance and the issuance of additional
Purchase Shares issuable under this Agreement, have been duly
authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board
of Directors or its shareholders, (iii) this Agreement has
been, and each other Transaction Document shall be on the
Commencement Date, duly executed and delivered by the Company
and (iv) this Agreement constitutes, and each other
Transaction Document upon its execution on behalf of the
Company, shall constitute, the valid and binding obligations
of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited
by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies. The Board of
Directors of the Company has approved the resolutions (the
“Signing Resolutions”) substantially in the form
as set forth as Exhibit
C-1 attached hereto to authorize this Agreement and the
transactions contemplated hereby. The Signing
Resolutions are valid, in full force and effect and have not
been modified or supplemented in any respect other than by the
resolutions set forth in Exhibit
C-2 attached hereto regarding the registration
statement referred to in Section 4 hereof. The
Company has delivered to the Buyer a true and correct copy of
a unanimous written consent adopting the Signing Resolutions
executed by all of the members of the Board of Directors of
the Company. No other approvals or consents of the
Company’s Board of Directors and/or shareholders is
necessary under applicable laws and the Company’s
Certificate of Incorporation and/or Bylaws to authorize the
execution and delivery of this Agreement or any of the
transactions contemplated hereby, including, but not limited
to, the issuance of the Commitment Shares, the Warrant, the
Initial Purchase Shares and the issuance of any additional
Purchase Shares.
(c)
Capitalization
. The authorized capital stock of the Company
consists of: 250,000,000 shares of Common Stock, of which
as of the date hereof, 95,191,999 shares are issued and
outstanding, 10,349,839 shares are reserved for issuance
pursuant to the Company's stock option plans of which only
approximately 10,612,961 shares remain available for
future grants and 29,209,341 shares are issuable and
reserved for issuance pursuant to securities (other than stock
options issued pursuant to the Company's stock option plans)
exercisable or exchangeable for, or convertible into, shares
of Common Stock and (ii) 4,600,000 shares of Preferred Stock,
$0.001 par value, of which as of the date hereof no
shares are issued or outstanding, 200,000 shares of Series B
Convertible Preferred Stock, $0.05 par value, of which as of
the date hereof no shares are issued or
outstanding, and 200,000 of Series C Convertible
Preferred Stock, $0.05 par value, of which as of the date
hereof, no shares are issued or outstanding, and no
other Preferred Stock is outstanding. All of such outstanding
shares have been, or upon issuance will be, validly issued and
are fully paid and nonassessable. Except as
disclosed in Schedule 3(c), (i) no shares of the Company's
capital stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or
permitted by the Company, (ii) there are no outstanding debt
securities, (iii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company
or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, (iv)
there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register
the sale of any of their securities under the 1933 Act (except
the Registration Rights Agreement and except for agreements
disclosed in Schedule 3 (c)), (v) there are no outstanding
securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the
Securities as described in this Agreement and (vii) the
Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or
agreement. The Company has furnished to the Buyer
true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's
By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and summaries of the terms of all securities
convertible into or exercisable for Common Stock, if any, and
copies of any documents containing the material rights of the
holders thereof in respect thereto.
(d)
Issuance of
Securities . The 4,052,778 Initial Shares
have been duly authorized and, upon issuance in accordance
with the terms hereof, the Initial Shares shall be (i) validly
issued, fully paid and non-assessable and (ii) free from all
taxes, liens and charges with respect to the issue thereof.
20,000,000 shares of Common Stock have been duly authorized
and reserved for issuance upon purchase under this Agreement
after the Commencement. 1,275,000 shares of Common Stock
(subject to equitable adjustment for any reorganization,
recapitalization, non-cash dividend, stock split or other
similar transaction) have been duly authorized and reserved
for issuance as Additional Commitment Shares in accordance
with Section 4(e) this Agreement. Upon issuance and
payment therefor in accordance with the terms and conditions
of this Agreement, the Purchase Shares shall be validly
issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of
Common Stock. Upon issuance and payment therefor in accordance
with the terms and conditions of the Warrant, the Warrant
Shares shall be validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. 1,388,889 shares of
Common Stock have been duly authorized and reserved for
issuance upon exercise of the Warrant.
