SECURITIES PURCHASE AGREEMENT

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “ Agreement ”) is dated as of February 12, 2009, between Pro-Pharmaceuticals, Inc., a Nevada corporation (the “ Company ”), and 10X Fund, L.P., a Delaware limited partnership (the “ Purchaser ”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1 Definitions . In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

“ Action ” shall have the meaning ascribed to such term in Section 3.1(j).

“ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Purchaser will be deemed to be an Affiliate of the Purchaser.

“ Articles of Amendment ” means the Articles of Amendment setting forth the designations, rights and preferences of Series B-1 Preferred and Series B-2 Preferred in the form attached hereto as Exhibit B .

“ Board of Directors ” means the board of directors of the Company.

“ Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“ Initial Closing ” means the initial closing of the purchase and sale of the Securities pursuant to Section 2.1.

“ Closing Date ” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

 

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“ Commission ” means the Securities and Exchange Commission.

“ Common Stock ” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“ 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.

“ Company Counsel ” means Greenberg Traurig, LLP, with offices located at One International Place, Boston, Massachusetts 02110.

“ Conversion Shares ” means the shares of Common Stock issuable upon conversion of the Series B-1 Preferred and/or Series B-2 Preferred.

“ Disclosure Schedules ” means the Disclosure Schedules of the Company delivered concurrently herewith.

“ Dividend Shares ” means the shares of Common Stock issuable in satisfaction of dividends payable on the Series B-1 Preferred and/or Series B-2 Preferred.

“ 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.

“ Evaluation Date ” shall have the meaning ascribed to such term in Section 3.1(r).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“ Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to employees, officers, directors or other permitted grantees of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or 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 that any such issuance shall only be to a

 

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Person which is, itself or through its subsidiaries, an operating company in a business compatible with the business objectives 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.

“ Final Purchase Date ” means the Business Day immediately subsequent to the date that is one hundred twenty (120) days from the Closing Date; provided, however, the Final Purchase Date shall be automatically extended for an additional sixty (60) days if the aggregate amount of capital contributions credited by the Purchaser by the date that is ninety (90) days from the Initial Closing Date is greater than or equal to $2,500,000.

“ ILG ” means Investment Law Group of Gillett Mottern & Walker LP with offices located at 1230 Peachtree Street, NE, Suite 2445, Atlanta, Georgia 30309.

“ Initial Subscription Amount ” means One Million Eight Hundred Thousand Dollars ($1,800,000.00) in United States dollars, in immediately available funds.

“ Initial Closing ” means the closing of the purchase and sale of the Initial Closing Securities pursuant to Section 2.1(a).

“ Initial Closing Date ” means the Trading Day on which the Initial Closing takes place.

“ Initial Closing Securities ” means the Series B-1 Preferred and Warrants purchased by the Purchaser for the Initial Subscription Amount pursuant to Section 2.1(a) herein.

“ GAAP ” shall have the meaning ascribed to such term in Section 3.1(h).

“ Indebtedness ” shall have the meaning ascribed to such term in Section 3.1(aa).

“ Intellectual Property Rights ” shall have the meaning ascribed to such term in Section 3.1(o).

“ Legend Removal Date ” shall have the meaning ascribed to such term in Section 4.1(c).

“ Liens ” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“ Material Adverse Effect ” shall have the meaning assigned to such term in Section 3.1(b).

“ Material Permits ” shall have the meaning ascribed to such term in Section 3.1(m).

“ Maximum Subscription Amount ” shall mean $6,000,000.

“ Origination Fee ” means an origination fee payable by the Company to the Purchaser in the amount of three percent (3%) of the total Initial Subscription Amount and any Subsequent Subscription Amount that shall be deducted and paid from the Initial Subscription Amount or any Subsequent Subscription Amounts, respectively.

 

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“ Participation Maximum ” shall have the meaning ascribed to such term in Section 4.12.

“ 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.

“ Pre-Notice ” shall have the meaning ascribed to such term in Section 4.12.

“ 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.

“ Purchaser Party ” shall have the meaning ascribed to such term in Section 4.8.

“ Purchaser Expenses ” shall mean all expenses incurred by the Purchaser in connection with the negotiation and execution of the transaction documents, including travel and communications expenses, and fees of lawyers, accountants and other professionals.

“ Registration Rights Agreement ” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchaser, in the form of Exhibit A attached hereto.

“ Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchaser of the Conversion Shares, the Dividend Shares and the Warrant Shares.

“ Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).

“ Rights Offering ” means a registered offering of up to $20,000,000 of Common Stock by the Company to its Common Stockholders.

“ 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.

“ SEC Reports ” shall have the meaning ascribed to such term in Section 3.1(h).

