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SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

Warrant Agreement

SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT | Document Parties: BIOFORCE NANOSCIENCES HOLDINGS, INC. You are currently viewing:
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BIOFORCE NANOSCIENCES HOLDINGS, INC.

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Title: SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
Governing Law: Delaware     Date: 9/7/2007
Law Firm: McCarter English    

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            SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE

                                    AGREEMENT

                           Dated as of August 31, 2007

                                      among


                      BIOFORCE NANOSCIENCES HOLDINGS, INC.

                                       and

                       THE PURCHASERS LISTED ON EXHIBIT A

<PAGE>

                                TABLE OF CONTENTS

                                                                             PAGE

ARTICLE I Purchase and Sale of Preferred Stock.................................1

        Section 1.1    Purchase and Sale of Stock...............................1
        Section 1.2    Warrants.................................................1
        Section 1.3    Conversion Shares........................................1
        Section 1.4    Purchase Price and Closing...............................2

ARTICLE II Representations and Warranties......................................2

        Section 2.1    Representations and Warranties of the Company............2
        Section 2.2    Representations and Warranties of the Purchasers........13

ARTICLE III Covenants.........................................................16

        Section 3.1    Securities Compliance...................................16
        Section 3.2    Registration and Listing................................16
        Section 3.3    Inspection Rights.......................................17
        Section 3.4    Compliance with Laws....................................17
        Section 3.5    Keeping of Records and Books of Account.................17
        Section 3.6    Reporting Requirements..................................17
        Section 3.7    Amendments..............................................17
        Section 3.8    Other Agreements........................................17
        Section 3.9    Distributions...........................................17
        Section 3.10   Status of Dividends.....................................17
        Section 3.11   Use of Proceeds.........................................18
        Section 3.12   Reservation of Shares...................................18
        Section 3.13   Transfer Agent Instructions.............................18
        Section 3.14   Disposition of Assets...................................19
        Section 3.15   Reporting Status........................................19
        Section 3.16   Disclosure of Transaction ..............................19
         Section 3.17   Disclosure of Material Information......................19
        Section 3.18   Pledge of Securities....................................19
        Section 3.19   Form SB-2 Eligibility...................................20
        Section 3.20   Lock-Up Agreements......................................20
        Section 3.21   Subsequent Financings...................................20

ARTICLE IV Conditions.........................................................23

        Section 4.1    Conditions Precedent to the Obligation of the
               Company to Sell the Shares.....................................23
        Section 4.2    Conditions Precedent to the Obligation of the
               Purchasers to Purchase the Shares..............................24

ARTICLE V Stock Certificate Legend............................................26

        Section 5.1    Legend..................................................26

ARTICLE VI Indemnification....................................................28

        Section 6.1    General Indemnity.......................................28
        Section 6.2    Indemnification Procedure...............................28

ARTICLE VII Miscellaneous.....................................................29

         Section 7.1    Fees and Expenses.......................................29
        Section 7.2    Specific Enforcement, Consent to Jurisdiction...........30
        Section 7.3    Entire Agreement; Amendment.............................30
        Section 7.4    Notices.................................................31
        Section 7.5    Waivers.................................................32
        Section 7.6    Headings................................................32
        Section 7.7    Successors and Assigns..................................32
        Section 7.8    No Third Party Beneficiaries............................32
        Section 7.9    Governing Law...........................................32
        Section 7.10   Survival................................................32
        Section 7.11   Counterparts............................................32
        Section 7.12   Publicity...............................................32
        Section 7.13   Severability............................................33
        Section 7.14   Further Assurances......................................33

<PAGE>

        SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

      This SERIES A CONVERTIBLE   PREFERRED STOCK AND WARRANT PURCHASE   AGREEMENT
(the   "Agreement")   is   dated   as of   August   31,   2007   by and   among   BioForce
Nanosciences Holdings,   Inc., a Nevada corporation (the "Company"),   and each of
the   Purchasers   of Units,   as   described   below,   whose   names are set forth on
Exhibit   A   hereto    (individually,    a   "Purchaser"    and    collectively,    the
"Purchasers").

      The parties hereto agree as follows:

