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SECURITIES PURCHASE AGREEMENT
THIS
SECURITIES PURCHASE AGREEMENT (“
Agreement ”)
is made as of this 26th day of March, 2008 (the “
Signing Date ”)
by and among Novelos Therapeutics, Inc., a Delaware corporation
(the “
Company ”),
the holders of Series B Preferred Stock (as defined below), and the
investors set forth on
Schedule I
affixed
hereto, as such Schedule may be amended from time to time in
accordance with the terms of this Agreement (each an “
Investor ”
and collectively the “
Investors ”).
Recitals:
A.
The
Company desires, pursuant to this Agreement, to raise up to
the Investment Amount (as defined below) through the issuance
and sale of the following to the Investors (the “
Private Placement ”):
(i) up to 100 shares of a newly created series of the
Company’s Preferred Stock, designated “Series D
Convertible Preferred Stock”, par value $0.00001 per share
(the “
Preferred Stock ”),
which Preferred Stock shall have the rights, preferences and
privileges set forth in the Certificate of Designations,
Preferences and Rights, in the form of
Exhibit A annexed
hereto and made a part hereof (the “
Certificate of Designations ”),
and each share of Preferred Stock shall have a stated value of
$50,000 and shall initially be convertible into shares of the
Company's Common Stock, par value $0.00001 per share (the
“
Common Stock ”),
at a price of $0.65 per share (the “
Conversion Price ”),
for an aggregate of 7,692,300 shares of Common Stock; and (ii)
warrants to acquire up to 3,846,151 shares of Common Stock, equal
to 50% of the number of shares of Common Stock underlying the
Preferred Stock on the date of issue, with an exercise price of
$0.65 per share, in the form of
Exhibit B annexed
hereto and made a part hereof (the “
Warrants ”);
B.
The
Investors desire to purchase from the Company, and the Company
desires to issue and sell to the Investors, upon the terms and
conditions stated in this Agreement, such number of shares of
Preferred Stock and Warrants to purchase such number of shares
of Common Stock as is set forth next to each such
Investor’s name on
Schedule I affixed
hereto;
C.
Subject
to the conditions hereinafter set forth, on the Closing Date,
the Investors will purchase the Preferred Stock and Warrants
in the Private Placement for an aggregate purchase price equal
to the Investment Amount;
D.
The
Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D
(“
Regulation D ”),
as promulgated by the U.S. Securities and Exchange Commission (the
“
SEC ”)
under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the “1933
Act”).
E.
Contemporaneous
with the sale of the Preferred Stock and the Warrants at the
Closing, the parties hereto will enter into a Registration
Rights Agreement, in the form attached hereto as
Exhibit D (the
“
Registration Rights Agreement ”),
pursuant to which, among other things, the Company will provide
certain registration rights to the Investors with respect to the
shares of Common Stock issuable upon conversion or exercise, as the
case may be, of the Preferred Stock, Warrants and Series B
Warrants; and
NOW, THEREFORE, in
consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as
follows:
1.
Definitions .
In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms
shall have the meanings set forth in this
Section 1 :
“
1933 Act ”
has the meaning set forth in the Recitals.
“
1934 Act ”
means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
“
10-KSB ”
has the meaning set forth in
Section 5.6 .
“
Affiliate ”
means, with respect to any Person, any other Person which directly
or indirectly Controls, is Controlled by, or is under common
Control with, such Person.
“
Agreement ”
has the meaning set forth in the Recitals.
“
Business Day ”
means a day, other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of
business.
“
Buy-In Price ”
has the meaning set forth in
Section 9.15 .
“
Certificate of Designations ”
has the meaning set forth in the Recitals.
“
Company Counsel Opinion ”
means a legal opinion from the Company Counsel, dated as of the
applicable Closing Date, in the form attached hereto as
Exhibit E .
“
Closing ”
has the meaning set forth in
Section 4.1 .
“
Closing Date ”
has the meaning set forth in
Section 4.2 .
“
Common Stock ”
has the meaning set forth in the Recitals, and also includes any
securities into which the Common Stock may be
reclassified.
“
Company ”
has the meaning set forth in the Recitals.
“
Company Counsel ”
means Foley Hoag LLP, counsel to the Company.
“
Company’s Knowledge ”
means the actual knowledge of the officers of the Company, after
due inquiry and investigation.
“
Confidential Information ”
means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions,
processes, procedures and techniques, research and development
information, computer program code, performance specifications,
support documentation, drawings, specifications, designs, business
and marketing plans, and customer and supplier lists and related
information).
“
Control ”
means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise.
“
Conversion Price ”
has the meaning set forth in the Recitals.
“
Conversion Shares ”
means the shares of Common Stock issuable upon conversion of the
Preferred Stock.
“
Covenant Expiration Event ”
has the meaning set forth in
Section 9.8 .
“
Deadline Date ”
has the meaning set forth in
Section 9.15 .
“
Disclosure Schedules ”
has the meaning set forth in
Section 5 .
“
Eligible Market ”
means the Trading Market on which the Common Stock is primarily
listed on and quoted for trading, which, as of the Closing Date
means the OTC Bulletin Board (“
OTCBB ”).
