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EXHIBIT
10.1
SERIES C CONVERTIBLE
PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of
September 24, 2007
among
AVICENA GROUP,
INC.
and
THE PURCHASERS LISTED ON
EXHIBIT A
SERIES C CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT
This SERIES C CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT (the “ Agreement
”) is dated as of September 24, 2007 by and among
Avicena Group, Inc., a Delaware corporation (the “
Company ”), and each of the Purchasers of shares of
Series C Convertible Preferred Stock of the Company whose names are
set forth on Exhibit A hereto (individually, a “
Purchaser ” and collectively, the “
Purchasers ”).
The parties hereto agree as
follows:
ARTICLE I
Purchase and Sale of
Preferred Stock
Section 1.1 Purchase and
Sale of Stock . Upon the following terms and conditions, the
Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company the number of shares
(the “ Preferred Shares ”) of the
Company’s Series C Convertible Preferred Stock, par value
$0.001 per share, at a purchase price of $1,000 per Preferred
Share, convertible into shares of the Company’s common stock,
par value $0.001 per share (the “ Common Stock
”), set forth opposite such Purchaser’s name on
Exhibit A hereto. The designation, rights, preferences and
other terms and provisions of the Series C Convertible Preferred
Stock are set forth in the Certificate of Designation of the
Relative Rights and Preferences of the Series C Convertible
Preferred Stock attached hereto as Exhibit B (the “
Certificate of Designation ”). The Company and the
Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D (“
Regulation D ”), as promulgated by the United States
Securities and Exchange Commission (the “ Commission
”), under the Securities Act of 1933, as amended (the “
Securities Act ”), or Section 4(2) of the
Securities Act.
Section 1.2 Warrants .
Upon the following terms and conditions and for no additional
consideration, each of the Purchasers shall be issued (i) a
Series C-1 Warrant, in substantially the form attached hereto as
Exhibit C-1 (the “ Series C-1 Warrants
”), to purchase the number of shares of Common Stock equal to
seventy five percent (75%) of the number of Conversion Shares
(as defined in Section 1.3 hereof) initially issuable upon
conversion of the Preferred Shares acquired by such Purchaser
pursuant to the terms of this Agreement (such Purchaser’s
“ Underlying Common Shares ”), as set forth
opposite such Purchaser’s name on Exhibit A hereto,
(ii) a Series C-2 Warrant, in substantially the form attached
hereto as Exhibit C-2 (the “ Series C-2 Warrant
”) to purchase up to 72.7% of such Purchaser’s
Underlying Common Shares, and (iii) a Series C-3 Warrant, in
substantially the form attached hereto as Exhibit C-3 (the
“ Series C-3 Warrant ” and, together with the
Series C-1 Warrants and the Series C-2 Warrant, the “
Warrants ”), to purchase up to a number of shares of
Common Stock equal to seventy-five percent (75%) of the number
of shares actually purchased by such Purchaser pursuant to
exercises of its Series C-2 Warrant. The Warrants shall expire five
(5) years following the Initial Closing Date, except for the
Series C-2 Warrants issued to each Purchaser purchasing fewer than
4,000 Preferred Shares, which shall expire twelve (12) months
following the Initial Closing Date (provided that the Series C-2
Warrants issued to each Purchaser purchasing 4,000 or
more
Preferred Shares shall expire
twenty-four (24) months following the Initial Closing Date).
Each of the Warrants shall have an exercise price per share equal
to its respective Warrant Price (as defined in the applicable
Warrant).
Section 1.3 Conversion
Shares . The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of
shares of Common Stock equal to one hundred fifty percent
(150%) of the number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all of the
Preferred Shares and exercise of all of the Warrants then
outstanding. Any shares of Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants (and such shares
when issued) are herein referred to as the “ Conversion
Shares ” and the “ Warrant Shares ”,
respectively. The Preferred Shares, the Conversion Shares and the
Warrant Shares are sometimes collectively referred to as the
“ Shares ”.