(e)
No
Conflicts . Except as disclosed in Schedule
3(e), the execution, delivery and performance of the
Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated hereby and
thereby (including, without limitation, the reservation for
issuance and issuance of the Purchase Shares) will not (i)
result in a violation of the Certificate of Incorporation, if
applicable, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the
Company or the By-laws or (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, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or result in a
violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and
regulations and the rules and regulations of the Principal
Market applicable to the Company or any of its Subsidiaries)
or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except in the case of
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations under clause (ii), which could
not reasonably be expected to result in a Material Adverse
Effect. Except as disclosed in Schedule 3(e),
neither the Company nor its Subsidiaries is in violation of
any term of or in default under its Certificate of
Incorporation, if applicable, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred
stock of the Company or By-laws or their organizational
charter or by-laws, respectively. Except as
disclosed in Schedule 3(e), neither the Company nor any of its
Subsidiaries is in violation of any term of or is in default
under any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order
or any statute, rule or regulation applicable to the Company
or its Subsidiaries, except for possible conflicts, defaults,
terminations or amendments which could not reasonably be
expected to have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any
law, ordinance, regulation of any governmental entity, except
for possible violations, the sanctions for which either
individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required
under the 1933 Act or applicable state securities laws, the
Company is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the
Transaction Documents in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all
consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the
preceding sentence shall be obtained or effected on or prior
to the Commencement Date. Except as listed in
Schedule 3(e), since January 1, 2007, the Company has not
received nor delivered any notices or correspondence from or
to the Principal Market. The Principal Market has
not commenced any delisting proceedings against the
Company.
(f)
SEC
Documents; Financial Statements . Except as disclosed
in Schedule 3(f), since January 1, 2007, the Company has
timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of
the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules
thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). As
of their respective dates (except as they have been correctly
amended), the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC (except as they may have been
properly amended), 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 light of the circumstances under which they were
made, not misleading. As of their respective dates
(except as they have been properly amended), the financial
statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with
generally accepted accounting principles, consistently
applied, 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 exclude footnotes or may be condensed
or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit
adjustments). Except as listed in Schedule 3(f),
the Company has received no notices or correspondence from the
SEC since January 1, 2007 . The
SEC has not commenced any enforcement proceedings against the
Company or any of its subsidiaries.
(g)
Absence of
Certain Changes . Except as disclosed in
Schedule 3(g), since September 30, 2007, there has been no
material adverse change in the business, properties,
operations, financial condition or results of operations of
the Company or its Subsidiaries. The Company has
not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any Bankruptcy Law nor
does the Company or any of its Subsidiaries have any knowledge
or reason to believe that its creditors intend to initiate
involuntary bankruptcy or
insolvency proceedings.
(h)
Absence of
Litigation . There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of
the Company's or the Company's Subsidiaries' officers or
directors in their capacities as such, which could reasonably
be expected to have a Material Adverse
Effect. A description of each action, suit,
proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization
or body which, as of the date of this Agreement, is pending or
threatened in writing against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of
the Company's or the Company's Subsidiaries' officers or
directors in their capacities as such, is set forth in
Schedule 3(h).
(i)
Acknowledgment
Regarding Buyer's Status . The Company
acknowledges and agrees that the Buyer is acting solely in the
capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby
and thereby. The Company further acknowledges that
the Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby
and thereby and any advice given by the Buyer or any of its
representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby
is merely incidental to the Buyer's purchase of the
Securities. The Company further represents to the
Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives and
advisors.
(j)
No
General Solicitation . 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 1933 Act) in connection with the offer or sale of
the Securities.
(k)
Intellectual
Property Rights . The Company and its
Subsidiaries own or possess adequate rights or licenses to use
all material trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct
their respective businesses as now
conducted. Except as set forth on Schedule 3(k),
none of the Company's material trademarks, trade names,
service marks, service mark registrations, service names,
patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or,
by the terms and conditions thereof, could expire or terminate
within two years from the date of this
Agreement. The Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its
Subsidiaries of any material trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations,
trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical
information by others and, except as set forth on Schedule
3(k), there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding
trademark, trade name, patents, patent rights, invention,
copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement, which could
reasonably be expected to have a Material Adverse
Effect.
(l)
Environmental
Laws . The Company and its Subsidiaries (i)
are in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”), (ii) have
received all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval,
except where, in each of the three foregoing clauses, the
failure to so comply could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse
Effect.
(m)
Title
. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them
which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in
Schedule 3(m) or such as do not materially affect the value of
such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities
held under lease by the Company and any of its Subsidiaries
are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such
property and buildings by the Company and its
Subsidiaries.
(n)
Insurance
. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary
in the businesses in which the Company and its Subsidiaries
are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such 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 at a cost that would
not materially and adversely affect the condition, financial
or otherwise, or the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole.
