NOTE AND COMMON STOCK PURCHASE AGREEMENT
THIS NOTE
AND COMMON STOCK PURCHASE AGREEMENT is dated effective as of November 11, 2009
(the "Effective
Date") by and between Protalex, Inc., a Delaware corporation with its
principal office at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and the
several purchasers identified on Exhibit A attached
hereto (individually, a "Purchaser" and
collectively, the "Purchasers").
NOW,
THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants herein contained, the parties hereto agree as
follows:
1. Definitions. As
used in this Agreement, the following terms shall have the following respective
meanings:
(a) "Affiliate" of a party
means any corporation or other business entity controlled by, controlling or
under common control with such party. For this purpose "control" shall mean
direct or indirect beneficial ownership of fifty percent (50%) or more of
the voting or income interest in such corporation or other business
entity.
(b) "Agreement" means this
Note and Common Stock Purchase Agreement.
(c) “Exchange Act" means
the Securities Exchange Act of 1934, as amended, and all of the rules and
regulations promulgated thereunder.
(d) "Closing Date" means
the date of the sale and purchase of the Notes and Common Stock acquired
hereunder.
(e) "Operative Agreements"
shall mean the Notes and the Security Agreement, together with this
Agreement.
(f) "SEC" shall mean the
Securities and Exchange Commission.
(g) “Security
Agreement” shall mean that certain Security
Agreement of even date herewith by and among the Company and the secured party
named therein in form and substance attached hereto as Exhibit
C.
(h) "Securities Act" shall
mean the Securities Act of 1933, as amended, and all of the rules and
regulations promulgated thereunder.
2. Purchase and Sale of
Shares.
2.1 Purchase and
Sale. Subject to and upon the terms and conditions set forth
in this Agreement (including but not limited to the conditions precedent set
forth in Section 5 below), the Company agrees to issue and sell to each
Purchaser, and each Purchaser, jointly and severally, hereby agrees to purchase
from the Company, at the Closing (as defined below), the number of shares of
Common Stock set forth opposite the name of such Purchaser under the heading
"Number of Shares to
be Purchased" on Exhibit A
hereto, at a purchase price of $0.046 per share. The total purchase
price payable by each Purchaser for the number of shares of Common Stock that
such Purchaser is hereby agreeing to purchase is set forth opposite the name of
such Purchaser under the heading "Purchase Price" on
Exhibit A
hereto.
2.2 In
addition, subject to the terms and conditions of this Agreement, each Purchaser
agrees, jointly and severally, to purchase and the Company agrees to sell and
issue to each Purchaser, a Three-year Secured Convertible Promissory Note (the
"Note") in the
principal amount set forth opposite the name of such Purchaser under the heading
"Loan Amount" on Exhibit A in form and
substance attached hereto as Exhibit B convertible
into shares of the Company's Common Stock at an initial conversion price equal
to $0.046 per share of the amount so converted (the "Conversion Price").
The Notes shall be a secured obligation of the Company as provided for in the
Security Agreement. No fractional shares shall be issued under the
Notes (any fractional shares shall be rounded down to the nearest whole
number).
2.3 The
shares of Common Stock sold to the Purchasers pursuant to this Agreement are
hereinafter referred to as the “Shares.” The
Notes to purchase Common Stock sold hereunder are hereinafter referred to as the
“Notes.” The
total amount of Common Stock and other securities issuable upon conversion of
the Notes are hereinafter referred to as the “Conversion
Stock.” The Shares, the Notes and the Conversion Stock are
hereinafter collectively referred to as the “Securities.”
2.4 Closing. The initial
purchase and sale of the Shares and Notes shall take place at the offices of
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
at 10:00 A.M., effective as of the Effective Date, or at such other time and
place as the Company and the Purchasers in their absolutely discretion shall
mutually agree upon (which time and place are designated as the “Closing”). At the Closing,
the Company shall deliver to each Purchaser purchasing Shares and Notes a
certificate representing the Shares and a corresponding Note and Security
Agreement, registered in the name of such Purchaser, which such
Purchaser is purchasing against delivery to the Company by such Purchaser of a
cashiers check or wire transfer in the aggregate amount of the Purchase Price
and Loan Amount therefor, respectively, payable to the Company's
order.
