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
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
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.
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, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(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
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
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
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
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
(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
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
(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
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
(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
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) ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. The Company is in compliance with the applicable
provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (the "▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act"), and the
rules and regulations promulgated thereunder, that are in effect with respect to
the Company as of the date of this Agreement.
(ff) Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase securities pursuant to this Agreement has
been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
12
its Subsidiaries which may have been made or given by any other Purchaser or by
any agent or employee of any other Purchaser, and no Purchaser or any of its
agents or employees shall have any liability to any Purchaser (or any other
person) relating to or arising from any such information, materials, statements
or opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
(gg) Transfer Agent. The name, address, telephone number, fax number,
contact person and email address of the Company's transfer agent is set forth in
Section 2.1(gg) of the Disclosure Schedule.
Section 2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares and Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, or partners, as the case may be, is required. Each
of this Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by such Purchaser and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with the terms
thereof.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the consummation by such
Purchaser of the transactions contemplated hereby and thereby or relating hereto
do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (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, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
13
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required under
any foreign, 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 this Agreement or the Registration Rights Agreement or
to purchase the Preferred Shares or acquire the Warrants in accordance with the
terms hereof or thereof, provided that to the extent a representation made in
this sentence relies on a relevant representation or agreement of the Company,
such Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Acquisition for Investment. Each Purchaser is acquiring the Preferred
Shares and the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell the Preferred Shares or the
Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(h) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with the applicable provisions of the Transaction Documents and
Federal, foreign and state securities laws applicable to such disposition. Each
Purchaser acknowledges that it is able to bear the financial risks associated
with an investment in the Preferred Shares and the Warrants and that it has been
given full access to such records of the Company and the subsidiaries and to the
officers of the Company and the subsidiaries and received such information as it
has deemed necessary or appropriate to conduct its due diligence investigation
and has sufficient knowledge and experience in investing in companies similar to
the Company in terms of the Company's stage of development so as to be able to
evaluate the risks and merits of its investment in the Company.
(e) Status of Purchasers. Such Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act and such Purchaser is not a broker-dealer. Such Purchaser has not
been formed for the specific purpose of acquiring the Preferred Shares and the
Warrants.
(f) Opportunities for Additional Information. Each Purchaser acknowledges
that such Purchaser has had the opportunity to ask questions of and receive
answers from, or obtain additional information from, the executive officers of
the Company concerning the financial and other affairs of the Company, and to
the extent deemed necessary in light of such Purchaser's personal knowledge of
the Company's affairs, such Purchaser has asked such questions and received
answers to the full satisfaction of such Purchaser, and such Purchaser desires
to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that the
Preferred Shares and the Warrants were not offered to such Purchaser by means of
14
any form of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio, or
(ii) any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications.
(h) Rule 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement. Such Purchaser acknowledges that
the Company has no obligation to register or qualify the Shares for resale
except as set forth in the Registration Rights Agreement. Such Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(i) General. Such Purchaser understands that the Preferred Shares and the
Warrants are being offered and sold in reliance on a transactional exemption
from the registration requirement of Federal and state securities laws and the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Preferred Shares and the Warrants.
(j) Independent Investment. Except as may be disclosed in any filings with
the Commission by the Purchasers under Section 13 and/or Section 16 of the
Exchange Act, no Purchaser has agreed to act with any other Purchaser for the
purpose of acquiring, holding, voting or disposing of the Preferred Shares and
the Warrants purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Preferred Shares and the Warrants.
(k) Trading Activities. No Purchaser nor any of its affiliates has an open
short position in the Common Stock and each Purchaser agrees that it shall not,
and that it will cause its affiliates not to, engage in any short sales with
respect to the Common Stock.
(l) Certain Fees. No brokers, finders or financial advisory fees or
commissions will be payable by any Purchaser with respect to the transactions
contemplated by this Agreement.