(o)
Regulatory
Permits . The Company and its Subsidiaries
possess all material certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses,
and neither the Company nor any such Subsidiary has received
any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or
permit.
(p)
Tax
Status . The Company and each of its
Subsidiaries has made or filed all federal and state income
and all other material tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless
and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes)
and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.
(q)
Transactions
With Affiliates . Except as set forth on
Schedule 3(q) and other than the grant or exercise of stock
options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries
(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 Company,
any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has an interest or
is an officer, director, trustee or partner.
(r)
Application of
Takeover Protections . The Company and its
board of directors have taken or will take prior to the
Commencement Date all necessary action, if any, in order to
render inapplicable, so long as the Buyer’s actual
ownership of Common Stock is less than 15% of the total
outstanding shares of Common Stock at all times, any control
share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other
similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation
which is or could become applicable to the Buyer as a result
of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities
and the Buyer's ownership of the Securities.
(s)
Foreign Corrupt
Practices . Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee
or other person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on
behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated
or is in violation of any provision of the U.S. Foreign
Corrupt Practices Act of 1977, as amended; or made any
unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government
official or employee.
4. COVENANTS.
(a)
Filing of Form
8-K and Registration Statement . Subject to
the Buyer’s prior approval, the Company agrees that it
shall, within the time required under the 1934 Act file a
Report on Form 8-K disclosing this Agreement and the
transaction contemplated hereby. The Company shall
also file within forty-five (45) days (the “Filing
Date”) from the date hereof a new registration statement
covering the sale of the 4,052,778 Initial Shares,
1,275,000 Additional Commitment Shares and an additional
20,000,000 Purchase Shares in accordance with the terms of the
Registration Rights Agreement between the Company and the
Buyer, dated as of the date hereof (“Registration Rights
Agreement”).
(b)
Blue
Sky . The Company shall take such action, if any, as is
reasonably necessary in order to obtain an exemption for or to
qualify (i) the sales of any Purchase Shares or the Warrant to
the Buyer under this Agreement and (ii) any subsequent sales
of any Purchase Shares or Warrant Shares by the Buyer, in each
case, under applicable securities or "Blue Sky" laws of the
states of the United States in such states as is reasonably
requested by the Buyer from time to time, and shall provide
evidence of any such action so taken to the
Buyer.
(c)
Listing
. The Company shall promptly secure the listing of
all of the Purchase Shares and the Warrant Shares upon each
national securities exchange and automated quotation system,
if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain,
so long as any other shares of Common Stock shall be so
listed, such listing of all such securities from time to time
issuable under the terms of the Transaction
Documents. The Company shall maintain the Common
Stock's authorization for quotation on the Principal
Market. Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably
expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company
shall promptly, and in no event later than the following
Business Day, provide to the Buyer copies of any notices it
receives from the Principal Market regarding the continued
eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.
(d)
Limitation on
Short Sales and Hedging Transactions . The
Buyer agrees that beginning on the date of this Agreement and
ending on the date of termination of this Agreement as
provided in Section 11(k), the Buyer and its agents,
representatives and affiliates shall not in any manner
whatsoever enter into or effect, directly or indirectly, any
(i) "short sale" (as such term is defined in Section 242.200
of Regulation SHO of the 1934 Act) of the Common Stock or (ii)
hedging transaction, which establishes a net short position
with respect to the Common Stock.
(e)
Issuance of
Commitment Shares; Limitation on Sales of Commitment
Shares . Immediately upon the execution of
this Agreement, the Company shall issue to the Buyer as
consideration for the Buyer entering into this Agreement
1,275,000 shares of Common Stock (the “Initial
Commitment Shares"). In connection with each
purchase of Purchase Shares hereunder, the Company agrees to
issue to the Buyer a number of shares of Common Stock (the
“Additional Commitment Shares” and together with
the Initial Commitment Shares, the “Commitment
Shares”) equal to the product of (x) 1,275,000 and (y)
the Purchase Amount Fraction. The “Purchase
Amount Fraction” shall mean a fraction, the numerator of
which is the Purchase Amount purchased by the Buyer with
respect to such purchase of Purchase Shares and the
denominator of which is Eight Million Five Hundred Thousand
Dollars ($8,500,000). The Additional Commitment
Shares shall be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other
similar transaction. The Initial Commitment Shares and the
Initial Purchase Shares (referred to herein as the
“Initial Shares”) shall be issued in certificated
form and (subject to Section 5 hereof) shall bear only the
following restrictive legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE
144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION
OF HOLDER’S COUNSEL, IN A CUSTOMARY FORM, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.