3. Representations and
Warranties of the Company. Except as otherwise described in
the Disclosure Schedule attached hereto or the SEC Documents (as defined below),
including any documents incorporated by reference therein or exhibits referenced
or attached thereto, the Company hereby represents and warrants to each of the
Purchasers as of the Closing the following:
3.1 Incorporation. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and is qualified to do
business and is in good standing in each jurisdiction in which the character of
its properties or the nature of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect on the
business, condition (financial or otherwise) or prospects of the Company ("Material Adverse
Effect"). The Company does not have any material subsidiaries
other than those identified in the SEC Documents (as defined
below). Except for short-term investments and investments that are
not material to the Company, the Company does not own any shares of stock or any
other equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, limited liability company, joint venture,
association or other entity. Complete and correct copies of the
certificate of incorporation (the "Certificate of
Incorporation") and bylaws (the "Bylaws") of the
Company as in effect on the Effective Date have been filed by the Company with
the SEC. The Company has all requisite corporate power and authority
to carry on its business as now conducted.
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3.2 Capitalization.
(a) The
authorized capital stock of the Company consists of (i) 100,000,000 shares
of Common Stock, of which 28,600,464 shares are outstanding on the Effective
Date. The outstanding shares of capital stock of the Company have
been duly and validly issued and are fully paid and nonassessable, have been
issued in material compliance with all federal and state securities laws, and
were not issued in violation of any preemptive or similar rights to subscribe
for or purchase securities.
(b) A
list of all outstanding options to purchase shares of Common Stock or other
equity awards issued to employees and consultants of the Company pursuant to the
employee benefits plans or otherwise, which includes number of shares covered,
exercise prices and expiration dates, is set forth in Section 3.2(b) of the
Disclosure Schedule. None of such options provides for exercise on a
“cashless” or “net-issuance” basis.
(c) A
list of all outstanding warrants to purchase shares of Common Stock or other
equity securities of the Company, as adjusted to reflect the transactions
contemplated by this Agreement, which includes number of shares covered,
exercise prices and expiration dates of each such agreement, is set forth in
Section 3.2(c) of the Disclosure Schedule.
(d) There
are no existing options, warrants, calls, preemptive (or similar) rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character obligating the Company to issue, transfer or sell, or cause to be
issued, transferred or sold, any shares of the capital stock of the Company or
other equity interests in the Company or any securities convertible into or
exchangeable for such shares of capital stock or other equity interests, and
there are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of its capital stock or other equity
interests. There are no voting agreements or other similar
arrangements with respect to the Common Stock to which the Company is a
party. The Company has not adopted a stockholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of Common
Stock or a change in control of the Company. The Company does not
maintain any pension benefit plan, or other retirement plan, subject to the
Employee Retirement Income Security Act.
3.3 Authorization. All
corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Operative Agreements and the consummation of the transactions
contemplated therein has been taken. When executed and delivered by
the Company, each of the Operative Agreements shall constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, reorganization or other laws affecting creditors' rights generally
and by general equitable principles. The Company has all requisite
corporate power to enter into the Operative Agreements and to carry out and
perform its obligations under the terms of the Operative
Agreements.
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3.4 Valid Issuance of the
Shares. The Shares being purchased by the Purchasers hereunder
and the Conversion Stock upon conversion of the Notes will, upon issuance
pursuant to the terms hereof and thereof, be duly authorized and validly issued,
fully paid and nonassessable. No preemptive rights or other rights to
subscribe for or purchase the Company's capital stock exist with respect to the
issuance and sale of the Securities by the Company pursuant to this
Agreement. As of the Effective Date, except as contemplated in the
Notes, no further approval or authority of the stockholders or the Board of
Directors of the Company shall be required for the issuance and sale of the
Securities by the Company, as contemplated in the Operative Agreements. The
Shares, Notes and Conversion Stock issuable upon conversion of the Notes will,
upon issuance pursuant to the terms hereof and thereof, be free and clear from
any security interest, pledge, mortgage, lien (statutory or other), charge,
option to purchase, lease or otherwise acquire any interest or any claim,
restriction or covenant, title defect, hypothecation, assignment, deposit
arrangement or other encumbrance of any kind or any preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement).