15
(m) Foreign Investors. If a Purchaser is not a United States person (as
defined by Section 7701(a)(30) of the Code), such Purchaser hereby represents
that it has satisfied itself as to the full observance of the laws of its
jurisdiction in connection with any invitation to subscribe for the Preferred
Shares and the Warrants or any use of this Agreement, including (i) the legal
requirements within its jurisdiction for the purchase of the Preferred Shares
and the Warrants, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be obtained,
and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale, or transfer of the Units, the
Preferred Shares and the Warrants. The Purchaser's subscription and payment for
and continued beneficial ownership of the Preferred Shares and the Warrants will
not violate any applicable securities or other laws of the Purchaser's
jurisdiction.
(n) Residence. If the Purchaser is an individual, then such Purchaser
resides in the state or province identified in the address of the Purchaser set
forth on Exhibit A; if the Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of the Purchaser
in which its principal place of business is located is identified in the address
or addresses of the Purchaser set forth on Exhibit A.
ARTICLE III
Covenants
Section 3.1 Covenants of the Company. The Company covenants with each of
the Purchasers as follows, which covenants are for the benefit of the Purchasers
and their permitted assignees (as defined herein):
a. Securities Compliance. The Company shall notify the Commission in
accordance with their rules and regulations, of the transactions contemplated by
any of the Transaction Documents, including filing a Form D with respect to the
Preferred Shares, Warrants, Conversion Shares and Warrant Shares as required
under Regulation D, and shall use commercially reasonable efforts to take all
other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares to
the Purchasers or subsequent holders.
b. Registration and Listing. The Company shall use commercially reasonable
efforts to comply in all respects with its reporting and filing obligations
under the Exchange Act, to comply with all requirements related to any
registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and to not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein or therein. The Company will take all commercially reasonable
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or other exchange or market on which the Common Stock is
16
trading. Subject to the terms of the Transaction Documents, the Company further
covenants that it will take such further commercially reasonable action as the
Purchasers may reasonably request, all to the extent required from time to time
to enable the Purchasers to sell the Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of the Purchasers, the
Company shall deliver to the Purchasers a written certification of a duly
authorized officer as to whether it has complied with such requirements.
c. Reporting Requirements. If the Commission ceases making periodic
reports filed under the Exchange Act available via the Internet, then at a
Purchaser's request the Company shall furnish the following to such Purchaser so
long as such Purchaser shall beneficially own any Preferred Shares that have not
been fully converted or any Warrants that have not been fully exercised: (i)
Quarterly Reports filed with the Commission on Form 10-QSB as soon as practical
after the document is filed with the Commission, and in any event within five
(5) business days after the document is filed with the Commission; (ii) Annual
Reports filed with the Commission on Form 10-KSB as soon as practical after the
document is filed with the Commission, and in any event within five (5) business
days after the document is filed with the Commission; and (iii) Copies of all
notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, within five (5) business days after the document is
filed with the Commission.
d. Other Agreements. The Company shall not enter into any agreement in
which the terms of such agreement would prevent the Company or any subsidiary
from performing under any Transaction Document.
e. Status of Dividends. The Company covenants and agrees that (i) no
Federal income tax return or claim for refund of Federal income tax or other
submission to the Internal Revenue Service (the "Service") will adversely affect
the Preferred Shares, any other series of its Preferred Stock, or the Common
Stock, and no deduction shall operate to jeopardize the availability to
Purchasers of the dividends received deduction provided by Section 243(a)(1) of
the Code or any successor provision, (ii) in no report to shareholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) it will
take no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. In the event that the Purchasers have reasonable cause to believe that
dividends paid by the Company on the Preferred Shares out of the Company's
current or accumulated earnings and profits will not be treated as eligible for
the dividends received deduction provided by Section 243(a)(1) of the Code, or
any successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
17
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code.
Notwithstanding the foregoing, nothing herein contained shall be deemed to
preclude the Company from claiming a deduction with respect to such dividends if
(i) the Code shall hereafter be amended, or final Treasury regulations
thereunder are issued or modified, to provide that dividends on the Preferred
Shares or Conversion Shares should not be treated as dividends for Federal
income tax purposes or that a deduction with respect to all or a portion of the
dividends on the Shares is allowable for Federal income tax purposes, or (ii) in
the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the Service shall issue
a published ruling or advise that dividends on the Shares should not be treated
as dividends for Federal income tax purposes. If the Service specifically
determines that the Preferred Shares or Conversion Shares constitute debt, the
Company may file protective claims for refund.