                                    ARTICLE I

                           Purchase and Sale of Units

      Section   1.1   Purchase   and Sale of Stock.   Upon the   following   terms and
conditions,   the Company shall issue and sell to the   Purchasers and each of the
Purchasers   shall purchase from the Company,   the number of units (the "Units"),
consisting   of:   (i)   two (2)   shares   of the   Company's   Series   A   Convertible
Preferred   Stock,    par   value   $0.001   per   share   (the   "Preferred    Shares"),
convertible   into shares of the   Company's   common   stock,   par value $0.001 per
share (the "Common Stock"),   (ii) a Series A Warrant,   in substantially the form
attached   hereto   as   Exhibit   C-1 (the   "Series A   Warrant"),   (iii) a Series B
Warrant, in substantially the form attached hereto as Exhibit C-2 (the "Series B
Warrant"),   (iv) two (2) Series C Warrants,   in substantially   the form attached
hereto as Exhibit C-3 (the "Series C   Warrant"),   (v) two (2) Series J Warrants,
in   substantially   the form   attached   hereto   as   Exhibit   C-4 (the   "Series   J
Warrants"),   (vi) a Series D Warrant,   in substantially the form attached hereto
as   Exhibit   C-5 (the   "Series D   Warrant"),   and (vii) a Series E   Warrant,   in
substantially   the form   attached   hereto as Exhibit C-6 (the "Series E Warrant"
and,   together   with the   Series A Warrant,   the Series B Warrant,   the Series C
Warrant,   the Series J Warrant and the Series D Warrant,   the   "Warrants"),   set
forth   opposite   such   Purchaser's   name on Exhibit A hereto.   The   designation,
rights,   preferences   and other terms and provisions of the Series A Convertible
Preferred   Stock are set forth in the Certificate of Designation of the Relative
Rights and   Preferences   of the Series A Convertible   Preferred   Stock   attached
hereto as Exhibit B (the   "Certificate   of   Designation").   The   Company and the
Purchasers are executing and delivering this Agreement in accordance with and in
reliance upon the exemption from securities registration afforded by Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange   Commission   (the   "Commission")   under the   Securities Act of 1933, as
amended (the "Securities Act"), or Section 4(2) of the Securities Act.

      Section 1.2 Warrants.   Each of the Warrants   shall have a term of five (5)
years, except for the Series J Warrant, which shall have a term of one (1) year.
Each of the Warrants has an exercise   price per share equal to the Warrant Price
(as defined in the applicable Warrant) and shall be exercisable as stated in the
applicable Warrant.   The number of shares of Common Stock issuable upon exercise
of   the   Warrants   issuable   to   each   Purchaser   is   set   forth   opposite   such
Purchaser's name on Exhibit A attached hereto.

<PAGE>

      Section 1.3 Conversion Shares. The Company has authorized and has reserved
and   covenants   to   continue   to reserve,   free of   preemptive   rights and other
similar   contractual rights of stockholders,   a number of shares of Common Stock
equal to one   hundred   twenty   percent   (120%) of the number of shares of Common
Stock as shall from time to time be sufficient   to effect the   conversion of all
of the   Preferred   Shares and exercise of the   Warrants   then   outstanding.   Any
shares of Common Stock   issuable upon   conversion   of the   Preferred   Shares and
exercise of the Warrants (and such shares when issued) are herein referred to as
the "Conversion   Shares" and the "Warrant Shares",   respectively.   The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes   collectively
referred to as the "Shares".  

      Section   1.4   Purchase   Price   and   Closing.   Subject   to   the   terms   and
conditions   hereof,   in   consideration   of   and in   express   reliance   upon   the
representations,   warranties, covenants, terms and conditions of this Agreement,
the   Company   agrees to issue   and sell to the   Purchasers   and the   Purchasers,
severally but not jointly, agree to purchase the Units for an aggregate purchase
price of Five Hundred Thousand Dollars   ($500,000) (the "Purchase   Price").   The
closing of the purchase   and sale of the Units to be acquired by the   Purchasers
from the Company under this Agreement   shall take place at the offices of Leser,
Hunter,   Taubman & Taubman, 17 State Street,   Floor 16, New York, New York 10004
(the   "Closing")   at 10:00 a.m.,   New York time (i) on or before   September   14,
2007;   provided,   that all of the   conditions set forth in Article IV hereof and
applicable   to the Closing   shall have been   fulfilled   or waived in   accordance
herewith, or (ii) at such other time and place or on such date as the Purchasers
and the Company may agree upon (the   "Closing   Date").   Subject to the terms and
conditions of this Agreement,   at the Closing the Company shall deliver or cause
to be delivered to each Purchaser (x) a certificate   for the number of Preferred
Shares set forth   opposite the name of such   Purchaser on Exhibit A hereto,   (y)
Warrants   corresponding to the number of Units as is set forth opposite the name
of such   Purchaser   on   Exhibit A attached   hereto   and (z) any other   documents
required to be delivered   pursuant to Article IV hereof.   At the   Closing,   each
Purchaser   shall   deliver its   Purchase   Price by wire   transfer in   immediately
available funds to an account designated by the Company.

                                   ARTICLE II

                          Representations and Warranties

      Section 2.1   Representations   and   Warranties of the Company.   The Company
hereby represents and warrants to the Purchasers,   as of the date hereof and the
Closing   Date   (except   as set   forth on the   Disclosure   Schedule   prepared   in
connection   with this Agreement (the   "Disclosure   Schedule") with each numbered
section of the Disclosure Schedule   corresponding to the section number herein),
as   follows:  

      (a)   Organization,   Good Standing and Power.   The Company is a corporation
duly   incorporated,   validly existing and in good standing under the laws of the
State of Nevada and has the requisite   corporate power to own, lease and operate
its   properties   and   assets   and to   conduct   its   business   as it is now being
conducted. The Company does not have any subsidiaries except as set forth in the
Company's   Form   10-KSB for the year ended   December   31,   2006,   including   the