“
Environmental Laws ”
has the meaning set forth in
Section 5.15 .
“
Escrow Amount ”
has the meaning set forth in
Section 3.1(a) .
“
Escrow Termination Date ”
means the 15th calendar day after the Signing Date;
provided ,
however ,
the Investors and the Company may jointly agree to extend the
Escrow Termination Date for up to two additional 15-day periods by
giving written notice to the Lead Investor Counsel of their
election to so extend the Escrow Termination Date, in each case for
up to an additional 15 calendar days, and in each such case, the
Escrow Termination Date shall be the date specified in such
notice;
provided ,
further ,
however ,
the Escrow Termination Date shall not be later than April 30, 2008,
on which date, if the Closing has not occurred, Lead Investor
Counsel shall return the Escrow Amount in accordance with
Section 3.1(b) ;
provided ,
further ,
however ,
the Escrow Termination Date shall occur upon termination of this
Agreement pursuant to
Section 9.13 .
“
Indemnified Person ”
has the meaning set forth in
Section 10.3 .
“
Intellectual Property ”
means all of the following: (i) patents, patent applications,
patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans
and Internet domain names, together with all goodwill associated
with each of the foregoing; (iii) copyrights and copyrightable
works; (iv) registrations, applications and renewals for any of the
foregoing; (v) trade secrets, Confidential Information and know-how
(including, but not limited to, ideas, formulae, compositions,
manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs,
business and marketing plans, and customer and supplier lists and
related information); and (vi) computer software (including, but
not limited to, data, data bases and documentation).
“
Investment Amount ”
means an amount equal to $5,000,000.
“
Lead Investors ”
shall mean the Xmark Entities and the Orbimed Entities,
together.
“
Lead Investor Counsel ”
has the meaning set forth in
Section 3.1(a) .
“
Lead Investor Counsel Duties ”
has the meaning set forth in
Section 3.2(a) .
“
Lead Investor Counsel Fees ”
has the meaning set forth in
Section 11.5 .
“
Lead Investor Director
” has
the meaning set forth in Section 9.7(a).
“
Lead Investor Observer
” has
the meaning set forth in Section 9.7(b)
“
License Agreements ”
has the meaning set forth in
Section 5.14(b) .
“
Losses ”
has the meaning set forth in
Section 10.2 .
“
Material Adverse Effect ”
means a material adverse effect on (i) the assets and liabilities,
prospects, results of operations, condition (financial or
otherwise) or business of the Company and its Subsidiaries taken as
a whole, or (ii) the ability of the Company to issue and sell the
Securities and to perform its obligations under the Transaction
Documents;
provided, however ,
that: (A) any adverse effect that results from general economic,
business or industry conditions, the taking by the Company of any
action permitted or required by the Agreement, or the announcement
or pendency of transactions contemplated hereunder, shall not, in
and of itself, constitute a "Material Adverse Effect" on the
Company, and shall not be considered in determining whether there
has been or would be a "Material Adverse Effect" on the Company and
(B) a decline in the Company's stock price shall not, in and of
itself, constitute a "Material Adverse Effect" on the Company and
shall not be considered in determining whether there has been or
would be a "Material Adverse Effect" on the Company.
“
Material Contract ”
means any contract of the Company or any Subsidiary (i) that was
required to be filed as an exhibit to the SEC Filings pursuant to
Item 601(b)(4) or Item 601(b)(10) of Regulation S-B of the 1933 Act
or (ii) the loss of which could reasonably be expected to have a
Material Adverse Effect.
“
Orbimed Entities means,
collectively, Caduceus Master Fund Limited, a Bermuda corporation
(“
Caduceus Master ”),
Caduceus Capital II, L.P., a Delaware limited partnership
(“
Caduceus Capital ”),
and Summer
Street Life Sciences Hedge Fund Investors LLC, a Delaware limited
liability company (“
Summer Street ”)
.
“
Person ”
means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization,
governmental authority or any other form of entity not specifically
listed herein.
“
Placement Agent ”
shall mean Rodman and Renshaw.
“
Placement Agent Agreement ”
means that certain letter from the Company to the Placement Agent,
dated February 12, 2007, as amended by a letter agreement on March
25, 2008.
“
Placement Agent Fee ”
has the meaning set forth in
Section 5.19 .
“
Preferred Stock ”
has the meaning set forth in the Recitals.
“
Press Release ”
has the meaning set forth in
Section 9.13 .
“
Prior Registration Agreement ”
shall mean the registration rights agreements dated May 2, 2007
between the Company and the holders of Series B Preferred
Stock.
“
Private Placement ”
has the meaning set forth in the Recitals.
“
Registration Rights Agreement ”
has the meaning set forth in the Recitals.
“
Regulation D ”
has the meaning set forth in the Recitals.