f. Use of Proceeds. In accordance with the directions of the Company's
Board of Directors, the Company will use the net proceeds from the sale of the
Shares hereunder for working capital, sales and marketing, and general corporate
purposes, including fees associated with research applications (including
without limitation, the ViriChip device and the Chip-on-a-Tip system).
g. Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Purchaser or its respective
nominee(s), subject in all cases to compliance with Section 3.3 and 5.1, for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Purchaser to the Company upon conversion of the Preferred Shares
or exercise of the Warrants in the form of Exhibit F attached hereto (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the Securities Act, all such
certificates shall bear the restrictive legend specified in Section 5.1 of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 3.1(g) and instructions
given pursuant to Sections 3.3 and 5.1 will be given by the Company to its
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. If a Purchaser provides the Company with
a written opinion of legal counsel, who shall, and whose legal opinion shall, be
reasonably satisfactory to the Company, addressed to the Company, to the effect
that a public sale, assignment or transfer of the Shares may be made without
registration under the Securities Act or the Purchaser provides the Company with
reasonable assurances reasonably satisfactory to counsel to the Company that the
Shares can be sold pursuant to Rule 144 promulgated under the Securities Act
("Rule 144") without any restriction as to the number of securities acquired as
of a particular date that can then be immediately sold, and the provisions of
Section 5.1 shall have been satisfied, the Company shall permit the transfer,
and, in the case of the Conversion Shares and the Warrant Shares, promptly
18
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Purchaser and without any restrictive
legend. The Company acknowledges that a breach by it of its obligations under
this Section 3.1(g) will cause irreparable harm to the Purchasers by violating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.1(g) will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section
3.1(g), that the Purchasers shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
h. Disclosure of Transaction. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
"Press Release") as soon as practicable after the Closing but in no event later
than 9:00 A.M. Eastern Time on the first Trading Day following the Closing Date.
The Company shall also file with the Commission a Current Report on Form 8-K
(the "Form 8-K") describing the material terms of the transactions contemplated
hereby (and attaching as exhibits thereto this Agreement, the Registration
Rights Agreement, the Certificate of Designation, the Lock-Up Agreement, the
form of each series of Warrant and the Press Release) as soon as practicable
following the Closing Date but in no event more than four (4) Trading Days
following the Closing Date, which Press Release and Form 8-K shall be subject to
prior review and comment by the Purchasers. "Trading Day" means any day during
which the Commission shall be open for business.
i. Disclosure of Material Information. The Company covenants and agrees
that neither it nor any other person acting on its behalf has provided or will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, other than with
respect to the transactions contemplated by this Agreement. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
j. Pledge of Securities. The Company acknowledges and agrees that the
Shares may be pledged by a Purchaser in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the Common
Stock. The pledge of Common Stock shall not be deemed to be a transfer, sale or
assignment of the Common Stock hereunder, and no Purchaser effecting a pledge of
Common Stock shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document; provided that a Purchaser and its pledgee shall be
required to comply with the provisions of Article V hereof in order to effect a
sale, transfer or assignment of Common Stock to such pledgee. At the Purchasers'
expense (including attorney's fees and costs), the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.
k. Lock-Up Agreements. The persons listed in Section 3.1(k) of the
Disclosure Schedule shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as Exhibit E hereto (the "Lock-Up
19
Agreements"), each of which shall provide the manner in which such persons will
sell, transfer or dispose of their shares of Common Stock.
l. Subsequent Financings.
(i) For a period of one (1) year following the effective date of the
registration statement providing for the resale of the Conversion Shares and the
Warrant Shares, the Company covenants and agrees to promptly notify (in no event
later than twenty (20) days after making or accepting an applicable offer) in
writing (a "Rights Notice") the Purchasers of the terms and conditions of any
proposed offer or sale to, or exchange with (or other type of distribution to)
any third party (a "Subsequent Financing"), of Common Stock or any debt or
equity securities convertible, exercisable or exchangeable into Common Stock.