                                       2
<PAGE>

accompanying   financial statements (the "Form 10-KSB"), or in the Company's Form
10-QSB   for the   fiscal   quarters   ended   March   31,   2007   and   June   30,   2007
(collectively,   the "Form   10-QSB"),   or in   Section   2.1(g)   of the   Disclosure
Schedule.   The Company and each such   subsidiary is duly   qualified as a foreign
corporation   to do business   and is in good   standing in every   jurisdiction   in
which the nature of the business   conducted   or property   owned by it makes such
qualification   necessary   except   for   any   jurisdiction(s)   (alone   or   in   the
aggregate)   in which the   failure   to be so   qualified   will not have a Material
Adverse Effect (as defined in Section 2.1(c) hereof) on the Company's   financial
condition.

      (b) Authorization;   Enforcement.   The Company has the requisite   corporate
power and authority to enter into and perform this Agreement,   the   Registration
Rights   Agreement in the form   attached   hereto as Exhibit D (the   "Registration
Rights   Agreement"),   the Lock-Up Agreements (as defined in Section 3.20 hereof)
in the form   attached   hereto   as   Exhibit   E, the   Irrevocable   Transfer   Agent
Instructions (as defined in Section 3.13) in the form attached hereto as Exhibit
F,   the   Certificate   of   Designation,   and   the   Warrants   (collectively,    the
"Transaction   Documents")   and to issue and sell the Shares and the   Warrants in
accordance with the terms hereof. The execution, delivery and performance of the
Transaction   Documents   by   the   Company   and   the   consummation   by it   of   the
transactions   contemplated   hereby   and   thereby   have   been   duly   and   validly
authorized by all necessary   corporate action, or will be so authorized prior to
the Closing, and no further consent or authorization of the Company or its Board
of Directors or stockholders will be required as of the Closing.   This Agreement
has been duly   executed   and   delivered by the   Company.   The other   Transaction
Documents   will have been duly   executed   and   delivered   by the   Company at the
Closing. Each of the Transaction Documents constitutes, or shall constitute when
executed   and   delivered,    a   valid   and   binding   obligation   of   the   Company
enforceable against the Company in accordance with its terms, except (a) as such
enforceability    may   be    limited    by    applicable    bankruptcy,    insolvency,
reorganization,    moratorium,   liquidation,   conservatorship,    receivership   or
similar laws relating to, or affecting   generally the enforcement of, creditor's
rights   and   remedies,   (b) as   such   enforceability   may be   limited   by   other
equitable   principles   of   general   application,    or   (c)   to   the   extent   the
indemnification provisions contained in the Registration Rights Agreement may be
limited by applicable federal or state securities laws.

      (c)   Capitalization.   The authorized   capital stock of the Company and the
shares thereof   currently   issued and   outstanding as of the date hereof are set
forth in   Section   2.1(c) of the   Disclosure   Schedule.   All of the   outstanding
shares of the Common Stock and the   Preferred   Shares have been duly and validly
authorized.   Except as set forth in Section 2.1(c) of the   Disclosure   Schedule,
(a) no shares of Common Stock are entitled to preemptive   rights or registration
rights   and   there   are no   outstanding   options,   warrants,   scrip,   rights   to
subscribe to, call or   commitments of any character   whatsoever   relating to, or
securities   or rights   convertible   into,   any   shares of   capital   stock of the
Company;   and   (b)   there   are no   contracts,   commitments,   understandings,   or
arrangements   by which the   Company is or may become   bound to issue   additional
shares of the   capital   stock of the Company or   options,   securities   or rights
convertible   into shares of capital   stock of the Company.   The Company is not a
party to any agreement granting   anti-dilution rights to any person with respect
to any of its equity or debt   securities.   The Company is not a party to, and it
has no knowledge   of, any   agreement   restricting   the voting or transfer of any


                                        3
<PAGE>

shares of the capital   stock of the   Company.   The offer and sale of all capital
stock,   convertible   securities,   rights,   warrants,   or options of the   Company
issued   between   February   24,   2006 and the Closing   complied   in all   material
respects with all   applicable   Federal and state   securities   laws,   and, to the
Company's   knowledge,   no   stockholder   has a right of   rescission   or claim for
damages   with respect   thereto   which would have a Material   Adverse   Effect (as
defined below). The Company has furnished, or will furnish prior to the Closing,
or made   available to the   Purchasers   true and correct   copies of the Company's
Articles of Incorporation as in effect on the date hereof (the "Articles"),   and
the   Company's   Bylaws as in effect on the date hereof (the   "Bylaws").   For the
purposes of this Agreement, "Material Adverse Effect" means any material adverse
effect on the business,   operations,   properties,   or financial condition of the
Company and its subsidiaries   and/or any condition,   circumstance,   or situation
that would   prohibit or otherwise   materially   interfere with the ability of the
Company to perform any of its   obligations   under this Agreement in any material
respect.