“
Requisite Holders ”
shall mean the holders of at least a majority of the then
outstanding shares of Preferred Stock which majority must include
(i) the Xmark Entities, provided such Xmark Entities have purchased
an aggregate of $1,300,000 of Preferred Stock pursuant to this
Agreement and hold at least one-third of the Preferred Stock issued
to the Xmark Entities at Closing as of the date of determination
and (ii) the OrbiMed Entities, provided such OrbiMed Entities have
purchased an aggregate of $1,600,000 of Preferred Stock pursuant to
this Agreement and hold at least one-third of the Preferred Stock
issued to the OrbiMed Entities at Closing as of the date of
determination (appropriately adjusted for any stock dividend, stock
split, reverse stock split, reclassification, stock combination or
other recapitalization occurring after the date
hereof).
“
Rule 144 ”
has the meaning set forth in
Section 9.14 .
“
SEC ”
has the meaning set forth in the Recitals.
“
SEC Filings ”
has the meaning set forth in
Section 5.6 .
“
Securities ”
means the Preferred Stock, the Conversion Shares, the shares of
Common Stock issuable as payment-in-kind dividends on the Preferred
Stock in accordance with the terms thereof, the Warrants and the
Warrant Shares.
“
Series B Preferred Stock ”
shall mean the 300 shares of Series B Convertible Preferred Stock,
par value $.00001, issued pursuant to that certain Securities
Purchase Agreement dated as of April 12, 2007, as amended on May 2,
2007.
“
Series B Warrants ”
shall have the meaning set forth in Section 7.3.
“
Signing Date ”
has the meaning set forth in the Recitals.
“
Subsidiary ”
has the meaning set forth in
Section 5.1 .
“
Transaction Documents ”
means this Agreement, the Warrants and the Registration Rights
Agreement.
“
Warrant Shares ”
means the shares of Common Stock issuable upon exercise of the
Warrants.
“
Warrants ”
has the meaning set forth in the Recitals.
“
Xmark Entities ”
means, collectively, Xmark Opportunity Fund, L.P., a Delaware
limited partnership (“
Xmark LP ”)
and Xmark Opportunity Fund, Ltd., a Cayman Islands exempted company
(“
Xmark Ltd ”).
2.
Purchase and Sale of Securities .
Subject
to the terms and conditions of this Agreement, including
without limitation, the conditions set forth in
Section 8 ,
there shall be a closing at which the Company shall issue and sell,
and each Investor listed on
Schedule I attached
hereto, which
Schedule I may
be amended from time to time, with the prior written consent of the
Investors, to add additional Investors who agree to purchase
Preferred Stock in the Private Placement by executing a counterpart
to this Agreement following the date hereof, shall severally, and
not jointly, purchase, the number of shares of Preferred Stock and
the number of Warrants, in each case, in the respective amounts set
forth opposite their names on
Schedule I affixed
hereto, in exchange for the cash consideration set forth as the
“Closing Purchase Price” opposite their respective
names on
Schedule I affixed
hereto.
3.
Escrow .
3.1.
(a)
Simultaneously with the execution and delivery of this
Agreement by an Investor, such Investor shall promptly cause a
wire transfer of immediately available funds (U.S. dollars) in
an amount representing the “Closing Purchase
Price” on such Investor’s signature page affixed
hereto and opposite such Investor’s name thereon, to be
paid to a non-interest bearing escrow account of Lowenstein
Sandler PC, the Lead Investors’ counsel (“
Lead
Investor Counsel ”),
set forth on
Schedule II affixed
hereto (the aggregate amounts received being held in escrow by Lead
Investor Counsel are referred to herein as the “
Escrow Amount ”).
Lead Investor Counsel shall hold the Escrow Amount in escrow in
accordance with
Section 3.1(b) .
(b)
The
Lead Lead Investor Counsel shall continue to hold the Escrow
Amount in escrow in accordance with and subject to this
Agreement, from the date of its receipt of the funds
constituting the Escrow Amount until the soonest
of:
(i)
the Escrow Termination Date ,
in which case, if Lead Investor Counsel then holds any portion of
the Escrow Amount, then: (A) Lead Investor Counsel shall return the
portion of the Escrow Amount received from each Investor which it
then holds, to each such Investor, in accordance with written wire
transfer instructions received from such Investor; and (B) if Lead
Investor Counsel has not received written wire transfer
instructions from any Investor before the 30
th day
after the Escrow Termination Date, then Lead Investor Counsel may,
in its sole and absolute discretion, either (x) deposit that
portion of the Escrow Amount to be returned to such Investor in a
court of competent jurisdiction on written notice to such Investor,
and Lead Investor Counsel shall thereafter have no further
liability with respect to such deposited funds, or (y) continue to
hold such portion of the Escrow Amount pending receipt of written
wire transfer instructions from such Investor or an order from a
court of competent jurisdiction;
OR
(ii)
in the case of the Closing ,
receipt of written instructions from the Lead Investors that the
Closing shall have been consummated, in which case, Lead Investor
Counsel shall release the Escrow Amount constituting the aggregate
of all the “Closing Purchase Price” for each of the
Investors (the “Aggregate Purchase Price”) as follows:
(A) the Placement Agent Fee to the Placement Agent, (B) the Lead
Investor Counsel Fees to the Lead Investor Counsel and (B) the
balance of the aggregate “Closing Purchase Price” to
the Company.
3.2.