The Rights Notice shall describe, in reasonable detail, the proposed Subsequent
Financing, the names and investment amounts of all investors participating in
the Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within ninety (90) calendar days from the date of the Rights
Notice, and all of the terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the "Rights Option") during the ten (10)
Trading Days following delivery of the Rights Notice (the "Option Period") to
inform the Company whether such Purchaser will purchase up to its pro rata
portion of all or a portion of the securities being offered in such Subsequent
Financing on the same, absolute terms and conditions as contemplated by such
Subsequent Financing. For purposes of this Section, all references to "pro rata"
means, for any Purchaser electing to participate in such Subsequent Financing,
the percentage obtained by dividing (x) the number of Conversion Shares and
Warrant Shares underlying the Units purchased by such Purchaser at the Closing
by (y) the total number of all of the shares of common stock issued and
outstanding on a fully diluted basis, on the Closing Date. Delivery of any
Rights Notice constitutes a representation and warranty by the Company that
there are no other material terms and conditions, arrangements, agreements or
otherwise except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
Purchase Price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing. If the Company does not receive notice of exercise of the
Rights Option from the Purchasers within the Option Period, the Company shall
have the right to close the Subsequent Financing on the scheduled closing date
with a third party; provided that all of the material terms and conditions of
the closing are the same as those provided to the Purchasers in the Rights
Notice. If the closing of the proposed Subsequent Financing does not occur
within thirty (30) days of the scheduled closing date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.1(l)(i), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.1(l)(i) shall not apply to issuances of securities in a Permitted Financing.
(ii) For purposes of this Agreement, a Permitted Financing (as
defined hereinafter) shall not be considered a Subsequent Financing. A
"Permitted Financing" shall mean (i) securities issued (other than for cash) in
20
connection with a merger, acquisition, or consolidation, (ii) securities issued
pursuant to the conversion or exercise of convertible or exercisable securities
issued or outstanding on or prior to the date of this Agreement or issued
pursuant to this Agreement (so long as the conversion or exercise price in such
securities are not amended to lower such price and/or adversely affect the
Purchasers), (iii) securities issued as compensation to consultants, advisors,
suppliers or third-party service providers in connection with the provision of
goods or services (including without limitation placement agent and investor
relations services), and securities issued in connection with bona fide
strategic license agreements or other partnering or contracting arrangements so
long as such issuances are not for the purpose of raising capital, (iv) Common
Stock issued or the issuance or grants of options to purchase Common Stock
pursuant to the Company's stock option plans and employee stock purchase plans,
(v) the payment of dividends on the Preferred Shares in shares of Common Stock,
(vi) any warrants issued to the placement agent and finders (and their
respective designees) and Purchaser designees for the transactions contemplated
by this Agreement and, (vii) securities issued to banks, equipment lessors or
other financial institutions, or to real property lessors, pursuant to a debt
financing, equipment leasing or real property leasing transaction.
(iii) For a period of two (2) years following the Closing Date, the
Company shall be prohibited from effecting or entering into an agreement to
effect any Subsequent Financing involving a "Variable Rate Transaction" without
the prior written consent of the Purchasers. The term "Variable Rate
Transaction" shall mean a transaction in which the Company (i) issues or sells
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.
(iv) For the period commencing on the Closing Date and ending on the
date that is one hundred eighty (180) days following the effective date of the
Registration Statement (as defined in the Registration Rights Agreement), the
Company shall not file any registration statement under the Securities Act
without the prior written consent of the Purchasers. The preceding sentence
shall not be applicable to any registration relating to the sale of securities
to employees of the Company or a subsidiary pursuant to a stock option, stock
purchase, or similar plan; a registration on any form that does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities; or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities that are also being registered.
21
Section 3.2 Covenants of the Purchasers.
(a) Trading Activities. Each of the Purchasers covenants with the Company
that for so long as such Purchaser owns the Warrants or the Shares, and for a
period of six (6) months thereafter, (i) such Purchaser's trading activities
with respect to the Shares shall be in compliance with all applicable federal,
state and foreign securities laws, and (ii) such Purchaser agrees that it shall
not, and it will cause its Affiliates (as defined below) not to, engage in any
short sales with respect to the Common Stock.