The
Buyer agrees that the Buyer shall not pledge, transfer or sell
the Commitment Shares until the earlier of (a) 500 Business
Days (25 Monthly Periods) from the date hereof or (b) the date
on which this Agreement has been terminated, provided,
however, that such restrictions shall not apply: (i) in
connection with any transfers to or among affiliates (as
defined in the 1934 Act), (ii) in the event that the
Commencement does not occur on or before June 1, 2008, due to
the failure of the Company to satisfy the conditions set forth
in Section 7 or (iii) if an Event of Default has occurred, or
any event which, after notice and/or lapse of time, would
become an Event of Default, including any failure by the
Company to timely issue Purchase Shares under this
Agreement. Notwithstanding the forgoing, the Buyer
may transfer Commitment Shares to a third party in order to
settle a sale made by the Buyer where the Buyer reasonably
expects the Company to deliver additional Purchase Shares to
the Buyer under this Agreement so long as the Buyer maintains
ownership of at least 1,275,000 shares overall by "replacing"
such Commitment Shares so transferred with new Purchase Shares
when the new Purchase Shares are actually issued by the
Company to the Buyer.
(f)
Due
Diligence . The Buyer shall have the right,
from time to time as the Buyer may reasonably deem
appropriate, to perform reasonable due diligence on the
Company during normal business hours. The Company
and its officers and employees shall provide information and
reasonably cooperate with the Buyer in connection with any
reasonable request by the Buyer related to the Buyer's due
diligence of the Company, including, but not limited to, any
such request made by the Buyer in connection with (i) the
filing of the registration statement described in Section 4(a)
hereof and (ii) the Commencement. Each party hereto
agrees not to disclose any Confidential Information of the
other party to any third party and shall not use the
Confidential Information for any purpose other than in
connection with, or in furtherance of, the transactions
contemplated hereby. Each party hereto acknowledges
that the Confidential Information shall remain the property of
the disclosing party and agrees that it shall take all
reasonable measures to protect the secrecy of any Confidential
Information disclosed by the other party.
5. TRANSFER
AGENT INSTRUCTIONS.
Immediately
upon the execution of this Agreement, the Company shall
deliver to the Transfer Agent a letter in the form as set
forth as Exhibit E
attached hereto with respect to the issuance of the 4,052,778
Initial Shares to be issued to the Buyer upon execution
hereof. On the
Commencement Date, the Company shall cause any restrictive
legend on the 4,052,778 Initial Shares to be removed and all
of the remaining Purchase Shares to be issued under this
Agreement shall be issued without any restrictive legend
unless the Buyer expressly consents otherwise. The
Company shall issue irrevocable instructions to the Transfer
Agent, and any subsequent transfer agent, to issue Purchase
Shares in the name of the Buyer for the Purchase Shares (the
"Irrevocable Transfer Agent Instructions"). The
Company warrants to the Buyer that no instruction other than
the Irrevocable Transfer Agent Instructions expressly referred
to in this Agreement will be given by the Company to the
Transfer Agent with respect to the Warrant Shares, the
Commitment Shares or the Purchase Shares (including the
Initial Purchase Shares), and that the Warrant Shares, the
Commitment Shares and the Purchase Shares (including the
Initial Purchase Shares) shall otherwise be freely
transferable on the books and records of the Company as and to
the extent provided in this Agreement and the Registration
Rights Agreement subject to the provisions of Section 4(e) in
the case of the Commitment Shares.
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6.
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CONDITIONS TO THE COMPANY'S RIGHT TO COMMENCE
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SALES OF SHARES OF COMMON STOCK UNDER THIS AGREEMENT.
The
right of the Company hereunder to commence sales of the
Purchase Shares is subject to the satisfaction of each of the
following conditions on or before the Commencement Date (the
date that the Company may begin sales):
(a) The
Buyer shall have executed each of the Transaction Documents
and delivered the same to the Company;
(b) A
registration statement covering the sale of all of the Initial
Shares and
Purchase Shares shall have been declared effective
under the 1933 Act by the SEC and no stop order with respect
to the registration statement shall be pending or threatened
by the SEC.
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7.
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CONDITIONS TO THE BUYER'S OBLIGATION TO MAKE
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PURCHASES OF SHARES OF COMMON STOCK.
The
obligation of the Buyer to buy Purchase Shares (other than the
Initial Purchase Shares) under this Agreement is subject to
the satisfaction of each of the following conditions on or
before the Commencement Date (the date that the Company may
begin sale