The
Company and the Investors acknowledge and agree for the
benefit of Lead Investor Counsel (which shall be deemed to be
a third party beneficiary of this
Section 3 and
of
Section 11 )
as follows:
(a)
Investor
Counsel: (i) is not responsible for the performance by the
Company, the Investors or Placement Agent of this Agreement or
any of the Transaction Documents or for determining or
compelling compliance therewith; (ii) is only responsible for
(A) holding the Escrow Amount in escrow pending receipt of
written instructions from the Investors directing the release
of the Escrow Amount, and (B) disbursing the Escrow Amount in
accordance with the written instructions from the Investors,
each of the responsibilities of Lead Investor Counsel in
clause (A) and (B) is ministerial in nature, and no implied
duties or obligations of any kind shall be read into this
Agreement against or on the part of Lead Investor Counsel
(collectively, the “
Lead Investor Counsel Duties ”);
(iii) shall not be obligated to take any legal or other action
hereunder which might in its judgment involve or cause it to incur
any expense or liability unless it shall have been furnished with
indemnification acceptable to it, in its sole discretion; (iv) may
rely on and shall be protected in acting or refraining from acting
upon any written notice, instruction (including, without
limitation, wire transfer instructions, whether incorporated herein
or provided in a separate written instruction), instrument,
statement, certificate, request or other document furnished to it
hereunder and believed by it to be genuine and to have been signed
or presented by the proper Person, and shall have no responsibility
for making inquiry as to, or for determining, the genuineness,
accuracy or validity thereof, or of the authority of the Person
signing or presenting the same; (v) may consult counsel
satisfactory to it, and the opinion or advice of such counsel in
any instance shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or
advice of such counsel; and (vi) shall be authorized to receive
from the Escrow Amount, on the applicable Closing Date, the Lead
Investor Counsel Fees. Documents and written materials referred to
in this
Section 3.2(a) include,
without limitation, e-mail and other electronic transmissions
capable of being printed, whether or not they are in fact printed;
and any such e-mail or other electronic transmission may be deemed
and treated by Lead Investor Counsel as having been signed or
presented by a Person if it bears, as sender, the Person’s
e-mail address.
(b)
Lead
Investor Counsel shall not be liable to anyone for any action
taken or omitted to be taken by it hereunder, except in the
case of Investor Counsel’s gross negligence or willful
misconduct in breach of the Lead Investor Counsel Duties. IN
NO EVENT SHALL LEAD INVESTOR COUNSEL BE LIABLE FOR INDIRECT,
PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGE OR LOSS (INCLUDING
BUT NOT LIMITED TO LOST PROFITS) WHATSOEVER, EVEN IF LEAD
INVESTOR COUNSEL HAS BEEN INFORMED OF THE LIKELIHOOD OF SUCH
LOSS OR DAMAGE AND REGARDLESS OF THE FORM OF
ACTION.
(c)
The
Company and the Investors hereby indemnify and hold harmless
Lead Investor Counsel from and against any and all loss,
liability, cost, damage and expense, including, without
limitation, reasonable counsel fees and expenses, which Lead
Investor Counsel may suffer or incur by reason of any action,
claim or proceeding brought against Lead Investor Counsel
arising out of or relating to the performance of the Lead
Investor Counsel Duties, unless such action, claim or
proceeding is exclusively the result of the willful
misconduct, bad faith or gross negligence of Investor
Counsel.
(d)
Lead
Investor Counsel has acted as legal counsel to one or more of
the Investors in connection with this Agreement and the other
Transaction Documents, is merely acting as a stakeholder under
this Agreement and is, therefore, hereby authorized to
continue acting as legal counsel to such Lead Investors
including, without limitation, with regard to any dispute
arising out of this Agreement, the other Transaction
Documents, the Escrow Amount or any other matter. Each of the
Company and the Investors hereby expressly consents to permit
Lead Investor Counsel to represent such Investors in
connection with all matters relating to this Agreement,
including, without limitation, with regard to any dispute
arising out of this Agreement, the other Transaction
Documents, the Escrow Amount or any other matter, and hereby
waives any conflict of interest or appearance of conflict or
impropriety with respect to such representation. Each of the
Company and the Investors has consulted with its own counsel
specifically about this
Section 3 to
the extent they deemed necessary, and has entered into this
Agreement after being satisfied with such advice.
(e)
Lead
Investor Counsel shall have the right at any time to resign
for any reason and be discharged of its duties as escrow agent
hereunder (including without limitation the Lead Investor
Counsel Duties) by giving written notice of its resignation to
the Company and the Lead Investors at least ten (10) calendar
days prior to the specified effective date of such
resignation. All obligations of the Lead Investor Counsel
hereunder shall cease and terminate on the effective date of
its resignation and its sole responsibility thereafter shall
be to hold the Escrow Amount, for a period of ten (10)
calendar days following the effective date of resignation, at
which time,
(i)
Lead
Investor Counsel shall be entitled to receive from the Escrow
Amount the Lead Investor Counsel Fees through and including
the effective date of resignation; and
(ii)
if
a successor escrow agent shall have been appointed and have
accepted such appointment in a writing to both the Company and
the Lead Investors, then upon written notice thereof given to
each of the Investors, the Lead Investor Counsel shall deliver
the Escrow Amount to the successor escrow agent, and upon such
delivery, Lead Investor Counsel shall have no further
liability or obligation; or
(iii)
if
a successor escrow agent shall not have been appointed, for
any reason whatsoever, Lead Investor Counsel shall at its
option in its sole discretion, either (A) deliver the Escrow
Amount to a court of competent jurisdiction selected by Lead
Investor Counsel and give written notice thereof to the
Company and the Investors, or (B) continue to hold Escrow
Amount in escrow pending written direction from the Company
and the Lead Investors in form and formality satisfactory to
Investor Counsel.