(b) Confidentiality. Each Purchaser agrees that such Purchaser will keep
confidential and will not disclose, divulge, or use for any purpose (other than
to monitor its investment in the Company) any confidential information obtained
from the Company pursuant to the terms of the Transaction Documents (including
notice of the Company's intention to file a registration statement), unless such
confidential information (i) is known or becomes known to the public in general
(other than as a result of a breach of this Section 3.2(b) by such Purchaser),
(ii) is or has been independently developed or conceived by the Purchaser
without use of the Company's confidential information, or (iii) is or has been
made known or disclosed to the Purchaser by a third party without a breach of
any obligation of confidentiality such third party may have to the Company;
provided, however, that a Purchaser may disclose confidential information (w) to
its attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with monitoring its investment
in the Company; (x) to any prospective purchaser of any Registrable Securities
from such Purchaser, if such prospective purchaser agrees to be bound by the
provisions of this Section 3.2(b), provided that no Purchaser may disclose any
confidential information obtained from the Company to any prospective purchaser
that is a competitor of the Company or to any other Person that is a competitor
of the Company; (y) to any Affiliate, partner, member, stockholder, or wholly
owned subsidiary of such Purchaser in the ordinary course of business, provided
that such Purchaser informs such Person that such information is confidential
and directs such Person to maintain the confidentiality of such information; or
(z) as may otherwise be required by law, provided that the Purchaser promptly
notifies the Company of such disclosure and takes reasonable steps to minimize
the extent of any such required disclosure. For purposes of this Agreement,
"Affiliate" means, with respect to any specified person or entity (collectively,
a "Person"), any other Person who, directly or indirectly, controls, is
controlled by, or is under common control with such Person, including without
limitation any general partner, managing member, officer or director of such
Person, or, in the case of natural persons, any Immediate Family Member of such
Person. For purposes of this Agreement, "Immediate Family Member" means a child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of a natural person referred to
herein.
22
Section 3.3 Restrictions on Transfer.
a. The Preferred Shares, the Warrants and the Registrable Securities (as
defined in the Registration Rights Agreement) shall not be sold, pledged, or
otherwise transferred, and the Company shall not recognize and shall issue
stop-transfer instructions to its transfer agent with respect to any such sale,
pledge, or transfer, except upon the conditions specified in this Agreement
(including without limitation Section 5.1), which conditions are intended to
ensure compliance with the provisions of the Securities Act. A transferring
Purchaser will cause any proposed purchaser, pledgee, or transferee of the
Preferred Shares, the Warrants and the Registrable Securities held by such
Purchaser to agree to take and hold such securities subject to the provisions
and upon the conditions specified in this Agreement and to provide information
reasonably requested by the Company about such purchaser, pledgee or transferee.
The Purchasers consent to the Company making a notation in its records and
giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer set forth in this Section 3.3.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all respects as of the date when made and as of the Closing Date as though made
at that time, except for representations and warranties that are expressly made
as of a particular date, which shall be true and correct in all respects as of
such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Units has been
delivered to the Company at the Closing Date.
23
(e) Delivery of Transaction Documents. The Transaction Documents have been
duly executed and delivered by the Purchasers to the Company.
(f) Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares and the Warrants pursuant to this Agreement shall be obtained
and effective as of the Closing.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of each Purchaser to acquire and
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all respects as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that are expressly made as of a
particular date), which shall be true and correct in all respects as of such
date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) No Suspension, Etc. Trading in the Company's Common Stock shall not
have been suspended by the Commission or the OTC Bulletin Board (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the applicable Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, 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 or crisis
that each cause a material adverse change in any financial market which, could
reasonably be expected to have a material adverse effect on the Preferred
Shares.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
24
(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Certificate of Designation of Rights and Preferences. Prior to the
Closing, the Certificate of Designation in the form of Exhibit B attached hereto
shall have been filed with the Secretary of State of Nevada.
(g) Intentionally Left Blank.
(h) Registration Rights Agreement. At the Closing, the Company shall have
executed and delivered the Registration Rights Agreement to each Purchaser.
(i) Certificates. The Company shall have executed and delivered to the
Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and the Warrants being acquired by such
Purchaser at the Closing (in such denominations as such Purchaser shall
request).