      (d) Issuance of Shares. The Preferred Shares and the Warrants to be issued
at the Closing have been duly authorized by all necessary   corporate   action, or
will be so authorized prior to the Closing,   and the Preferred Shares, when paid
for, issued and delivered in accordance with the terms hereof,   shall be validly
issued and outstanding,   fully paid and nonassessable and entitled to the rights
and preferences set forth in the Certificate of Designation. When the Conversion
Shares and the   Warrant   Shares are issued in   accordance   with the terms of the
Certificate of Designation and the Warrants,   respectively,   such shares will be
duly   authorized   by all   necessary   corporate   action   and   validly   issued and
outstanding, fully paid and nonassessable,   and the holders shall be entitled to
all rights accorded to a holder of Common Stock.

      (e) No Conflicts.   Except as set forth in Section 2.1(e) of the Disclosure
Schedule,   the execution,   delivery and performance of the Transaction Documents
by the Company,   the   performance   by the Company of its   obligations   under the
Certificate   of   Designation   and   the    consummation   by   the   Company   of   the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default)   under,   or   give to   others   any   rights   of   termination,   amendment,
acceleration   or   cancellation   of,   any   agreement,   mortgage,   deed of   trust,
indenture,   note, bond,   license,   lease agreement,   instrument or obligation to
which the   Company   is a party or by which it or its   properties   or assets   are
bound, (iii) create or impose a lien,   mortgage,   security   interest,   charge or
encumbrance   of any nature on any property of the Company under any agreement or
any   commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a   violation,   to its   knowledge,   of any   federal,   state,   local or foreign
statute,   rule,   regulation,   order,   judgment or decree (including   Federal and
state securities laws and   regulations)   applicable to the Company or any of its
subsidiaries   or by which any   property   or asset of the   Company   or any of its
subsidiaries are bound or affected,   except,   in all cases other than violations
pursuant   to clause   (i)   above,   for such   conflicts,   defaults,   terminations,
amendments,    accelerations,    cancellations    and    violations   as   would   not,
individually or in the aggregate, have a Material Adverse Effect. The Company is
not required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute,   deliver or perform any
of its   obligations   under   the   Transaction   Documents,   or issue   and sell the
Preferred Shares, the Warrants,   the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than any filings which may be


                                       4
<PAGE>

required   to be made by the   Company   with the   Commission   or state   securities
administrators subsequent to the Closing,   including but not limited to a Form D
and the   Certificate   of   Designation,   all of which   shall be filed on a timely
basis); provided that, for purposes of the representation made in this sentence,
the   Company   is   assuming   and   relying   upon   the   accuracy   of   the   relevant
representations and agreements of the Purchasers herein.

      (f) Commission Documents,   Financial Statements.   Since February 24, 2006,
the Company has timely filed all reports, schedules, forms, statements and other
documents   required   to be   filed   by it with   the   Commission   pursuant   to the
reporting   requirements of the Securities   Exchange Act of 1934, as amended (the
"Exchange Act"),, including material filed pursuant to Section 13(a) or 15(d) of
the   Exchange   Act   (all of the   foregoing   including   filings   incorporated   by
reference therein being referred to herein as the "Commission   Documents").   The
Company has not provided to the Purchasers any material   non-public   information
or other information which, according to applicable law, rule or regulation, was
required to have been   disclosed   publicly by the Company but which has not been
so disclosed,   other than with respect to the transactions   contemplated by this
Agreement.   At the times of their respective   filings,   or as of the date of the
last   amendment   thereto if amended after   filing,   the Form 10-KSB and the Form
10-QSB,   complied in all material   respects with the applicable   requirements of
the Exchange Act and the rules and   regulations   of the   Commission   promulgated
thereunder,   and, as of their   respective   dates,   or as of the date of the last
amendment thereto if amended after filing,   none of the Form 10-KSB and the Form
10-QSB   contained any untrue   statement of a material fact or omitted to state a
material   fact   required to be stated   therein or necessary in order to make the
statements   therein,   in light of the circumstances   under which they were made,
not   misleading.   The   financial   statements   of   the   Company   included   in the
Commission   Documents,   as such   financial   statements may have been restated in
subsequent   filings,   comply as to form in all material respects with applicable
accounting    requirements   and   the   published   rules   and   regulations   of   the
Commission or other applicable rules and regulations with respect thereto.   Such
financial   statements   have been   prepared   in   accordance   with   United   States
generally accepted accounting   principles ("GAAP") applied on a consistent basis
during the periods   involved   (except (i) as may be otherwise   indicated in such
financial   statements   or the   notes   thereto   or (ii) in the case of   unaudited
interim   statements,   to the extent   they may not   include   footnotes   or may be
condensed or summary   statements),   and fairly present in all material   respects
the   financial   position   of the Company   and its   subsidiaries   as of the dates
thereof and the results of operations   and cash flows for the periods then ended
(subject,   to any adjustments   described in the Commission   Documents and in the
case of unaudited statements, to normal year-end audit adjustments).