(f)
In
the event that the Lead Investor Counsel shall be uncertain as
to its duties or rights hereunder or shall receive
instructions with respect to the Escrow Amount or any portion
thereunder which, in its sole discretion, are in conflict
either with other instructions received by it or with any
provision of this Agreement, Lead Investor Counsel shall have
the absolute right to suspend all further performance under
this Agreement (except for the safekeeping of such Escrow
Amount) until such uncertainty or conflicting instructions
have been resolved to the Investor Counsel’s sole
satisfaction by final judgment of a court of competent
jurisdiction, joint written instructions from the Company and
all of the Investors, or otherwise. In the event that any
controversy arises between the Company and one or more of the
Investors or any other party with respect to this Agreement or
the Escrow Amount, the Lead Investor Counsel shall not be
required to determine the proper resolution of such
controversy or the proper disposition of the Escrow Amount,
and shall have the absolute right, in its sole discretion, to
deposit the Escrow Amount with the clerk of a court selected
by the Lead Investor Counsel and file a suit in interpleader
in that court and obtain an order from that court requiring
all parties involved to litigate in that court their
respective claims arising out of or in connection with the
Escrow Amount. Upon the deposit by the Lead Investor Counsel
of the Escrow Amount with the clerk of such court in
accordance with this provision, the Lead Investor Counsel
shall thereupon be relieved of all further obligations and
released from all liability hereunder.
(g)
The
provisions of this
Section 3 shall
survive any termination of this Agreement.
4.
Closing .
4.1
Place .
The closings of the transactions contemplated by this Agreement
(the “
Closing ”)
shall take place at the offices of Investor Counsel, 1251 Avenue of
the Americas, New York, New York, or at such other location and on
such other date as the Company and the Investors shall mutually
agree (or remotely via the exchange of documents and signatures),
on the Closing Date.
4.2
Closing .
Upon satisfaction of the conditions to Closing set forth in
Section 8 hereof,
the Lead Investors shall instruct Lead Investor Counsel to
immediately release, and upon receipt of such instructions, Lead
Investor Counsel shall release, that portion of the Escrow Amount
constituting the Aggregate Purchase Price as follows: (A) the Lead
Investor Counsel Fees to the Lead Investor Counsel and (B) the
balance of the Aggregate Purchase Price to the Company (the date of
receipt of such balance by the Company is hereinafter referred to
as the “
Closing Date ”).
On the Closing Date, the Company shall issue or cause to be issued
to each Investor a certificate or certificates, registered in such
name or names as each such Investor may designate, representing the
number of shares of Preferred Stock
as
is set forth opposite such Investor’s name on
Schedule I affixed
hereto and shall also issue to each such Investor, or such
Investor’s respective designees, the number of Warrants as is
set forth opposite such Investor’s name on
Schedule
I affixed
hereto.
5.
Representations and Warranties of the Company
.
The Company hereby represents and warrants to the Investors on and
as of the Signing Date and on the Closing Date, knowing and
intending their reliance hereon, that, except as set forth in the
schedules delivered on the Signing Date (collectively, the
“
Disclosure Schedules ”):
5.1.
Organization, Good Standing and Qualification
.
Each of the Company and its Subsidiaries, a complete list of which
is set forth in
Schedule 5.1 hereto
(“
Subsidiaries ”),
is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to carry on its
business as now conducted and to own its properties. Each of the
Company and its Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or its leasing
of property makes such qualification or licensing necessary, unless
the failure to so qualify would not have a Material Adverse
Effect.
5.2.
Authorization .
The Company has full power and authority and has taken all
requisite action on the part of the Company, its officers,
directors and stockholders necessary for (i) the authorization,
execution and delivery of the Transaction Documents and the
Certificate of Designations, (ii) authorization of the performance
of all obligations of the Company hereunder or thereunder, and
(iii) the authorization, issuance (or reservation for issuance) and
delivery of the Securities .
The
Transaction Documents constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting
creditors’ rights generally.
5.3.
Capitalization .
(a)
Schedule 5.3 sets
forth (i) the authorized capital stock of the Company on the date
hereof, (ii) the number of shares of capital stock issued and
outstanding, (iii) the number of shares of capital stock issuable
pursuant to the Company’s stock plans, and (iv) the number of
shares of capital stock issuable and reserved for issuance pursuant
to securities (other than the Securities) exercisable for, or
convertible into or exchangeable for any shares of capital stock of
the Company. All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of pre-emptive
rights and were issued in full compliance with applicable law and
any rights of third parties. All of the issued and outstanding
shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid, nonassessable and
free of pre-emptive rights, were issued in full compliance with
applicable law and any rights of third parties and are owned by the
Company, beneficially and of record, and, except as described
on
Schedule 5.3 ,
are subject to no lien, encumbrance or other adverse claim. No
Person is entitled to pre-emptive or similar statutory or
contractual rights with respect to any securities of the Company.
Except as described on
Schedule 5.3 ,
there are no outstanding warrants, options, convertible securities
or other rights, agreements or arrangements of any character under
which the Company or any of its Subsidiaries is or may be obligated
to issue any equity securities of any kind and, except as
contemplated by this Agreement, neither the Company nor any of its
Subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind. Except as described on
Schedule 5.3 and
except for the Registration Rights Agreement, there are no voting
agreements, buy-sell agreements, option or right of first purchase
agreements or other agreements of any kind among the Company and
any of its security holders relating to the securities of the
Company. Except as described on
Schedule 5.3, the
Company has not granted any Person the right to require the Company
to register any of its securities under the 1933 Act, whether on a
demand basis or in connection with the registration of securities
of the Company for its own account or for the account of any other
Person.
(b)
Schedule 5.3 sets
forth a true and complete table setting forth the pro forma
capitalization of the Company on a fully diluted basis giving
effect to (i) the issuance of the Preferred Stock and the Warrants
at the time of the Closing, (ii) any adjustments in other
securities resulting from the issuance of the Preferred Stock and
the Warrants at the time of the Closing, and (iii) the exercise or
conversion of all outstanding securities. Except as described
on
Schedule 5.3 ,
the issuance and sale of the Securities hereunder will not obligate
the Company to issue shares of Common Stock or other securities to
any other Person (other than the Investors) and will not result in
the adjustment of the exercise, conversion, exchange or reset price
of any outstanding security.
(c)
Except
as set forth on
Schedule 5.3 ,
the Company does not have outstanding stockholder purchase rights
or any similar arrangement in effect giving any Person the right to
purchase any equity interest in the Company upon the occurrence of
certain events.
5.4.
Valid Issuance .
The Preferred Stock has been duly and validly authorized and when
issued to the Investors in accordance with the terms of this
Agreement will be validly issued, fully paid and nonassessable,
shall have the rights, preferences and limitations set forth in the
Certificate of Designations and shall be free and clear of all
liens, claims, encumbrances and restrictions, except for
restrictions on transfer set forth in the Transaction Documents and
the Certificate of Designations or imposed by applicable securities
laws. Upon the due conversion of the Preferred Stock, the
Conversion Shares will be validly issued, fully paid and
nonassessable, and shall be free and clear of all liens, claims,
encumbrances and restrictions, except for restrictions on transfer
set forth in the Transaction Documents and the Certificate of
Designations or imposed by applicable securities laws. The Warrants
have been duly and validly authorized and, upon the due exercise of
the Warrants, the Warrant Shares will be validly issued, fully paid
and non-assessable, and shall be free and clear of all liens,
claims, encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents and the Certificate
of Designations or imposed by applicable securities laws. The
Company has reserved a sufficient number of shares of Common Stock
for issuance upon conversion of the Preferred Stock and exercise of
the Warrants.
5.5.
Consents .
T he
execution,
delivery and performance by the Company of the Transaction
Documents and the Certificate of Designations and the offer,
issuance and sale of the Securities require no consent of, action
by or in respect of, or filing with, any Person, governmental body,
agency, or official other than those consents set forth on
Schedule 5.5 and
filings that have been made pursuant to applicable state securities
laws and post-sale filings pursuant to applicable state and federal
securities laws which the Company undertakes to file within the
applicable time periods. The Company has taken all action necessary
to exempt (i) the issuance and sale of the Securities, (ii) the
issuance of the Conversion Shares upon due conversion of the
Preferred Stock, (iii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iv) the other transactions
contemplated by the Transaction Documents from the provisions of
any anti-takeover, business combination or control share law or
statute binding on the Company or to which the Company or any of
its assets and properties may be subject or any provision of the
Company’s Certificate of Incorporation, Bylaws or any
stockholder rights agreement that is or could become applicable to
the Investors as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and
the ownership, disposition or voting of the Securities by the
Investors or the exercise of any right granted to the Investors
pursuant to this Agreement, the Certificate of Designations or the
other Transaction Documents.
5.6.
Delivery of SEC Filings; Business .
Copies of the Company’s most recent Annual Report on Form
10-KSB for the fiscal year ended December 31, 2007 (the
“
10-KSB ”),
and all other reports filed by the Company pursuant to the 1934 Act
since the filing of the 10-KSB and prior to the date hereof
(collectively, the “
SEC Filings ”)
are available on EDGAR. The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period.
The Company and its Subsidiaries are engaged only in the business
described in the SEC Filings and the SEC Filings contain a complete
and accurate description in all material respects of the business
of the Company and its Subsidiaries, taken as a whole.
5.7.
No Material Adverse Change .