(j) Resolutions. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of the
Warrants, a number of shares of Common Stock equal to one hundred twenty percent
(120%) of the aggregate number of Conversion Shares issuable upon conversion of
the Preferred Shares outstanding on the Closing Date and the number of Warrant
Shares issuable upon exercise of the number of Warrants assuming such Warrants
were granted on the Closing Date.
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Lock-Up Agreements. As of the Closing Date, the persons listed in
Section 3.1(k) of the Disclosure Schedule shall have delivered to the Purchasers
a fully executed Lock-Up Agreement in the form of Exhibit E attached hereto.
(n) Secretary's Certificate. The Company shall have delivered to such
Purchaser a secretary's certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
25
and any other documents required to be executed or delivered in connection
therewith.
(o) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in Section 4.2 as of the
Closing Date.
(p) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
(q) Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Shares and the Warrants pursuant to this Agreement shall be obtained
and effective as of the Closing.
ARTICLE V
Stock Certificate Legend
Section 5.1 Legend. Each certificate representing (a) the Preferred
Shares, (b) the Warrants, (c) the Registrable Securities, and (d) any other
securities issued in respect of the securities referenced in clauses (a), (b)
and (c), upon any stock split, stock dividend, recapitalization, merger,
consolidation, or similar event, (collectively, the "Restricted Securities")
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM
REGISTRATION. THE COMPANY MAY REFUSE TO AUTHORIZE ANY TRANSFER OF THE
SECURITIES IN RELIANCE ON AN EXEMPTION FROM REGISTRATION UNTIL IT HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
THE COMPANY IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK OR MORE
THAN ONE SERIES OF ANY CLASS OF STOCK. THE DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF THE SHARES OF
EACH CLASS OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
26
RESTRICTIONS OF SUCH RIGHTS, ARE SET FORTH IN THE ARTICLES OF
INCORPORATION OF THE COMPANY. A COPY OF SAID ARTICLES OF INCORPORATION
WILL BE FURNISHED FREE OF CHARGE TO THE HOLDER OF THIS CERTIFICATE UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Company agrees to reissue certificates representing any of the
Restricted Securties, without the legend set forth above if at such time, prior
to making any transfer of any such securities, such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request. Such proposed transfer and
removal will not be effected until: (a) either (i) the Company has received a
written opinion of legal counsel who shall, and whose legal opinion shall be,
reasonably satisfactory to the Company, addressed to the Company, to the effect
that the registration of such Restricted Securities under the Securities Act is
not required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Company with the Commission and has become effective under the
Securities Act, (iii) the Company has received other evidence reasonably
satisfactory to the Company that such registration and qualification under the
Securities Act and state securities laws are not required, or (iv) the holder
provides the Company with reasonable assurances reasonably satisfactory to
counsel to the Company, that such security can be sold pursuant to Rule 144
under the Securities Act without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold; and (b)
either (i) the Company has received a written opinion of legal counsel who
shall, and whose legal opinion shall be reasonably satisfactory to the Company,
addressed to the Company to the effect that registration or qualification under
the securities or "blue sky" laws of any state is not required in connection
with such proposed disposition, or (ii) the Company has received other evidence
reasonably satisfactory to the Company that compliance with applicable state
securities or "blue sky" laws has been effected or a valid exemption exists with
respect thereto. The Company will respond to any such notice from a holder
within five (5) business days. In the case of any proposed transfer under this
Section 5.1, the Company will use commercially reasonable efforts to comply with
any such applicable state securities or "blue sky" laws, but shall in no event
be required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Restricted Securities
is required to be issued to a Purchaser without a legend, in lieu of delivering
physical certificates representing the applicable Restricted Securities
27
(provided that a registration statement under the Securities Act providing for
the resale of the Restricted Securities is then in effect and such request is in
connection with a sale), the Company shall cause its transfer agent to
electronically transmit such Restricted Securities to a Purchaser by crediting
the account of such Purchaser's Prime Broker with the Depository Trust Company
("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system (to the
extent not inconsistent with any provisions of this Agreement) provided that the
Company and the Company's transfer agent are participating in DTC through the
DWAC system.