      (g)   Subsidiaries.   Section 2.1(g) of the   Disclosure   Schedule sets forth
each subsidiary of the Company, showing the jurisdiction of its incorporation or
organization   and showing the   percentage   of each person's   ownership.   For the
purposes of this   Agreement,   "subsidiary"   shall mean any   corporation or other
entity   of   which at   least a   majority   of the   securities   or other   ownership
interest   having   ordinary   voting power   (absolutely or   contingently)   for the
election of directors or other persons   performing   similar functions are at the
time   owned   directly   or   indirectly   by the   Company   and/or   any of its other
subsidiaries.   All of the outstanding shares of capital stock of each subsidiary
have   been   duly   authorized   and   validly   issued,    and   are   fully   paid   and
nonassessable.   There are no outstanding preemptive, conversion or other rights,


                                       5
<PAGE>

options,   warrants   or   agreements   granted   or   issued by or   binding   upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary   or   any   other   securities   convertible   into,   exchangeable   for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company   nor any   subsidiary   is subject to any   obligation   (contingent   or
otherwise)   to   repurchase   or   otherwise   acquire   or retire   any shares of the
capital stock of any subsidiary or any convertible securities,   rights, warrants
or options of the type described in the preceding sentence.   Neither the Company
nor any   subsidiary   is   party   to,   nor has any   knowledge   of,   any   agreement
restricting   the voting or transfer   of any shares of the   capital   stock of any
subsidiary.

      (h) No Material   Adverse Change.   Since June 30, 2007, the Company has not
experienced or suffered any Material Adverse Effect.

      (i)   No   Undisclosed   Liabilities.   Neither   the   Company   nor   any of its
subsidiaries   has   any   liabilities,   obligations,   claims   or   losses   (whether
liquidated or unliquidated,   secured or unsecured, absolute, accrued, contingent
or otherwise)   other than those incurred in the ordinary course of the Company's
or its   subsidiaries   respective   businesses   since   June 30,   2007   and   which,
individually   or in the aggregate,   do not or would not have a Material   Adverse
Effect on the Company or its subsidiaries.

      (j) No Undisclosed   Events or Circumstances.   No event or circumstance has
occurred or exists   with   respect to the   Company or its   subsidiaries   or their
respective businesses, properties, prospects, operations or financial condition,
which,   under applicable law, rule or regulation,   requires public disclosure or
announcement   by the   Company but which has not been so   publicly   announced   or
disclosed.

      (k) Indebtedness. The Form 10-KSB or Form 10-QSB sets forth as of a recent
date all   outstanding   secured and unsecured   Indebtedness of the Company or any
subsidiary, or for which the Company or any subsidiary has commitments.   For the
purposes of this   Agreement,   "Indebtedness"   shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $100,000   (other than trade accounts
payable   incurred   in the   ordinary   course of   business),   (b) all   guaranties,
endorsements   and other   contingent   obligations in respect of   Indebtedness   of
others,   whether   or not the same are or should be   reflected   in the   Company's
balance   sheet (or the notes   thereto),   except   guaranties   by   endorsement   of
negotiable   instruments for deposit or collection or similar transactions in the
ordinary course of business;   and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP.   Neither the Company nor any   subsidiary is in default with respect to any
Indebtedness.


                                       6
<PAGE>

      (l) Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property   reflected in the Form
10-KSB,   free and clear of any   mortgages,   pledges,   charges,   liens,   security
interests or other encumbrances,   except for those disclosed in the Form 10-KSB,
statutory   liens for which the payment of current taxes are not yet   delinquent,
those set forth in   Section   2.1(l) of the   Disclosure   Schedule,   or such that,
individually or in the aggregate,   do not cause a Material   Adverse Effect.   All
leases of the Company and each of its subsidiaries are valid and subsisting and,
to its knowledge, in full force and effect.

      (m)   Actions   Pending.   There is no action,   suit,   claim,   investigation,
arbitration,   alternate   dispute   resolution   proceeding or any other proceeding
pending or, to the knowledge of the Company,   threatened in writing   against the
Company or any subsidiary   which questions the validity of this Agreement or any
of the other Transaction   Documents or the transactions   contemplated   hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except as
set   forth   in the   Form   10-KSB,   Form   10-QSB,   or in   Section   2.1(m)   of the
Disclosure    Schedule,    there   is   no   action,    suit,   claim,    investigation,
arbitration,   alternate   dispute   resolution   proceeding or any other proceeding
pending or, to the knowledge of the Company,   threatened in writing,   against or
involving the Company,   any subsidiary or any of their respective   properties or
assets. To the Company's knowledge,   there are no outstanding orders, judgments,
injunctions,   awards or decrees   of any court,   arbitrator   or   governmental   or
regulatory   body   against   the   Company or any   subsidiary   or any   officers   or
directors of the Company or subsidiary in their capacities as such.