3.5 Financial
Statements. As of their respective dates, the financial
statements of the Company included in the SEC Documents (as defined in Section
3.6 below) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as permitted pursuant to Regulation G
promulgated under the Exchange Act, or (ii) in the case of unaudited interim
financial statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year end audit adjustments). Except
as set forth in the subset of SEC Documents filed and publicly available
beginning with the Company’s Annual Report on Form 10-K for the fiscal year
ended May 31, 2009 and prior to the date hereof, since August 31, 2009, (a)
there has been no event, occurrence or development that has had or could result
in a Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company’s financial statements pursuant to
generally accepted accounting principals or required to be disclosed in filings
made with the SEC, (c) the Company has not altered its method of accounting or
the identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital
stock. As of the Closing Date, the Company’s current working capital
was equal to no less than $435,000.00, where current working capital consists of
current assets (cash, cash equivalents, and accounts receivables) minus current
liabilities inclusive of accounts payable, accrued expenses, severance
obligations, and future rent/lease obligations.
3.6 SEC
Documents. The Company has filed all reports, schedules,
forms, statements (collectively, and in each case including all exhibits,
financial statements and schedules thereto and documents incorporated by
reference therein and including all registration statements and prospectuses
filed with the SEC) required to be filed by it with the SEC through the Closing
Date, and the Company will file, on a timely basis, all similar documents with
the SEC during the period commencing on the date hereof and ending on the
Closing Date (all of the foregoing being hereinafter referred to as the “SEC
Documents”). As of their respective dates, the SEC Documents
complied or will comply in all material respects with the requirements of the
Securities Act, the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, contained or will contain any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, as of their respective
filing dates.
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3.7 Consents. Except
for stockholder approval as contemplated in the Notes, all consents, approvals,
orders and authorizations required on the part of the Company in connection with
the execution, delivery or performance of the Operative Agreements and the
consummation of the transactions contemplated therein have been obtained and
will be effective as of the Closing Date.
3.8 No
Conflict. The execution and delivery the Operative Agreements
by the Company and the consummation of the transactions contemplated thereby
will not conflict with or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to a loss of a material
benefit under (i) any provision of the Certificate of Incorporation or
Bylaws of the Company, (ii) any material bond, debenture, note or other
evidence of indebtedness, or any material lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture, franchise, license or other
agreement or instrument to which the Company is a party or by which it or its
property is bound or (iii) any judgment, order, statute, law, ordinance, rule or
regulations, applicable to the Company or its respective properties or
assets.
3.9 Brokers or
Finders. The Company has not dealt with any broker or finder
in connection with the transactions contemplated by this Agreement or incurred
any liability for any brokerage or finders' fees or agent’s commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.10 Nasdaq Stock
Market. The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is quoted on the Nasdaq Stock Market
Over-the-Counter Bulletin Board ("OTCBB") under the
ticker symbol "PRTX.OB." The Company has taken no action designed to
remove, or which, to the Company's knowledge, is likely to have the effect of,
suspending or terminating the quotation of the Common Stock on the
OTCBB. The Company shall comply with all requirements, if any, of the
Financial Industry Regulatory Authority (“FINRA") with respect
to the issuance of the Shares and Conversion Stock and the quoting of the Shares
and Conversion Stock (when issued) on the OTCBB.
3.11 Absence of
Litigation. There is no action, suit or proceeding or, to the
Company's knowledge, any investigation, pending, or to the Company's knowledge,
threatened by or before any court, governmental body or regulatory agency
against the Company, or any of its assets. The Company has not
received any written or oral notification of, or request for information in
connection with, any formal or informal inquiry, investigation or proceeding
from the SEC or the FINRA. The foregoing includes, without
limitation, any such action, suit, proceeding or investigation that questions
the Operative Agreements or the right of the Company to execute, deliver and
perform under same.
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3.12 Intellectual
Property.
(a) To
the knowledge of the Company, the Company has ownership of or license or legal
right to use all patents, copyrights, trade secrets, trademarks, domain names,
customer lists, designs, manufacturing or other processes, computer software,
systems, data compilations, research results and other intellectual property or
proprietary rights (collectively, "Intellectual
Property") used in the business of the Company and material to the
Company. The Company knows of no reason why its patent applications do not or
would not comply with any statutory or legal requirements or would not issue
into valid and enforceable patents.
(b) To
the Company's knowledge, there is no material default by the Company under any
material licenses or other material agreements under which (i) the Company is
granted rights in Intellectual Property or (ii) the Company has granted rights
to others in Intellectual Property owned or licensed by the
Company. There are no outstanding or threatened claims, disputes or
disagreements with respect to any such licenses or agreements.