“ Securities ” means, collectively, the Series B-1 Preferred, the Series B-2 Preferred, the Warrants, the Warrant Shares, the Conversion Shares and the Dividend Shares.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

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“ Series B Directors ” means those directors elected by the holders of the Series B-1 Preferred and Series B-2 Preferred to serve on the Board of Directors from time to time.

“ Series B-1 Preferred ” means shares of the Company’s Series B-1 Convertible Preferred Stock, $0.01 par value.

“ Series B-2 Preferred ” means shares of the Company’s Series B-2 Convertible Preferred Stock, $0.01 par value.

“ 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 Closing ” means the closing of the purchase and sale of the Subsequent Closing Securities pursuant to Section 2.1(b).

“ Subsequent Closing Date ” means the Trading Day on which each Subsequent Closing takes place.

“ Subsequent Closing Notice ” means a notice from an escrow agent (which may include counsel for the Purchaser) stating that funds of the Purchaser are being held in escrow for the purchase of Subsequent Closing Securities, which funds will be released to the Company in a Subsequent Closing when the Company has satisfied the conditions described in Section 2.3(b) herein.

“ Subsequent Closing Securities ” means the Series B-2 Preferred and Warrants purchased by the Purchaser for a Subsequent Subscription Amount pursuant to Section 2.1(b) herein.

“ Subsequent Subscription Amount ” means the amount of money specified in any Subsequent Closing Notice, provided that the sum of the Initial Subscription Amount and all Subsequent Subscription Amounts may not exceed the Maximum Subscription Amount.

“ Subsequent Financing ” shall have the meaning ascribed to such term in Section 4.12.

“ Subsequent Financing Notice ” shall have the meaning ascribed to such term in Section 4.12.

“ Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a) , 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 New York Stock Exchange 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 NYSE Alternext US, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, or “Pink Sheets.”

 

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“ Transaction Documents ” means this Agreement, the Warrants, the Registration Rights Agreement, the Articles of Amendment and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“ Transfer Agent ” means Continental Stock Transfer and Trust Company, the current transfer agent of the Company, with a mailing address of 17 Battery Place, 8 ^th floor, New York, New York 10004-1123 and a facsimile number of (212) 616-7616, and any successor transfer agent of the Company.

“ 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 (other than the OTC Bulletin Board), 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 4:00 p.m. (New York City time); (b) if the Common Stock is then listed on the OTC Bulletin Board, the average of the high and low price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; or (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.

“ Warrants ” means, collectively, the Class A-1 Warrants, the Class A-2 Warrants and the Class B Warrants, each delivered to the Purchaser at the Closing in accordance with Section 2.2(a) hereof, in the forms of Exhibit C attached hereto.

“ Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1 Initial Closing and Subsequent Closing .

(a) On the Initial Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase, (i) 900,000 shares of Series B-1 Preferred, (ii) one Class A-1 Warrant exercisable to purchase two Warrant Shares for each share of Series B-1 Preferred purchased, (iii) one Class A-2 Warrants exercisable to purchase two Warrant Shares for each share of Series B-1 Preferred purchased, and (iv) one Class B Warrant exercisable to purchase eight Warrant Shares for each share of Series B-1 Preferred purchased. At the Initial Closing, Purchaser shall deliver the Initial Subscription Amount (less the Origination Fee and the Purchaser Expenses) to the

 

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Company, and the Company shall deliver to the Purchaser the Series B-1 Preferred, the Class A-1 Warrant, the Class A-2 Warrant and the Class B Warrant due in respect of the Initial Subscription Amount, and the Company and Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Initial Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of ILG or such other location as the parties shall mutually agree.

(b) At one or more Subsequent Closing Dates until the Final Purchase Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchaser agrees to purchase, (i) one share of Series B-2 Preferred for every two dollars invested by the Purchaser in the Subsequent Closing, (ii) one Class A-1 Warrant exercisable to purchase two Warrant Shares for each share of Series B-2 Preferred purchased in the Subsequent Closing, (iii) one Class A-2 Warrant exercisable to purchase two Warrant Shares for each share of Series B-2 Preferred purchased in the Subsequent Closing, and (iv) one Class B Warrant exercisable to purchase eight Warrant Shares for each share of Series B-2 Preferred purchased in the Subsequent Closing. At each Subsequent Closing, Purchaser shall deliver the Subsequent Subscription Amount (less the Origination Fee and the Purchaser Expenses) to the Company, and the Company shall deliver to the Purchaser the Series B-2 Preferred, the Class A-1 Warrant, the Class A-2 Warrant and the Class B Warrant due in respect of the Subsequent Subscription Amount, and the Company and Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Subsequent Closing. Each Subsequent Closing will be held at the offices of ILG at a time mutually agreed by the parties within two (2) Trading Days after the satisfaction by the Company of all conditions of the Company required by Section 2.3(b) herein.