      (n) Compliance with Law. To the Company's   knowledge,   the business of the
Company   and the   subsidiaries   has been and is   presently   being   conducted   in
accordance   with all   applicable   federal,   state and local   governmental   laws,
rules,    regulations   and   ordinances,    except   for   such   noncompliance   that,
individually or in the aggregate,   would not cause a Material Adverse Effect. To
the   Company's   knowledge,   the   Company and each of its   subsidiaries   have all
franchises,   permits,   licenses,   consents and other   governmental or regulatory
authorizations   and   approvals   necessary for the conduct of its business as now
being   conducted by it unless the failure to possess such   franchises,   permits,
licenses,   consents and other   governmental   or   regulatory   authorizations   and
approvals, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.

      (o)   Taxes.   Except   as set   forth in   Section   2.1(o)   of the   Disclosure
Schedule,   the Company and each of the subsidiaries has accurately   prepared and
filed all   federal,   state and other tax returns   required by law to be filed by
it, has paid or made provisions for the payment of all taxes shown to be due and
all additional assessments,   and adequate provisions have been and are reflected
in the financial   statements of the Company and the subsidiaries for all current
taxes and other   charges to which the Company or any   subsidiary   is subject and
which are not currently due and payable.   None of the federal income tax returns
of the   Company or any   subsidiary   have been   audited by the   Internal   Revenue
Service. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) of any nature whatsoever,
whether   pending or   threatened   against the Company or any   subsidiary   for any
period, nor of any basis for any such assessment, adjustment or contingency.

      (p) Certain Fees.   Except as set forth in Section 2.1(p) of the Disclosure
Schedule, no brokers,   finders or financial advisory fees or commissions will be
payable by the Company or any   subsidiary   or, to the Company's   knowledge,   any
Purchaser with respect to the transactions contemplated by this Agreement.

      (q) Disclosure.   Neither this Agreement or the Disclosure Schedule nor any
other documents,   certificates or instruments   furnished to the Purchasers by or
on behalf of the Company or any subsidiary in connection   with the   transactions


                                       7
<PAGE>

contemplated by this Agreement   contain any untrue   statement of a material fact
or omit to state a material fact necessary in order to make the statements   made
herein or therein,   in the light of the circumstances under which they were made
herein or therein, not misleading.   It is understood that this representation is
qualified by the fact that the Company has not delivered to the Purchasers,   and
has not been requested to deliver,   a private placement or similar memorandum or
any written   disclosure   of the types of   information   customarily   furnished to
purchasers of securities.

      (r) Operation of Business.   The Company and each of the subsidiaries   owns
or possesses,   has the right to use, or believes it can acquire on   commercially
reasonable   terms,   all   patents,   trademarks,   domain   names   (whether   or   not
registered) and any patentable   improvements or   copyrightable   derivative works
thereof,   websites and intellectual   property rights relating   thereto,   service
marks, trade names, copyrights,   licenses and authorizations as set forth in the
Form 10-KSB,   and all rights with respect to the foregoing,   which are necessary
for the conduct of its business as now   conducted   without any conflict with the
rights of others.

      (s) Environmental   Compliance.   Except as could not reasonably be expected
to have a Material Adverse Effect, to the Company's   knowledge,   the Company and
each of its subsidiaries   have obtained all material   approvals,   authorization,
certificates,    consents,    licenses,    orders   and   permits   or   other   similar
authorizations of all governmental   authorities,   or from any other person, that
are   required   under any   Environmental   Laws.   The Form   10-KSB or Form   10-QSB
describes all material permits,   licenses and other authorizations   issued under
any Environmental Laws to the Company or its subsidiaries.   "Environmental Laws"
shall mean all   applicable   laws relating to the   protection of the   environment
including,    without   limitation,   all   requirements   pertaining   to   reporting,
licensing,   permitting,   controlling,   investigating   or remediating   emissions,
discharges,   releases or threatened releases of hazardous   substances,   chemical
substances,   pollutants,   contaminants or toxic substances, materials or wastes,
whether   solid,   liquid or   gaseous   in   nature,   into the air,   surface   water,
groundwater or land, or relating to the manufacture,   processing,   distribution,
use,   treatment,    storage,    disposal,    transport   or   handling   of   hazardous
substances, chemical substances,   pollutants,   contaminants or toxic substances,
material or wastes,   whether solid, liquid or gaseous in nature. Except as could
not reasonably be expected to have a Material   Adverse Effect,   to the Company's
knowledge,   the Company (i) has all necessary   governmental   approvals   required
under all Environmental   Laws and used in its business or in the business of any
of its   subsidiaries;   and, (ii) along with each of its subsidiaries are also in
compliance   with all other   limitations,   restrictions,   conditions,   standards,
requirements,    schedules    and    timetables    required   or   imposed   under   all
Environmental   Laws.   Except for such instances as would not   individually or in
the aggregate have a Material Adverse Effect, to the Company's knowledge,   there
are no past or present events, conditions, circumstances,   incidents, actions or
omissions   relating to or in any way affecting   the Company or its   subsidiaries
that violate or may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the basis of any
claim, action,   demand, suit,   proceeding,   hearing,   study or investigation (i)
under any   Environmental   Law,   or (ii) based on or related to the   manufacture,
processing,   distribution, use, treatment, storage (including without limitation
underground storage tanks),   disposal,   transport or handling,   or the emission,
discharge, release or threatened release of any hazardous substance.