ARTICLE VI
Indemnification
Section 6.1 General Indemnity. The Company agrees to indemnify
and hold harmless the Purchasers (and their respective directors, officers,
managers, partners, members, shareholders, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorneys' fees,
charges and disbursements) to a third party incurred by the Purchasers solely as
a result and to the extent of a material inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) to a third party incurred by the Company solely as result and
to the extent of a material inaccuracy in or breach of the representations,
warranties or covenants made by such Purchaser herein. In addition, each
Purchaser agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's or
broker's fee arising from the transactions contemplated by this Agreement (and
the costs and expenses of defending against such liability or asserted
liability) for which each Purchaser or any of its officers, employees, or
representatives is responsible. The maximum aggregate liability of each Party
pursuant to its indemnification obligations under this Article VI shall not
exceed the portion of the Purchase Price paid by such Purchaser hereunder.
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will promptly
give written notice to the indemnifying party of any matters giving rise to a
claim for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
28
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent, which consent shall not be unreasonably withheld.
Notwithstanding anything in this Article VI to the contrary, the indemnifying
party shall not, without the indemnified party's prior written consent, settle
or compromise any claim or consent to entry of any judgment in respect thereof
which imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or the
plaintiff to the indemnified party of a release from all liability in respect of
such claim. The indemnification required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party irrevocably agrees to refund such
moneys if it is ultimately determined by a court of competent jurisdiction that
such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law.
ARTICLE VII
Miscellaneous
Section 7.1 Fees and Expenses. Except as otherwise set forth in this
Agreement and the other Transaction Documents, each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, provided
that the Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred in connection with (i) the
preparation, negotiation, execution and delivery of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $30,000 (such payment to
represent the maximum amount that the Company shall pay to Lester, Hunter,
Taubman & Taubman for legal fees in connection with the transactions
29
contemplated by this Agreement, whether such fees shall have been incurred on
behalf of the Purchasers or the Placement Agent), (ii) the filing and
declaration of effectiveness by the Commission of the Registration Statement (as
defined in the Registration Rights Agreement) and (iii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents requested by the Company.
Section 7.2 Specific Enforcement, Consent to Jurisdiction; Waiver of Jury
Trial.
(a) The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably submits
to the jurisdiction of the United States District Court sitting in the Delaware
and the courts of the State of Delaware for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby or thereby and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Purchasers consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 7.2 shall affect or limit any right to serve
process in any other manner permitted by law.
(c) Waiver of Jury Trial. EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents, neither the Company nor any of
the Purchasers makes any representations, warranty, covenant or undertaking with
respect to such matters and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least seventy-five
percent (75%) of the Preferred Shares then outstanding, and no provision hereof
may be waived other than by an a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought. No such amendment
30
shall be effective to the extent that it applies to less than all of the holders
of the Preferred Shares then outstanding. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents or holders of
Preferred Shares, as the case may be.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: BioForce Nanosciences Holdings, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies (which ▇▇▇▇▇▇▇▇ & English, LLP
shall not constitute Four Gateway Center
notice) to: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to any Purchaser: At the address of such Purchaser set
forth on Exhibit A to this Agreement,
with copies to Purchaser's counsel as
set forth on Exhibit A, or as
specified in writing by such
Purchaser.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
31
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 7.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the Company
and the Purchasers shall survive the execution and delivery hereof and the
Closing until the first anniversary of the Closing Date, except the agreements
and covenants set forth in Articles I, III, V, VI and VII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.
Section 7.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other parties hereto, it being understood that all parties need
not sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the original
thereof.
Section 7.12 Publicity. Other than as set forth in Section 3.1(f), the
Company agrees that it will not include in any Press Release, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.
Section 7.13 Severability. The provisions of this Agreement and the
Transaction Documents are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of the provisions contained in this Agreement or the Transaction Documents
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement or the Transaction
Documents and such provision shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of such provision, had never been
32
contained herein, so that such provisions would be valid, legal and enforceable
to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
BIOFORCE NANOSCIENCES HOLDINGS, INC.
By: -------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
PURCHASER
By: -------------------------------
Name:
Title: