Exhibit 10.4
SECURITIES PURCHASE
AGREEMENT
This Securities Purchase Agreement
(this “ Agreement ”) is dated as of December 5,
2006 among Ceragenix Pharmaceuticals, Inc., a Delaware corporation
(the “ Company ”), and each purchaser identified
on the signature pages hereto (each, including its successors and
assigns, a “ Purchaser ” and collectively the
“ Purchasers ”).
WHEREAS, subject to the terms and
conditions set forth in this Agreement and pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the “
Securities Act ”), and Rule 506 promulgated
thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires
to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of
the mutual covenants contained in this Agreement, and for other
good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions
. In
addition to the terms defined elsewhere in this Agreement: (a)
capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein),
and (b) the following terms have the meanings set forth in this
Section 1.1:
“ Action ” shall
have the meaning ascribed to such term in Section
3.1(j).
“ Affiliate ”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a
Purchaser, any investment fund or managed account that is managed
on a discretionary basis by the same investment manager as such
Purchaser will be deemed to be an Affiliate of such
Purchaser.
“ Business Day ”
means any day except Saturday, Sunday, any day which shall be a
federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or
required by law or other governmental action to close.
“ Class A Warrants
” means those certain Class A Common Stock Purchase Warrants
issued by the Company to the Note Holders on November 28,
2005.
“ Closing ” means
the closing of the purchase and sale of the Securities pursuant to
Section 2.1.
“ Closing Date ”
means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and
all conditions precedent to (i) the Purchasers’ obligations
to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities have been satisfied or
waived.
“ Commission ”
means the Securities and Exchange Commission.
“ Common Stock ”
means the common stock of the Company, par value $0.0001 per share,
and any other class of securities into which such securities may
hereafter be reclassified or changed into.
“ Common Stock
Equivalents ” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that
is at any time convertible into or exercisable or exchangeable for,
or otherwise entitles the holder thereof to receive, Common
Stock.
“ Company Counsel
” means McKenna, Long & Aldridge LLP, with offices
located at 1875 Lawrence Street, Suite 200, Denver, Colorado
80203.
“ Conversion Price
” shall have the meaning ascribed to such term in the
Debentures.
“ Debentures ”
means, the 9% Secured Convertible Debentures due, subject to the
terms therein, 3 years from their date of issuance, issued by the
Company to the Purchasers hereunder, in the form of Exhibit
A attached hereto.
“ Disclosure Schedules
” shall have the meaning ascribed to such term in Section
3.1.
“ Effective Date
” means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement
is first declared effective by the Commission.
“ Evaluation Date
” shall have the meaning ascribed to such term in Section
3.1(r).
“ Exchange Act ”
means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
“ Exempt Issuance
” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted for such purpose by a majority of
the non-employee members of the Board of Directors of the Company
or a majority of the members of a committee of non-employee
directors established for the purpose of administering the
Company’s stock and/or option plans including the
Compensation Committee, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder, (c)
securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the
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disinterested directors of the
Company, provided any such issuance shall only be to a Person which
is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of
funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or
to an entity whose primary business is investing in securities and
(d) securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this
Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion
price of such securities; provided , however , the
term “Exempt Issuance” for purposes of Section 5 of the
Debentures and Section 3 of the Warrants shall not include shares
of Common Stock issued or issuable upon conversion, exchange or
exercise of the Notes, the Class A Warrants or other Common Stock
Equivalents outstanding as of the date hereof in the event there is
any adjustment to the conversion, exercise or exchange price of
such Notes, the Class A Warrants or other Common Stock
Equivalents. For clarity, any such adjustment to the
conversion, exercise or exchange price of the Notes, the Class A
Warrants or other Common Stock Equivalents shall be subject to
Section 5 of the Debentures and Section 3 of the
Warrants.
“ FWS ” means
Feldman Weinstein & Smith LLP with offices located at 420
Lexington Avenue, Suite 2620, New York, New York
10170-0002.