Section 1.4 Purchase Price
and Closings . In consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of
this Agreement, the Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of
this Agreement, the Purchasers, severally but not jointly, agree to
purchase the numbers of Preferred Shares and Warrants set forth
opposite their respective names on Exhibit A . The minimum
purchase price paid at the Initial Closing (as defined below) will
be $3,000,000 (excluding any Purchase Price paid by cancellation of
Series A Convertible Preferred Stock) and the maximum aggregate
purchase price paid at all closings (including by cancellation of
Series A Convertible Preferred Stock) will be $19,800,000 (the
aggregate of all such purchase prices paid at any Closing, the
“ Purchase Price ”). The Shares shall be sold
and funded in separate closings (each, a “ Closing
”), in each case pursuant to terms of this Agreement and
provided that each Purchaser executes a signature page hereto and
to each of the other Transaction Documents (as defined in
Section 2.1(b) hereof) to which the Purchasers are a
party, and thereby agrees to be bound by and subject to the terms
and conditions hereof and thereof. The initial Closing under this
Agreement (the “ Initial Closing ”) shall take
place on or about September 24, 2007, or as soon thereafter as
the Company has identified Purchasers to purchase at least 3,000
Preferred Shares and all other conditions to closing have been
satisfied or waived (the “ Initial Closing Date
”). Each subsequent Closing under this Agreement (each, a
“ Subsequent Closing ”) shall take place upon
the mutual agreement of the Company and the Purchasers
participating in such Subsequent Closing, but in no event later
than October 26, 2007 (each, a “ Subsequent Closing
Date ”). The Initial Closing Date and each Subsequent
Closing Date are sometimes referred to in this Agreement as the
“ Closing Date ”. Each Closing under this
Agreement shall take place at the offices of Sadis &
Goldberg LLP, 551 Fifth Avenue, 21 st Floor, New York, New York 10176 at 10:00 a.m., New York time,
or at such other time and place as may be mutually agreed upon.
Subject to the terms and conditions of this Agreement, at each
Closing the Company shall deliver or cause to be delivered to each
Purchaser participating in such Closing (x) a certificate for
the number of Shares set forth opposite the name of such Purchaser
on Exhibit A hereto and (y) any other documents
required to be delivered pursuant to Article IV hereof. At
each Closing, each Purchaser participating in such Closing shall
deliver its portion of the Purchase Price by wire transfer to the
Company. Notwithstanding the foregoing, in lieu of paying in cash,
the holders of the Company’s Series A Convertible Preferred
Stock and associated warrants (the “ Series
A
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Holders ”) shall pay their
respective portion of the Purchase Price hereunder through the
cancellation of such holders’ Series A Convertible Preferred
Stock (and associated warrants) in the respective individual
amounts set forth on Exhibit A hereto; provided ,
however , that such payments shall not be considered for
purposes of determining whether the minimum purchase price
obligation has been satisfied. The portion of the Purchase Price to
be paid by the Series A Holders by virtue of the cancellation of
such Purchasers’ Series A Convertible Preferred Stock (and
associated warrants) shall be the original cash purchase price paid
by such Purchasers under the Securities Purchase Agreement dated as
of November 27, 2006 plus any unpaid dividends accrued
thereunder.
ARTICLE II
Representations and
Warranties
Section 2.1
Representations and Warranties of the Company . The Company
hereby represents and warrants to each Purchaser, as of the date
hereof (except as set forth on the Schedule of Exceptions attached
hereto with each numbered Schedule corresponding to the section
number herein), as follows:
(a) Organization, Good
Standing and Power . The Company is a corporation duly
incorporated, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power to
own, lease and operate its properties and assets and to conduct its
business as it is now being conducted. Except as set forth on
Schedule 2.1(a) , the Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect (as
defined in Section 2.1(c) hereof) on the
Company’s financial condition.
(b) Authorization;
Enforcement . The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the
Registration Rights Agreement in the form attached hereto as
Exhibit D (the “ Registration Rights Agreement
”), the Lock-Up Agreement (as defined in
Section 3.20 hereof) in the form attached hereto as
Exhibit E , the Irrevocable Transfer Agent Instructions (as
defined in Section 3.13 ), the Certificate of
Designation, and the Warrants (collectively, the “
Transaction Documents ”) and to issue and sell the
Shares and the Warrants in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by
the Company, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors
or stockholders is required. This Agreement has been duly executed
and delivered by the Company. The other Transaction Documents will
have been duly executed and delivered by the Company at the
Closing. Each of the Transaction Documents constitutes, or shall
constitute when executed and delivered, a valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability
may
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be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and
remedies or by other equitable principles of general
application.
(c) Capitalization .