                                       8
<PAGE>

      (t)   Books and   Records.   The books and   records   of the   Company   and its
subsidiaries   accurately   reflect   in   all   material   respects   the   information
relating to the business of the Company and the   subsidiaries,   the location and
collection of their assets,   and the nature of all   transactions   giving rise to
the obligations or accounts receivable of the Company or any subsidiary.   Except
as set forth in Section 2.1(t) of the Disclosure Schedule,   the Company and each
of   its   subsidiaries    maintain   a   system   of   internal    accounting   controls
sufficient, in the judgment of the Company, to provide reasonable assurance that
(i)   transactions   are   executed   in   accordance   with   management's   general or
specific   authorizations,   (ii) transactions are recorded as necessary to permit
preparation   of financial   statements   in   conformity   with GAAP and to maintain
asset   accountability,   (iii) access to assets is permitted   only in   accordance
with   management's   general   or   specific   authorization   and (iv) the   recorded
accountability   for assets is compared   with the existing   assets at   reasonable
intervals and appropriate actions is taken with respect to any differences.   The
preceding   sentence   shall not serve as a   representation   or warranty   that the
Company or any of its   subsidiaries   is in compliance   with any securities   laws
that are not   applicable to the Company,   or that are not in effect with respect
to the Company, as of the date of this Agreement.

      (u) Material Agreements. Neither the Company nor any subsidiary is a party
to any written or oral contract, instrument, agreement, commitment,   obligation,
plan or   arrangement,   a copy of which   would be   required   to be filed with the
Commission as an exhibit to the Commission   Documents   (collectively,   "Material
Agreements")   but   that   has not been so   filed.   As a party   to all such   filed
Material Agreements, the Company and each of its subsidiaries,   to the Company's
knowledge,   has in all material respects performed all the obligations   required
to be performed by such   agreements,   has not received any notice of default and
is not in default   under any   Material   Agreement   now in effect,   the result of
which   could   cause a Material   Adverse   Effect.   No   written or oral   contract,
instrument,   agreement,   commitment,   obligation,   plan   or   arrangement   of the
Company or of any   subsidiary   limits or shall limit the payment of dividends on
the Company's   Preferred   Shares,   other preferred   stock, if any, or its Common
Stock.

      (v) Transactions   with   Affiliates.   Except as required to be set forth in
the Commission   Documents,   there are no loans, leases,   agreements,   contracts,
royalty   agreements,   management   contracts or arrangements or other   continuing
transactions between (a) the Company and any subsidiary on the one hand, and (b)
on the other hand, the Company, any officer, employee, consultant or director of
the Company, or any of its subsidiaries,   or any person owning any capital stock
of the Company or any   subsidiary or any member of the immediate   family of such
officer,   employee,   consultant,   director or stockholder or any   corporation or
other entity   controlled   by such   officer,   employee,   consultant,   director or
stockholder,   or a member of the   immediate   family of such   officer,   employee,
consultant,   director or stockholder,   other than (x) standard employee benefits
generally   made available to all   employees,   (y) standard   director and officer
indemnification   agreements   and (z) the   purchase of shares of common stock and
the   issuance   of options to   purchase   shares of common   stock   pursuant to the
Company's stock option plan.

      (w)    Securities    Act   of   1933.    Based   in    material    part   upon   the
representations   herein of the   Purchasers,   the Company has   complied   and will
comply with all applicable   federal and state securities laws in connection with
the offer,   issuance and sale of the Shares and the Warrants hereunder.   Neither


                                       9
<PAGE>

the Company   nor, to its   knowledge,   anyone   acting on its behalf,   directly or
indirectly,   has or   will,   prior to the   Closing   Date   sell,   offer to sell or
solicit   offers to buy any of the Shares or the Warrants   to, or solicit   offers
with   respect   thereto   from,   or enter into any   preliminary   conversations   or
negotiations   relating thereto with, any person,   or has taken or will, prior to
the Closing Date, take any action so as to bring the issuance and sale of any of
the Shares and the Warrants under the registration   provisions of the Securities
Act and applicable state securities laws, and neither the Company nor any of its
affiliates, nor, to its knowledge, any person acting on its or their behalf, has
engaged in any form of general   solicitation or general   advertising (within the
meaning of Regulation D under the Securities   Act) in connection   with the offer
or sale of any of the Shares and the Warrants.

      (x) Intentionally Omitted.

      (y)   Employees.   Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees.   Other than
as set forth in Section   2.1(y) of the   Disclosure   Schedule,   (a)   neither   the
Company nor any   subsidiary   has any employment   contract,   agreement   regarding
proprietary information,   non-competition agreement, non-solicitation agreement,
confidentiality    agreement,   or   any   other   similar   contract   or   restrictive
covenant,   relating to the right of any officer,   employee or   consultant   to be
employed   or engaged   by the   Company or such   subsidiary,   and (b) no   officer,
consultant or key employee of the Company or any subsidiary   whose   termination,
either   individually or in the aggregate,   could have a Material Adverse Effect,
has terminated or, to the knowledge of the Company, has any present intention of
terminating   his or   her   employment   or   engagement   with   the   Company   or any
subsidiary.

      (z)   Absence   of   Certain   Developments.   Except   as set forth in the Form
10-KSB, the Form 10-QSB or in Section 2.1(z) of the Disclosure   Schedule,   since
June 30, 2007, neither the Company nor any subsidiary has:

            (i) issued any stock,   bonds or other   corporate   securities   or any
rights, options or warrants with respect thereto;

            (ii)   borrowed   any   amount or   incurred   or become   subject   to any
liabilities   (absolute or contingent) except current liabilities incurred in the
ordinary   course of business   which are   comparable   in nature and amount to the
current   liabilities   incurred in the   ordinary   course of   business   during the
comparable   portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;

            (iii)   discharged or satisfied any lien or   encumbrance   or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;

            (iv) declared or made any payment or   distribution   of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;


                                       10
<PAGE>

            (v) sold,   assigned or   transferred   any other tangible   assets,   or
canceled any debts or claims, except in the ordinary course of business;

            (vi) sold,   assigned or transferred   any patent rights,   trademarks,
trade   names,    copyrights,    trade   secrets   or   other   intangible    assets   or
intellectual    property   rights,   or   disclosed   any   proprietary    confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;

            (vii)   suffered   any   substantial   losses   or waived   any   rights of
material value,   whether or not in the ordinary course of business,   or suffered
the loss of any material amount of prospective business;

            (viii)   made any   changes   in   employee   compensation   except in the
ordinary course of business and consistent with past practices;

            (ix)   made   capital    expenditures   or   commitments    therefor   that
aggregate in excess of $100,000;

            (x) entered   into any other   transaction   other than in the ordinary
course of business, or entered into any other material   transaction,   whether or
not in the ordinary course of business;

            (xi) made charitable contributions or pledges in excess of $25,000;

            (xii)   suffered any material   damage,   destruction or casualty loss,
whether or not covered by insurance;

            (xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;

            (xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its subsidiaries; or

            (xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.

      (aa) Public Utility Holding Company Act and Investment Company Act Status.
The   Company is not a "holding   company" or a "public   utility   company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon the Closing will not
be,   an   "investment   company"   or a   company   "controlled"   by   an   "investment
company," within the meaning of the Investment Company Act of 1940, as amended.

      (bb) ERISA. No liability to the Pension Benefit   Guaranty   Corporation has
been incurred with respect to any Plan (as defined   below) by the Company or any
of its subsidiaries   which is or would be materially   adverse to the Company and
its subsidiaries.   The execution and delivery of this Agreement and the issuance
and sale of the   Preferred   Shares   will not involve   any   transaction   which is


                                       11
<PAGE>

subject to the   prohibitions of Section 406 of ERISA or in connection with which
a tax could be imposed   pursuant to Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"),   provided that, if any of the Purchasers,   or any
person or entity that owns a beneficial interest in any of the Purchasers, is an
"employee   pension   benefit   plan" (within the meaning of Section 3(2) of ERISA)
with respect to which the Company is a "party in   interest"   (within the meaning
of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of
ERISA, if applicable,   are met. As used in this Section 2.1(bb), the term "Plan"
shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA)
which is or has been established or maintained, or to which contributions are or
have been made,   by the Company or any   subsidiary   or by any trade or business,
whether or not incorporated, which, together with the Company or any subsidiary,
is under common control, as described in Section 414(b) or (c) of the Code.

      (cc) Dilutive Effect.   The Company   understands and acknowledges   that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance   with this   Agreement   and the   Certificate   of   Designation   and its
obligations   to issue the Warrant   Shares upon the   exercise of the   Warrants in
accordance with this Agreement and the Warrants,   is, in each case, absolute and
unconditional   regardless of the dilutive   effect that such issuance may have on
the ownership interest of other stockholders of the Company.

      (dd)   No   Integrated   Offering.   Neither   the   Company,   nor   any   of   its
affiliates, nor, to its knowledge, any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under   circumstances that would cause the offering of
the Shares   pursuant to this Agreement to be integrated   with prior offerings by
the Company for purposes of the   Securities   Act which would prevent the Company
from selling the Shares   pursuant to Rule 506 under the   Securities   Act, or any
applicable   exchange-related   stockholder   approval   provisions,   nor   will   the
Company or any of its affiliates or   subsidiaries   take any action or steps that
would cause the offering of the Shares to be   integrated   with other   offerings.
The   Company   does   not have   any   registration   statement   pending   before   the
Commission or currently   under the   Commission's   review and since   February 19,
2007,   the Company has not offered or sold any of its equity   securities or debt
securities convertible into shares of Common Stock.

      (ee)   Sarbanes-Oxley Act. The Company is in compliance with the app  


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