“ GAAP ” shall
have the meaning ascribed to such term in Section
3.1(h).
“ Indebtedness ”
shall have the meaning ascribed to such term in Section
3.1(bb).
“ Intellectual Property
Rights ” shall have the meaning ascribed to such term in
Section 3.1(o).
“ Intercreditor
Agreement ” means that certain Intercreditor Agreement in
the Form of Exhibit H attached hereto, dated as of the date
hereof between the Purchasers and Note Holders.
“ Legend Removal Date
” shall have the meaning ascribed to such term in Section
4.1(c).
“ Liens ” means a
lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
“ Material Adverse
Effect ” shall have the meaning assigned to such term in
Section 3.1(b).
“ Material Permits
” shall have the meaning ascribed to such term in Section
3.1(m).
“ Maximum Rate ”
shall have the meaning ascribed to such term in Section
5.17.
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“ Note Holders ”
means Longview Equity Fund, LP, Longview Fund, LP, Alpha Capital
Aktiengesellschaft and Iroquois Capital.
“ Notes ” means
those secured convertible notes issued by the Company to the Note
Holders on November 28, 2005 in the original aggregate principal
amount of $3,200,000.
“ Participation Maximum
” shall have the meaning ascribed to such term in Section
4.13.
“ Permitted Lien
” shall have the meaning set forth in the
Debentures.
“ Person ” means
an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
“ Pre-Notice ”
shall have the meaning ascribed to such term in Section
4.13.
“ Proceeding ”
means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or
threatened.
“ Purchaser Party
” shall have the meaning ascribed to such term in Section
4.11.
“ Registration Rights
Agreement ” means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the
form of Exhibit B attached hereto.
“ Registration
Statement ” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by each Purchaser as
provided for in the Registration Rights Agreement.
“ Required Approvals
” shall have the meaning ascribed to such term in Section
3.1(e).
“ Required Minimum
” means, as of any date, the maximum aggregate number of
shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents, including any
Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures (including Underlying Shares issuable
as payment of interest), ignoring any conversion or exercise limits
set forth therein, and assuming that the Conversion Price is at all
times on and after the date of determination 75% of the then
Conversion Price on the Trading Day immediately prior to the date
of determination.
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“ Rule 144 ”
means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
“ SEC Reports ”
shall have the meaning ascribed to such term in Section
3.1(h).
“ Securities ”
means the Debentures, the Warrants, the Warrant Shares and the
Underlying Shares.
“ Securities Act
” means the Securities Act of 1933, as amended, and the rules
and regulations promulgated hereunder.
“ Security Agreement
” means the Amended and Restated Security Agreement, dated
the date hereof, among the Company, its Subsidiaries, the Note
Holders and the Purchasers, in the form of Exhibit E
attached hereto.
“ Security Documents
” shall mean the Security Agreement, the Subsidiary
Guarantees and any other documents and filing required thereunder
in order to grant the Purchasers a security interest in the assets
of the Company and the Subsidiaries as provided in the Security
Agreement, including all UCC-1 filing receipts Collateral. The
Purchasers and the Note Holders have agreed to hold their
respective security interests pari passu , pursuant to the
terms of the Intercreditor Agreement.
“ Series A Stockholders
” means those holders of the Company’s Series A
Convertible Preferred Stock.
“ Short Sales ”
means all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of
Common Stock).
“ Subscription Amount
” means, as to each Purchaser, the aggregate amount to be
paid for Debentures and Warrants purchased hereunder as specified
below such Purchaser’s name on the signature page of this
Agreement and next to the heading “Subscription
Amount”, in United States dollars and in immediately
available funds.
“ Subsequent Financing
” shall have the meaning ascribed to such term in Section
4.13.
“ Subsequent Financing
Notice ” shall have the meaning ascribed to such term in
Section 4.13.
“ Subsidiary ”
means any subsidiary of the Company as set forth on Schedule
3.1(a) .