(c) To
the knowledge of the Company, the present business, activities and products of
the Company do not infringe or misappropriate any Intellectual Property of any
third party. The Company has not been notified that any proceeding
charging the Company with infringement or misappropriation of any Intellectual
Property held by any third party has been filed. To the Company's
knowledge, there exists no patent held by any third party which includes claims
that would be infringed by the Company in the conduct of its business as
currently conducted where such infringement would have a Material Adverse
Effect. To the knowledge of the Company, the Company is not making
unauthorized use of any confidential information or trade secrets of any third
party. Neither the Company nor, to the knowledge of the Company, any
of its employees have any agreements or arrangements with any persons other than
the Company restricting the Company's or any such employee's engagement in
business activities that are material aspects of the Company's business as
currently conducted.
(d) None
of the Intellectual Property owned or, to the Company's knowledge, licensed by
the Company that is used in the business of the Company and material to the
Company, is subject to any outstanding judgment or order, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or, to the knowledge of the Company, threatened, which challenges the
validity, enforceability, scope, use, or ownership of, or otherwise relates to,
any such Intellectual Property anywhere in the world. No Patent has been or is
now involved in any interference, reissue, reexamination, opposition, or other
proceeding.
(e) Each
past employee of the Company has executed a confidential information and
invention assignment agreement in the form made available to
Purchasers. No such employee has excluded works or inventions made
prior to his or her employment with the Company from his or her assignment of
inventions pursuant to such employee's confidential information and invention
assignment agreement, which works or inventions are necessary to the business of
the Company as it is proposed to be conducted. Each consultant to the
Company has entered into an agreement containing appropriate confidentiality and
invention assignment provisions, in the form acceptable to
Purchasers. The Company does not believe it is or will be necessary
to utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned to
the Company.
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3.13 Offering. The Company
has not in the past nor will it hereafter take any action to sell, offer for
sale or solicit offers to buy any securities of the Company which would require
the offer, issuance or sale of the Securities, as contemplated by this
Agreement, to be registered under Section 5 of the Securities Act.
3.14 Investment Company.
The Company is not and, after giving effect to the offering and sale of the
Shares and the Notes, will not be required to register as, an “investment
company” as such term is defined in the Investment Company Act of 1940, as
amended.
3.15 No Manipulation of
Stock. The Company has not taken and will not, in violation of applicable
law, take, any action designed to or that might reasonably be expected to cause
or result in unlawful manipulation of the price of the Common
Stock.
3.16 No Violations. The
Company is not in violation of its Certificate of Incorporation, Bylaws or other
organizational documents, or in violation of any law, administrative regulation,
ordinance or order of any court or governmental agency, arbitration panel or
authority applicable to the Company, which violation, individually or in the
aggregate, would be reasonably expected to have a Material Adverse Effect, or is
not in default (and there exists no condition which, with the passage of time or
otherwise, would constitute a default) in the performance of any material bond,
debenture, note or any other evidence of indebtedness in any indenture,
mortgage, deed of trust or any other material agreement or instrument to which
the Company is a party or by which the Company is bound or by which the property
of the Company is bound, which would be reasonably expected to have a Material
Adverse Effect.
3.17 Accountants. ▇▇▇▇▇
▇▇▇▇▇▇▇▇, LLP, who issued their report with respect to the financial statements
in the Company's Annual Report on Form 10-K for the year ended May 31, 2009 are
an independent registered public accounting firm as required by the Securities
Act.
3.18 Taxes. The
Company has filed all necessary federal, state and foreign income and franchise
tax returns, including for the period ended May 31, 2009, and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been or might be asserted or threatened against it
which would have a Material Adverse Effect
3.19 Title. The
Company has good and marketable title to all real property and good and
marketable title to all personal property owned by it which is material to the
business of the Company, in each case free and clear of all encumbrances and
defects, except such as do not have a Material Adverse Effect. Any
facilities and items of equipment held under lease by the Company are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
facilities and items of equipment by the Company. The Company is in compliance
with all material terms of each lease to which it is a party or is otherwise
bound.
3.20
Foreign Corrupt
Practices. To the knowledge of the Company, neither the
Company, nor any director, officer, agent, employee or other person acting on
behalf of the Company, has in the course of its actions for, or on behalf of,
the Company, used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or made
any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
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3.21 Employee
Relations. The Company is not involved in any union labor
dispute, nor, to the knowledge of the Company, is any such dispute
threatened. The Company is not a party to a collective bargaining
agreement, and the Company believes that its relations with its employees are
good.
3.22 Internal Accounting
Controls. The Company maintains a system of internal
accounting controls (as such term is defined in Rule 13a-14 and 15d-14 under the
Exchange Act) sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.23 Disclosure
Controls. The Company has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-14 and 15d-14 under
the Exchange Act); such disclosure controls and procedures are designed to
ensure that material information relating to the Company, including its
consolidated subsidiaries, if any, is made known to the Company’s Chief
Executive Officer and its Chief Financial Officer by others within those
entities, and such disclosure controls and procedures are effective to perform
the functions for which they were established; the Company’s auditors and the
Audit Committee of the Board of Directors have been advised of: (i) any
significant deficiencies in the design or operation of internal controls which
could adversely affect the Company’s ability to record, process, summarize, and
report financial data; and (ii) any fraud, whether or not material, that
involves management or other employees who have a role in the Company’s internal
controls; any material weaknesses in internal controls have been identified for
the Company’s auditors; since the date of the most recent evaluation of such
disclosure controls and procedures, there have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses; the principal executive officers (or their
equivalents) and principal financial officers (or their equivalents) of the
Company have made all certifications required by the Sarbanes Oxley Act of 2002
(the “Sarbanes Oxley
Act”) and any related rules and regulations promulgated by the
Commission, and the statements contained in any such certification are complete
and correct; and the Company is otherwise in compliance in all material respects
with all applicable effective provisions of the Sarbanes Oxley Act.
3.24 Disclosure. Neither
the Operative Agreements, any of the schedules or exhibits hereto or thereto,
nor any other document or certificate provided by the Company to the Purchasers
in connection herewith or therewith contains any untrue statement of a material
fact or, when considered as a whole, omits a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
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3.25 Real Property Holding
Corporation. The Company is not a real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code
of 1986, as amended (the “Code”) and any regulations promulgated
thereunder.
4. Representations and
Warranties of the Purchasers. Each Purchaser severally and
jointly with the other Purchasers, represents and warrants to the Company as
follows:
4.1 Authorization. All
action on the part of such Purchaser and, if applicable, its officers,
directors, partners, members and stockholders necessary for the authorization,
execution, delivery and performance of the Operative Agreements and the
consummation of the transactions contemplated therein has been
taken. When executed and delivered by the Company and such Purchaser,
each of the Operative Agreements will constitute the legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms, except as such may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally and by
general equitable principles. Such Purchaser has all requisite power
to enter into each of the Operative Agreements and to carry out and perform its
obligations under the terms of the Operative Agreements. Such
Purchaser has the knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of an investment in the
Securities and has the ability to bear the economic risks of an investment in
the Securities for an indefinite period of time. Furthermore, the Purchaser
acknowledges that the Company has made no representations or warranties except
as set for in this Agreement.
4.2 Purchase Entirely for Own
Account. Each Purchaser is acquiring the Securities being
purchased by it hereunder for investment, for its own account, and not for
resale or with a view to distribution thereof in violation of the Securities
Act. Such Purchaser has not entered into an agreement or understanding with any
other party to resell or distribute such Securities.
4.3 Investor Status;
Etc. Such Purchaser certifies and represents to the Company
that it is an “Accredited Investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act and was not organized for the purpose of
acquiring the Securities. Such Purchaser’s financial condition is
such that it is able to bear the risk of holding the Securities for an
indefinite period of time and the risk of loss of its entire
investment. Subject to the truth and accuracy of the representations
and warranties of the Company set forth in Section 3 of this Agreement (as
modified by the Company Disclosure Schedule), such Purchaser has received,
reviewed and considered all information it deems necessary in making an informed
decision to make an investment in the Securities and has been afforded the
opportunity to ask questions of and receive answers from the management of the
Company concerning this investment 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.
4.4 [Intentionally
omitted]
4.5 Securities Not
Registered. Such Purchaser understands that the Securities
have not been registered under the Securities Act, by reason of their issuance
by the Company in a transaction exempt from the registration requirements of the
Securities Act, and that the Securities must continue to be held by such
Purchaser unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration. The Purchaser
understands that the exemptions from registration afforded by Rule 144 (the
provisions of which are known to it) promulgated under the Securities Act depend
on the satisfaction of various conditions, and that, if applicable, Rule 144 may
afford the basis for sales only in limited amounts.