Except as contemplated herein, identified and described in the SEC
Filings or as described on
Schedule 5.7(a) ,
since January 1, 2008, there has not been:
(i)
any
change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that
reflected in the financial statements included in the SEC
Filings, except for changes in the ordinary course of business
which have not and could not reasonably be expected to have a
Material Adverse Effect, individually or in the
aggregate;
(ii)
any
declaration or payment of any dividend, or any authorization
or payment of any distribution, on any of the capital stock of
the Company, or any redemption or repurchase of any securities
of the Company;
(iii)
any
material damage, destruction or loss, whether or not covered
by insurance to any assets or properties of the Company or its
Subsidiaries;
(iv)
any
waiver, not in the ordinary course of business, by the Company
or any Subsidiary of a material right or of a material debt
owed to it;
(v)
any
satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company or a Subsidiary,
except in the ordinary course of business and which is not
material to the assets, properties, financial condition,
operating results, prospects or business of the Company and
its Subsidiaries taken as a whole;
(vi)
any
change or amendment to the Company's Certificate of
Incorporation or Bylaws, or material change to any Material
Contract or arrangement by which the Company or any Subsidiary
is bound or to which any of their respective assets or
properties is subject;
(vii)
any
material labor difficulties or labor union organizing
activities with respect to employees of the Company or any
Subsidiary;
(viii)
any
transaction entered into by the Company or a Subsidiary other
than in the ordinary course of business;
(ix)
the
loss of the services of any key employee, or material change
in the composition or duties of the senior management of the
Company or any Subsidiary;
(x)
the
loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect;
or
(xi)
any
other event or condition of any character that has had or
could reasonably be expected to have a Material Adverse
Effect.
5.8.
SEC Filings .
At
the time of filing thereof, the SEC Filings complied as to form in
all material respects with the requirements of the 1934 Act and did
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they
were made, not misleading. The Company is not (with or without the
lapse of time or the giving of notice, or both) in breach or
default of any Material Contract and, to the Company’s
Knowledge, no other party to any Material Contract is (with or
without the lapse of time or the giving of notice, or both) in
breach or default of any Material Contract. Neither the Company nor
any Subsidiary has received any notice of the intention of any
party to terminate any Material Contract.
5.9.
No Conflict, Breach, Violation or Default .
The execution, delivery and performance of the Transaction
Documents and the Certificate of Designations by the Company and
the issuance and sale of the Securities will not conflict with or
result in a breach or violation of any of the terms and provisions
of, or constitute a default under (i) the Company’s
Certificate of Incorporation or Bylaws, both as in effect on the
date hereof (true and accurate copies of which have been provided
to the Investors before the date hereof), or (ii)(a) any statute,
rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company,
any Subsidiary or any of their respective assets or properties, or
(b) except as set forth on
Schedule 5.9, any
agreement or instrument to which the Company or any Subsidiary is a
party or by which the Company or a Subsidiary is bound or to which
any of their respective assets or properties is subject.
5.10.
Tax Matters .
Each of the Company and each Subsidiary has timely prepared and
filed all tax returns required to have been filed by the Company or
such Subsidiary with all appropriate governmental agencies and
timely paid all taxes shown thereon or otherwise owed by it. The
charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are adequate in all
material respects, and there are no material unpaid assessments
against the Company or any Subsidiary nor, to the Company’s
Knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any
federal, state or local taxing authority except for any assessment
which is not material to the Company and its Subsidiaries, taken as
a whole. All taxes and other assessments and levies that the
Company or any Subsidiary is required to withhold or to collect for
payment have been duly withheld and collected and paid to the
proper governmental entity or third party when due. There are no
tax liens or claims pending or, to the Company’s Knowledge,
threatened against the Company or any Subsidiary or any of their
respective assets or properties. Except as described on
Schedule 5.10 ,
there are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other
corporation or entity. Neither the Company nor any Subsidiary is
presently undergoing any audit by a taxing authority, or has waived
or extended any statute of limitations at the request of any taxing
authority.
5.11.
Title to Properties .
Except as disclosed in the SEC Filings or as set forth on
Schedule 5.11 ,
the Company and each Subsidiary has good and marketable title to
all real properties and all other properties and assets owned by
it, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere
with the use made or currently planned to be made thereof by them;
and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid
and enforceable leases with no exceptions that would materially
interfere with the use made or currently planned to be made thereof
by them.
5.12.
Certificates, Authorities and Permits .
The Company and each Subsidiary possess adequate certificates,
authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by it, and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to
the Company or such Subsidiary, could reasonably be expected to
have a Material Adverse Effect, individually or in the
aggregate.
5.13.
No Labor Disputes .
No material labor dispute with the employees of the Company or any
Subsidiary exists or, to the Company’s Knowledge, is
imminent.
5.14.
Intellectual Property .
(a)
All
Intellectual Property of the Company and its Subsidiaries is
currently in compliance with all legal requirements (including
timely filings, proofs and payments of fees) and is valid and
enforceable. Except as listed on
Schedule 5.14(a) ,
no Intellectual Property of the Company or its Subsidiaries which
is necessary for the conduct of Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or
as currently proposed to be conducted has been or is now involved
in any cancellation, dispute or litigation, and, to the
Company’s Knowledge, no such action is threatened. Except as
listed on
Schedule 5.14(a) ,
no patent of the Company or its Subsidiaries has been or is now
involved in any interference, reissue, re-examination or opposition
proceeding.