The authorized capital stock of the Company and the shares thereof
currently issued and outstanding as of September 24, 2007, are
set forth on Schedule 2.1(c) hereto. All of the outstanding
shares of the Common Stock and the Preferred Shares have been duly
and validly authorized. Except as set forth on Schedule
2.1(c) hereto, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call
relating to, or securities or rights convertible into, any shares
of capital stock of the Company. Except as set forth on Schedule
2.1(c) hereto, there are no contracts, commitments,
understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of
capital stock of the Company. Except as set forth on Schedule
2.1(c) hereto, the Company is not a party to any agreement
granting registration or anti-dilution rights to any person with
respect to any of its equity or debt securities. The Company is not
a party to, and it has no knowledge of, any agreement restricting
the voting or transfer of any shares of the capital stock of the
Company. The offer and sale of all capital stock, convertible
securities, rights, warrants, or options of the Company issued
prior to the Closing complied with all applicable Federal and state
securities laws, and no stockholder has a right of rescission or
claim for damages with respect thereto which would have a Material
Adverse Effect (as defined below). The Company has furnished or
made available to the Purchasers true and correct copies of the
Company’s Certificate of Incorporation as in effect on the
date hereof (the “ Certificate ”), and the
Company’s Bylaws as in effect on the date hereof (the “
Bylaws ”). For the purposes of this Agreement, “
Material Adverse Effect ” means any material adverse
effect on the business, operations, properties, prospects, or
financial condition of the Company and its subsidiaries and/or any
condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to perform any
of its obligations under this Agreement in any material
respect.
(d) Issuance of Shares
. The Preferred Shares and the Warrants to be issued at the Closing
have been duly authorized by all necessary corporate action and the
Preferred Shares, when paid for and issued in accordance with the
terms hereof, shall be validly issued and outstanding, fully paid
and nonassessable and entitled to the rights and preferences set
forth in the Certificate of Designation. When the Conversion Shares
and the Warrant Shares are paid for and issued in accordance with
the terms of the Certificate of Designation and the Warrants,
respectively, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights
accorded to a holder of Common Stock.
(e) No Conflicts .
Except as set forth on Schedule 2.1(e) hereto, the
execution, delivery and performance of the Transaction Documents by
the Company, the performance by the Company of its obligations
thereunder and the consummation by the Company of the transactions
contemplated herein and therein do not and will not
(i) violate any provision of the Company’s Certificate
or Bylaws, (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
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of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument
or obligation to which the Company is a party or by which it or its
properties or assets are bound, (iii) create or impose a lien,
mortgage, security interest, charge or encumbrance of any nature on
any property of the Company under any agreement or any commitment
to which the Company is a party or by which the Company is bound or
by which any of its respective properties or assets are bound, or
(iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries are
bound or affected, except, in all cases other than violations
pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the
Company and its subsidiaries is not being conducted in violation of
any laws, ordinances or regulations of any governmental entity,
except for possible violations which singularly or in the aggregate
do not and will not have a Material Adverse Effect. The Company is
not required under Federal, state or local law, rule or regulation
to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations
under the Transaction Documents, or issue and sell the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares
in accordance with the terms hereof or thereof (other than
(x) any consent, authorization or order that has been obtained
as of the date hereof, (y) any filing or registration that has
been made as of the date hereof or (z) any filings which may
be required to be made by the Company with the Commission or state
securities administrators subsequent to the Closing, any
registration statement which may be filed pursuant hereto, and the
Certificate of Designation); provided that, for purposes of
the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
(f) Commission Documents,
Financial Statements . Except as indicated on Schedule
2.1(u)(B), the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it
with the Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “
Exchange Act ”), including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the
foregoing including filings incorporated by reference therein being
referred to herein as the “ Commission Documents
”). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission
Documents. The Company has not provided to the Purchasers any
material non-public information or other information which,
according to applicable law, rule or regulation, was required to
have been disclosed publicly by the Company but which has not been
so disclosed, other than with respect to the transactions
contemplated by this Agreement. At the times of their respective
filings, the Company’s Form 10-KSB for the year ended
December 31, 2006, including the accompanying financial
statements (the “ Form 10-KSB ”) and the
Company’s Form 10-QSB for the fiscal quarter ended
March 31, 2007 (the “ Form 10-QSB ”)
complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such documents, and, as of
their respective dates, neither of the Form 10-KSB and the Form
10-QSB contained any untrue
5
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. The
financial statements of the Company included in the Commission
Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have
been prepared in accordance with United States generally accepted
accounting principles (“ GAAP ”) applied on a
consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes), and
fairly present in all material respects the financial position of
the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(g) Subsidiaries . The
Company has no subsidiaries. For the purposes of this Agreement,
“ subsidiary ” shall mean any corporation or
other entity of which at least a majority of the securities or
other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other
subsidiaries.
(h) No Material Adverse
Change . Other than as disclosed in the Company’s
Commission Documents, since December 31, 2006, the Company has
not experienced or suffered any Material Adverse Effect.
(i) No Undisclosed
Liabilities . Except as set forth on Schedule 2.1(i) ,
neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of
the Company’s or its subsidiaries respective businesses since
December 31, 2006, and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on
the Company or its subsidiaries.
(j) No Undisclosed Events
or Circumstances . No event or circumstance has occurred or
exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or
financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness .
Schedule 2.1(k) hereto sets forth as of a recent date all
outstanding secured and unsecured Indebtedness of the Company or
any subsidiary, or for which the Company or any subsidiary has
commitments, in each case that have not previously been set forth
in the Form 10-KSB or Form 10-QSB. For the purposes of this
Agreement, “ Indebtedness ” shall mean
(a) any liabilities for borrowed money or amounts owed in
excess of $100,000 (other than trade accounts payable incurred in
the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar
6
transactions in the ordinary
course of business; and (c) the present value of any lease
payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as set forth on
Schedule 2.1(k) , neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets .
Except as set forth on Schedule 2.1(l) , each of the Company
and the subsidiaries has good and marketable title to all of its
real and personal property reflected in the Form 10-KSB, free and
clear of any mortgages, pledges, charges, liens, security interests
or other encumbrances, except for those disclosed in the Form
10-KSB or such that, individually or in the aggregate, do not cause
a Material Adverse Effect. Except as set forth on Schedule
2.1(l) , all leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.
(m) Actions Pending .
There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this
Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby or any action taken or
to be taken pursuant hereto or thereto. There is no action, suit,
claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any
subsidiary or any of their respective properties or assets. There
are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body
against the Company or any subsidiary or any officers or directors
of the Company or subsidiary in their capacities as
such.
(n) Compliance with
Law . The business of the Company and the subsidiaries has been
and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and
ordinances, except for such noncompliance that, individually or in
the aggregate, would not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits,
licenses, consents and other governmental or regulatory
authorizations and approvals necessary for the conduct of its
business as now being conducted by it unless the failure to possess
such franchises, permits, licenses, consents and other governmental
or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect.
(o) Taxes . The
Company and each of the subsidiaries has accurately prepared and
filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate
provisions have been and are reflected in the financial statements
of the Company and the subsidiaries for all current taxes and other
charges to which the Company or any subsidiary is subject and which
are not currently due and payable. None of the federal income tax
returns of the Company or any subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability
(whether federal or state) of any nature whatsoever, whether
pending or threatened against the Company or any subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
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(p) Certain Fees .
Except as set forth on Schedule 2.1(p) hereto, no brokers,
finders or financial advisory fees or commissions will be payable
by the Company or any subsidiary or any Purchaser with respect to
the transactions contemplated by this Agreement.
(q) Disclosure .
Neither this Agreement or the Schedules hereto nor any other
documents, certificates or instruments furnished to the Purchasers
by or on behalf of the Company or any subsidiary in connection with
the transactions contemplated by this Agreement contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein,
in the light of the circumstances under which they were made herein
or therein, not misleading.
(r) Operation of
Business . Except as set forth in Schedule 2.1(r) , the
Company and each of the subsidiaries owns or possesses all patents,
trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof,
websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, and
all rights with respect to the foregoing, which are necessary for
the conduct of its business as now conducted without any conflict
with the rights of others.
(s) Environmental
Compliance . The Company and each of its subsidiaries have
obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. Except as
set forth on Schedule 2.1(s) , the Form 10-KSB or Form
10-QSB describes all material permits, licenses and other
authorizations issued under any Environmental Laws to the Company
or its subsidiaries. “ Environmental Laws ”
shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements
pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface
water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. The Company has all
necessary governmental approvals required under all Environmental
Laws and used in its business or in the business of any of its
subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in
any way affecting the Company or its subsidiaries that violate or
may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing,
study or investigation (i) under any Environmental Law, or
(ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous
substance.
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(t) Books and Record
Internal Accounting Controls . The books and records of the
Company and its subsidiaries accurately reflect in all material
respects the information relating to the business of the Company
and the subsidiaries, the location and collection of their assets,
and the nature of all transactions giving rise to the obligations
or accounts receivable of the Company or any subsidiary. The
Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company, to
provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(u) Material
Agreements . Except as set forth on Schedule 2.1(u) ,
neither the Company nor any subsidiary is a party to any written or
oral contract, instrument, agreement, commitment, obligation, plan
or arrangement, a copy of which would be required to be filed with
the Commission as an exhibit to a registration statement on Form
S-3 or other applicable form (collectively, “ Material
Agreements ”) if the Company or any subsidiary were
registering securities under the Securities Act. Except as set
forth on Schedule 2.1(u) , the Company and each of its
subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and are
not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. Except as
set forth on Schedule 2.1(u) , no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement
of the Company or of any subsidiary limits or shall limit the
payment of dividends on the Company’s Preferred Shares, other
preferred stock, if any, or its Common Stock.