“ Subsidiary Guarantee
” means the Subsidiary Guarantee, dated the date hereof, by
each Subsidiary in favor of the Purchasers, in the form of
Exhibit F attached hereto.
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“ Trading Day ”
means a day on which the Common Stock is listed or quoted for
trading on a Trading Market and, if the Common Stock is not then
listed or quoted for trading on a Trading Market, “Trading
Day” shall mean a Business Day.
“ Trading Market
” means the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in
question: the American Stock Exchange, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange or the OTC Bulletin Board.
“ Transaction Documents
” means this Agreement, the Debentures, the Warrants, the
Registration Rights Agreement, the Security Agreement, the
Subsidiary Guarantee, all exhibits and schedules hereto and thereto
and any other documents or agreements executed in connection with
the transactions contemplated hereunder.
“ Transfer Agent
” means Corporate Stock Transfer, with a mailing address of
3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209,
and a facsimile number of (303) 777-3094, and any successor
transfer agent of the Company.
“ Underlying Shares
” means the shares of Common Stock issued and issuable upon
conversion or redemption of the Debentures and upon exercise of the
Warrants and issued and issuable in lieu of the cash payment of
interest on the Debentures in accordance with the terms of the
Debentures.
“ Variable Rate
Transaction ” shall have the meaning ascribed to such
term in Section 4.14(b).
“ VWAP ” means,
for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price
of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. New York City time to 4:02 p.m. New York City time);
(b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board
and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Holder and
reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.
“ Warrants ”
means collectively the Common Stock purchase warrants delivered to
the Purchasers at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a
term of exercise equal to 5 years, in the form of
Exhibit C attached hereto.
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“ Warrant Shares
” means the shares of Common Stock issuable upon exercise of
the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closing
. On the
Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company
agrees to sell, and each Purchaser, severally and not jointly,
agrees to purchase, an aggregate of up to $5,000,000 in principal
amount of the Debentures. Each Purchaser shall deliver to the
Company, via wire transfer or a certified check, immediately
available funds equal to its Subscription Amount and the Company
shall deliver to each Purchaser its respective Debenture and a
Warrant, as determined pursuant to Section 2.2(a), and the Company
and each Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of
the conditions set forth in Sections 2.2 and 2.3, the Closing shall
occur at the offices of FWS or such other location as the parties
shall mutually agree.
2.2
Deliveries .
(a)
On the Closing
Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:
(i)
this Agreement
duly executed by the Company;
(ii)
a legal opinion
of Company Counsel, in the form of Exhibit D attached
hereto;
(iii)
a Debenture with
a principal amount equal to such Purchaser’s Subscription
Amount, registered in the name of such Purchaser;
(iv)
a Warrant
registered in the name of such Purchaser to purchase up to a number
of shares of Common Stock equal to 50% of such Purchaser’s
Subscription Amount divided by $2.15107, with an exercise price
equal to $2.37, subject to adjustment therein;
(v)
the Security
Agreement, duly executed by the Company and each Subsidiary, along
with all of the Security Documents, including the Subsidiary
Guarantees, duly executed by the parties thereto; and
(vi)
the Registration
Rights Agreement duly executed by the Company.
(b)
On the Closing
Date, each Purchaser shall deliver or cause to be delivered to the
Company the following:
(i)
this Agreement
duly executed by such Purchaser;
(ii)
such
Purchaser’s Subscription Amount by wire transfer to
the
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account as
specified in writing by the Company;
(iii)
the Security
Agreement duly executed by such Purchaser; and
(iv)
the Registration
Rights Agreement duly executed by such Purchaser.
2.3
Closing
Conditions .
(a)
The obligations
of the Company hereunder in connection with the Closing are subject
to the following conditions being met:
(i)
the accuracy in
all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained
herein;
(ii)
all obligations,
covenants and agreements of the Purchasers required to be performed
at or prior to the Closing Date shall have been performed;
and
(iii)
the delivery by
the Purchasers of the items set forth in Section 2.2(b) of this
Agreement.