(b)
All
of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property which are
necessary for the conduct of the Company’s and each of
its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which
the Company or any Subsidiary is a party or by which any of
their assets are bound (other than generally
commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less
than $25,000 per license) (collectively, “
License Agreements ”)
are valid and binding obligations of the Company or its
Subsidiaries that are parties thereto and, to the Company’s
Knowledge, the other parties thereto, enforceable in accordance
with their terms, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting the
enforcement of creditors’ rights generally, and there exists
no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of
time or both) a default by the Company or any of its Subsidiaries
under any such License Agreement.
(c)
The
Company and its Subsidiaries own or have the valid right to
use all of the Intellectual Property that is necessary for the
conduct of the Company’s and each of its
Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted, free and
clear of all liens, encumbrances, adverse claims or
obligations to license all such owned Intellectual Property
and Confidential Information, other than licenses entered into
in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its
Subsidiaries have a valid and enforceable right to use all
third party Intellectual Property and Confidential Information
used or held for use in the respective businesses of the
Company and its Subsidiaries as currently conducted or as
currently proposed to be conducted.
(d)
To
the Company’s Knowledge, the conduct of the
Company’s and its Subsidiaries’ businesses as
currently conducted and as currently proposed to be conducted
does not and will not infringe any Intellectual Property
rights of any third party or any confidentiality obligation
owed to a third party. To the Company’s Knowledge, the
Intellectual Property and Confidential Information of the
Company and its Subsidiaries which are necessary for the
conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently
proposed to be conducted are not being infringed by any third
party. Except as set forth on
Schedule 5.14(d) ,
there is no litigation or order pending or outstanding or, to the
Company’s Knowledge, threatened or imminent, that seeks to
limit or challenge or that concerns the ownership, use, validity or
enforceability of any Intellectual Property or Confidential
Information of the Company and its Subsidiaries and the
Company’s and its Subsidiaries’ use of any Intellectual
Property or Confidential Information owned by a third party, and,
to the Company’s Knowledge, there is no valid basis for the
same.
(e)
The
consummation of the transactions contemplated hereby will not
result in the alteration, loss, impairment of or restriction
on the Company’s or any of its Subsidiaries’
ownership or right to use any of the Intellectual Property or
Confidential Information which is necessary for the conduct of
the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently
proposed to be conducted.
(f)
To
the Company’s Knowledge, all software owned by the
Company or any of its Subsidiaries, and, to the
Company’s Knowledge, all software licensed from third
parties by the Company or any of its Subsidiaries, (i) is free
from any material defect, bug, virus, or programming, design
or documentation error; (ii) operates and runs in a reasonable
and efficient business manner; and (iii) conforms in all
material respects to the specifications and purposes
thereof.
(g)
The
Company and its Subsidiaries have taken reasonable steps to
protect the Company’s and its Subsidiaries’ rights
in their Intellectual Property and Confidential Information.
Each employee, consultant and contractor who has had access to
Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to
be conducted has executed an agreement to maintain the
confidentiality of such Confidential Information and has
executed appropriate agreements that are substantially
consistent with the Company’s standard forms therefor.
To the Company’s Knowledge, there has been no material
disclosure of any of the Company’s or its
Subsidiaries’ Confidential Information to any third
party without the Company’s consent.
5.15.
Environmental Matters .
Neither the Company nor any Subsidiary (i) is in violation of any
statute, rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively,
“
Environmental Laws ”),
(ii) owns or operates any real property contaminated with any
substance that is subject to any Environmental Laws, (iii) is
liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and (iv) is subject to any claim relating to
any Environmental Laws; which violation, contamination, liability
or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no
pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.
5.16.
Litigation .
Except as disclosed in the SEC Filings, there are no pending
actions, suits or proceedings against or affecting the Company, its
Subsidiaries or any of its or their properties; and to the
Company’s Knowledge, no such actions, suits or proceedings
are threatened or contemplated.
5.17.
Financial Statements .
The financial statements included in each SEC Filing fairly present
the consolidated financial position of the Company as of the dates
shown and its consolidated results of operations and cash flows for
the periods shown, and such financial statements have been prepared
in conformity with United States generally accepted accounting
principles applied on a consistent basis. Except as set forth in
the financial statements of the Company included in the SEC Filings
filed prior to the date hereof, neither the Company nor any of its
Subsidiaries has incurred any liabilities, contingent or otherwise,
except those which, individually or in the aggregate, have not had
or could not reasonably be expected to have a Material Adverse
Effect.
5.18.
Insurance Coverage .
The Company and each Subsidiary maintains in full force and effect
insurance coverage and the Company reasonably believes such
insurance coverage is adequate.
5.19.
Brokers and Finders .
Except for the cash commission to be paid (the “
Placement Agent Fee ”)
to the Placement Agent pursuant to the terms of the Placement Agent
Agreement, as disclosed in
Schedule 5.19 or
as otherwise disclosed in
Schedule 5.19 ,
no Person will have, as a result of the transactions contemplated
by this Agreement, any valid right, interest or claim against or
upon the Company, any Subsidiary or any Investor for any
commission, fee or other compensation pursuant to any
agreeme
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