2.2 Deliveries .

(a) On or prior to the Initial Closing Date, the Company shall deliver or cause to be delivered to the Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii) the Articles of Amendment which have been executed in a form acceptable for filing with the Secretary of State of the State of Nevada;

(iii) a legal opinion of Company Counsel, substantially in the form of Exhibit D attached hereto;

(iv) a certificate evidencing the number of shares of Series B-1 Preferred described in Section 2.1(a) herein, registered in the name of Purchaser;

(v) the Warrants exercisable to purchase the number of Warrant Shares described in Section 2.1(a) herein, registered in the name of the Purchaser; and

(vi) the Registration Rights Agreement duly executed by the Company;

(vii) agreements with Medi-Pharmaceuticals, Inc. and David Platt acceptable to the Purchaser, in the Purchaser’s sole discretion.

 

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(b) On or prior to the Initial Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement duly executed by the Purchaser;

(ii) the Initial Subscription Amount (less the Origination Fee and the Purchaser Expenses) by wire transfer to the Company; and

(iii) the Registration Rights Agreement duly executed by the Purchaser.

(c) On or prior to each Subsequent Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i) certificate from an officer of the Company that all conditions and obligations under this Agreement have been satisfied and the each of its representations and warranties remain true and accurate in all material respects as of the Subsequent Closing Date and shall be deemed to be given as of such date;

(ii) a certificate evidencing the number of shares of Series B-2 Preferred to be purchased at the Subsequent Closing, registered in the name of Purchaser; and

(iii) Warrants exercisable to purchase the number of Warrant Shares described in Section 2.1(b) herein, registered in the name of the Purchaser.

(d) On or prior to each Subsequent Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the applicable Subsequent Subscription Amount (less the Origination Fee and the Purchaser Expenses).

2.3 Closing Conditions .

(a) The obligations of the Company hereunder in connection with the Initial Closing and any Subsequent Closing are subject to the following conditions being met:

(i) the accuracy in all material respects on the Initial Closing Date and each Subsequent Closing Date of the representations and warranties of the Purchaser contained herein;

(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Initial Closing Date and/or a Subsequent Closing Date shall have been performed as of such date; and

(iii) the delivery by the Purchaser of the items set forth in Sections 2.2(b) and 2.2(d) of this Agreement in connection with the Initial Closing and any Subsequent Closing, respectively.

(b) The obligations of the Purchaser hereunder in connection with the Initial Closing and any Subsequent Closing are subject to the following conditions being met:

(i) the accuracy in all material respects on the Initial Closing Date and any Subsequent Closing Date of the representations and warranties of the Company contained herein;

 

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(ii) all obligations, covenants and agreements of the Company and its officers and directors required to be performed at or prior to the Initial Closing Date and/or a Subsequent Closing Date, including without limitation, each action set forth in Sections 4.20 hereof, shall have been performed;

(iii) the delivery by the Company of the items set forth in Sections 2.2(a) and 2.2(c) of this Agreement in connection with the Initial Closing and a Subsequent Closing, respectively;

(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company . Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Purchaser:

(a) Subsidiaries . All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a) . 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.

(b) 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 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 (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as

 

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a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), 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.

(c) Authorization; Enforcement . The Company has all 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, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. 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.

(d) No Conflicts . The execution, delivery and performance of the Transaction Documents by the Company, the issuance and sale of the 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, 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 a 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.

(e) 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

 

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other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration Statement and (iii) application(s), if required, 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 ”).

(f) Issuance of the Securities . The 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, Warrant Shares and Dividend 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 the Preferred Stock and the Warrants.

(g) Capitalization . The capitalization of the Company is as set forth on Schedule 3.1(g) , which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, 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 a result of the purchase and sale of the Securities and as set forth on Schedule 3.1(g) , 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 Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchaser) 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 stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

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(h) 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. Except as set forth on Schedule 3.1(h) attached hereto, 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. Except as set forth on Schedule 3.1(h) attached hereto, 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.

(i) 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 stockholders 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 Securities contemplated by this Agreement or as set forth on Schedule 3.1(i) , 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

 

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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.

(j) Litigation . Except as disclosed in the SEC Reports, 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 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 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 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.

(k) 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.

(l) 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

 

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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.

(m) 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 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.

(n) 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 as 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.

(o) Patents and Trademarks . Except as set forth in the SEC Reports, 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.

(p) 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 in the amount set forth on Schedule 3.1(p) attached hereto. 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.

 

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(q) 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 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 $60,000 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.

(r) 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