(b)
The respective
obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being
met:
(i)
the accuracy in
all material respects when made and on the Closing Date of the
representations and warranties of the Company contained
herein;
(ii)
all obligations,
covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;
(iii)
the delivery by
the Company of the items set forth in Section 2.2(a) of this
Agreement;
(iv)
there shall have
been no Material Adverse Effect with respect to the Company since
the date hereof;
(v)
the Note Holders
shall have executed and delivered the Security Agreement;
and
(vi)
from the date
hereof to the Closing Date, trading in the Common Stock shall not
have been suspended by the Commission or the Company’s
principal Trading Market (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the
Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades
are
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reported by such
service, or on any Trading Market, nor shall a banking moratorium
have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or
inadvisable to purchase the Debentures at the Closing.
ARTICLE III.
REPRESENTATIONS AND
WARRANTIES
3.1
Representations and
Warranties of the Company . Except as set forth
under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “
Disclosure Schedules ”), which Disclosure Schedules
shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure,
the Company hereby makes the following representations and
warranties to each Purchaser:
(a)
Subsidiaries
. All of
the direct and indirect subsidiaries of the Company are set forth
on Schedule 3.1(a) . The Company owns, directly or
indirectly, all of the capital stock or other equity interests of
each Subsidiary free and clear of any Liens, other than Permitted
Liens, and all of the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities. If the Company has no
subsidiaries, all other references to the Subsidiaries or any of
them in the Transaction Documents shall be disregarded.
(b)
Organization
and Qualification . The Company and each
of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use
its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and
the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material adverse
effect on the results of operations, assets, business, prospects or
condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the Company’s ability to perform in any material respect
on a timely basis its obligations under any Transaction Document
(any of (i), (ii) or (iii), a “ Material Adverse
Effect ”) and no Proceeding has been instituted in any
such jurisdiction revoking,
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limiting or
curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c)
Authorization;
Enforcement . The Company has the
requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and
no further action is required by the Company, its board of
directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction
Document has been (or upon delivery will have been) duly executed
by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(d)
No
Conflicts . The execution,
delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under,
result in the creation of any Lien, except for Permitted Liens,
upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse
Effect.
(e)
Filings,
Consents and Approvals . Except as listed on
Schedule 3.1(e) , the Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i)
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filings required
pursuant to Section 4.6, (ii) the filing with the Commission of the
Registration Statement, (iii) the notice and/or application(s) to
each applicable Trading Market for the issuance and sale of the
Securities and the listing of the Underlying Shares for trading
thereon in the time and manner required thereby and (iv) the filing
of Form D with the Commission and such filings as are required to
be made under applicable state securities laws (collectively, the
“ Required Approvals ”).
(f)
Issuance of
the Securities . The Securities are
duly authorized and, when issued and paid for in accordance with
the applicable Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens
imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Underlying Shares, when
issued in accordance with the terms of the Transaction Documents,
will be validly issued, fully paid and nonassessable, free and
clear of all Liens imposed by the Company. The Company has
reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least
equal to the Required Minimum on the date hereof.
(g)
Capitalization
. The
capitalization of the Company is as set forth on Schedule
3.1(g) . The Company has not issued any capital stock
since its most recently filed periodic report under the Exchange
Act, other than pursuant to the exercise of employee stock options
under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plan and pursuant to the conversion or
exercise of Common Stock Equivalents outstanding as of the date of
the most recently filed periodic report under the Exchange
Act. No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate
in the transactions contemplated by the Transaction
Documents. Except as set forth on Schedule 3.1(g) or
as a result of the purchase and sale of the Securities, there are
no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable
or exchangeable for, or giving any Person any right to subscribe
for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. The issuance and sale of
the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares
of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. Except as disclosed in
Schedule 3.1(g) , no further approval or authorization of
any stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There
are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company’s capital stock to
which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s
stockholders.
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(h)
SEC Reports;
Financial Statements . Except as listed on
Schedule 3.1(h), Company has filed all reports, schedules, forms,
statements and other documents required to be filed by the Company
under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by
law or regulation to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the
“ SEC Reports ”) on a timely basis or has
received a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and none of the
SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of
the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods
involved (“ GAAP ”), except as may be otherwise
specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material
respects the financial position of the Company and its consolidated
Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
(i)
Material
Changes . Since the date of the
latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC
Report filed prior to the date hereof, (i) there has been no event,
occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made
with the Commission, (iii) the Company has not altered its method
of accounting, (iv) except as set forth on Schedule 3.1(i), the
Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed
or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant
to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential
treatment of information. Except for the issuance of the
Securities contemplated by this Agreement or as set forth on
Schedule 3.1(i) , no event, liability or development has
occurred or exists with respect to the Company or its Subsidiaries
or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is
made that has not been
12
publicly
disclosed at least one Trading Day prior to the date that this
representation is made.
(j)
Litigation
. There is
no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an
“ Action ”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any
current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.
(k)
Labor
Relations . No material labor
dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could
reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates
to such employee’s relationship with the Company, and neither
the Company or any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms
and conditions of employment and wages and hours, except where the
failure to be in compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
(l)
Compliance
. Neither
the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is bound
(whether or not such default or violation has been waived), (ii) is
in violation of any order of any court, arbitrator or governmental
body, or (iii) is or has been
13
in violation of
any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local
laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
(m)
Regulatory
Permits . The Company and the
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be
expected to result in a Material Adverse Effect (“
Material Permits ”), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(n)
Title to
Assets . The Company and the
Subsidiaries have good and marketable title in fee simple to all
real property owned by them that is material to the business of the
Company and the Subsidiaries and good and marketable title in all
personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of
all Liens, except for Permitted Liens or for Liens as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are
in compliance.
(o)
Patents and
Trademarks . The Company and the
Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as
described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the “
Intellectual Property Rights ”). Neither the
Company nor any Subsidiary has received a notice (written or
otherwise) that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property
Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the
aggregate, reasonably be expect to have a Material Adverse
Effect.
(p)
Insurance
. The
Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage
at
14
least equal to
the aggregate Subscription Amount. Neither the Company nor
any Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business without a significant
increase in cost.
(q)
Transactions
With Affiliates and Employees . Except as set forth
in the SEC Reports, none of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees
of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than (i) for payment of salary or
consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) for other
employee benefits, including stock option agreements under any
stock option plan of the Company.
(r)
Sarbanes-Oxley; Internal
Accounting Controls . The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 which are applicable to it as of the Closing Date.
The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules
and forms. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the
Exchange Act (such date, the “ Evaluation Date
”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been
no changes in the Company’s internal control over financial
reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial
reporting.
15
(s)
Certain
Fees .
Except as set forth on Schedule 3.1(s), no brokerage or
finder’s fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions
contemplated by the Transaction Documents.
(t)
Private
Placement . Assuming the accuracy
of the Purchasers’ representations and warranties set forth
in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to
the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations
of the Trading Market.
(u)
Investment
Company . The Company is not, and is
not an Affiliate of, and immediately after receipt of payment for
the Securities, will not be or be an Affiliate of, an
“investment company” within the meaning of the
Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become subject
to the Investment Company Act of 1940, as amended.
(v)
Registration
Rights . Other than each of
the Purchasers and as disclosed on Schedule 3.1 (v) , , no
Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the
Company.
(w)
Listing and
Maintenance Requirements . The Company’s
Common Stock is registered pursuant to Section 12(b) or 12(g) of
the Exchange Act, and the Company has taken no action designed to,
or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the
Commission is contemplating terminating such registration.
The Company has not, in the 12 months preceding the date hereof,
received notice from any Trading Market on which the Common Stock
is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe
that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance
requirements.
(x)
Application of
Takeover Protections . The Company and its
Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under
the Company’
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