(v) Transactions with
Affiliates . Except as set forth in the Commission Documents,
there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other
continuing transactions between (a) the Company or any
subsidiary on the one hand, and (b) on the other hand, any
officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the
Company or any subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or
stockholder.
(w) Securities Act of
1933 . Based in material part upon the representations herein
of the Purchasers, the Company has complied and will comply with
all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants
hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit
offers to buy any of the Shares, the Warrants or similar securities
to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with,
any person, or has taken or will take any action, so as to bring
the issuance and sale of any of the Shares and the Warrants under
the registration provisions of the Securities Act and applicable
state securities laws, and neither the
9
Company nor any of its
affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Shares and the
Warrants.
(x) Governmental
Approvals . Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under
applicable state and/or federal securities laws (which if required,
shall be filed on a timely basis), including the filing of a Form D
and a registration statement or statements pursuant to the
Registration Rights Agreement, and the filing of the Certificate of
Designation with the Secretary of State for the State of Delaware,
no authorization, consent, approval, license, exemption of, filing
or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Preferred Shares and the Warrants, or
for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees .
Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its
employees. Except as set forth on Schedule 2.1(y) , neither
the Company nor any subsidiary has any employment contract,
agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement,
or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or
engaged by the Company or such subsidiary. No officer, consultant
or key employee of the Company or any subsidiary whose termination,
either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company,
has any present intention of terminating his or her employment or
engagement with the Company or any subsidiary.
(z) Absence of Certain
Developments . Except as set forth on Schedule 2.1(z) ,
since December 31, 2006, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds
or other corporate securities or any rights, options or warrants
with respect thereto;
(ii) borrowed any amount or
incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted
to reflect the current nature and volume of the Company’s or
such subsidiary’s business;
(iii) discharged or satisfied
any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in
the ordinary course of business;
(iv) declared or made any
payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital
stock;
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(v) sold, assigned or
transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;
(vi) sold, assigned or
transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property
rights, or disclosed any proprietary confidential information to
any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii) suffered any
substantial losses or waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of
any material amount of prospective business;
(viii) made any changes in
employee compensation except in the ordinary course of business and
consistent with past practices;
(ix) made capital
expenditures or commitments therefor that aggregate in excess of
$100,000;
(x) entered into any other
transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the
ordinary course of business;
(xi) made charitable
contributions or pledges in excess of $25,000;
(xii) suffered any material
damage, destruction or casualty loss, whether or not covered by
insurance;
(xiii) experienced any
material problems with labor or management in connection with the
terms and conditions of their employment;
(xiv) effected any two or
more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or
(xv) entered into an
agreement, written or otherwise, to take any of the foregoing
actions.
(aa) Public Utility
Holding Company Act and Investment Company Act Status . The
Company is not a “holding company” or a “public
utility company” as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended. The Company is
not, and as a result of and immediately upon the Closing will not
be, an “investment company” or a company
“controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.
(bb) ERISA . No
liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan (as defined below) by the Company
or any of its subsidiaries which is or would be materially adverse
to the Company and its subsidiaries. The execution and delivery of
this Agreement and the issuance and sale of the Preferred Shares
will
11
not involve any transaction
which is subject to the prohibitions of Section 406 of the
Employee Retirement Income Security Act of 1974, as amended
(“ ERISA ”), or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended (the “ Code ”),
provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an
“employee pension benefit plan” (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a
“party in interest” (within the meaning of
Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in
this Section 2.1(bb), the term “ Plan ”
shall mean an “employee pension benefit plan” (as
defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or
business, whether or not incorporated, which, together with the
Company or any subsidiary, is under common control, as described in
Section 414(b) or (c) of the Code.
(cc) Dilutive Effect .
The Company understands and acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designation
and its obligations to issue the Warrant Shares upon the exercise
of the Warrants in accordance with this Agreement and the Warrants,
is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(dd) No Integrated
Offering. Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause
the offering of the Shares pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from selling the
Shares pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any
action or steps that would cause the offering of the Shares to be
so integrated with other offerings. The Company does not have any
registration statement pending before the Commission or currently
under the Commission’s review and since May 1, 2006, the
Company has not publicly offered or sold any of its equity
securities or debt securities convertible into shares of Common
Stock.
(ee) Independent Nature of
Purchasers. The Company acknowledges that the obligations of
each Purchaser under the Transaction Documents are several and not
joint with the obligations of any other Purchaser, and no Purchaser
shall be responsible in any way for the performance of the
obligations of a
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