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4.6 No
Conflict. The execution and delivery of the Operative
Agreements by such Purchaser and the consummation of the transactions
contemplated thereby will not conflict with or result in any violation of or
default by such Purchaser (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to a loss of a material benefit under (i) any provision
of the organizational documents of such Purchaser, (ii) any material
agreement or instrument, permit, franchise, or license or (iii) any judgment,
order, statute, law, ordinance, rule or regulations, applicable to such
Purchaser or its respective properties or assets.
4.7 Brokers. Such
Purchaser has not retained, utilized or been represented by any broker or finder
in connection with the transactions contemplated by this Agreement.
4.8 Consents. All
consents, approvals, orders and authorizations required on the part of such
Purchaser in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated herein have been
obtained and are effective as of the Closing Date.
5. Conditions
Precedent.
5.1 Conditions to the Obligation
of the Purchasers to Consummate the Closing. The obligation of
each Purchaser to consummate the Closing and to purchase and pay for the
Securities being purchased by it pursuant to this Agreement is subject to the
satisfaction of the following conditions precedent unless waived in writing by
the Purchasers:
(a) The
representations and warranties of the Company contained herein shall be true and
correct on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date (it being understood and agreed by each
Purchaser that, in the case of any representation and warranty of the Company
contained herein which is not hereinabove qualified by application thereto of a
materiality standard, such representation and warranty need be true and correct
only in all material respects in order to satisfy as to such representation or
warranty the condition precedent set forth in the foregoing provisions of this
Section 5.1(a)).
(b) The
Notes shall have been executed and delivered by the Company.
(c) The
Company shall not have been adversely affected in any material way prior to the
Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed or observed by the Company on or
prior to the Closing Date.
(d) No
proceeding challenging the Operative Agreements or the transactions contemplated
hereby, or seeking to prohibit, alter, prevent or materially delay the Closing,
shall have been instituted before any court, arbitrator or governmental body,
agency or official and shall be pending.
10
(e) The
purchase of and payment for the Securities by the Purchasers shall not be
prohibited by any law or governmental order or regulation. All
necessary consents, approvals, licenses, permits, orders and authorizations of,
or registrations, declarations and filings with, any governmental or
administrative agency or of any other person with respect to any of the
transactions contemplated hereby shall have been duly obtained or made and shall
be in full force and effect.
(f) All
instruments and corporate proceedings in connection with the transactions
contemplated by the Operative Agreement to be consummated at the Closing shall
be satisfactory in form and substance to such Purchaser. Such Purchaser shall
have received such certificates of the Company's officers as such Purchaser may
have reasonably requested in connection with such transactions.
(g) The
officers and directors of Company shall have resigned from such positions
effective as of the Closing, and the Board shall have authorized the
appointments as Directors of the Company of ▇▇▇▇▇▇ ▇▇▇▇▇ effective immediately
after the Closing; provided, however, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall remain in office
until the expiration of ten days after Company files with the SEC, and mails to
its shareholders of record, an Information Statement pursuant to Rule 14f-1 of
the Exchange Act.
(h) The
Company (i) shall have filed or caused to be filed with the Delaware Secretary
of State and the United States Patent and Trademark Office (the “PTO”) a
formal discharge of all security interests in the Intellectual Property and any
other asset of the Company, and (ii) shall have filed a UCC-1
Financing Statement with the Delaware Secretary of State and the appropriate
form, if applicable, with the PTO, in order to perfect the security interest of
the Purchasers as forth in the Notes and Security Agreement.
(i) Each
of the that certain September 18, 2003 Investor Rights Agreement and that
certain May 25, 2005 Registration Rights
Agreement shall have been terminated and the Company shall have no further
rights, obligations or liabilities thereunder.
(j) The
Company’s incoming directors and officers shall be covered by a valid and
enforceable directors and officers liability insurance policy, on terms
reasonably satisfactory to the Purchasers, for a policy period covering at least
one year from the date of this Agreement.
(k) The
Company shall not have modified the terms of any severance agreement entered
into with its former officers and/or employees and shall not have accelerated
the payment of any amount payable under any such agreement.
5.2 Conditions to the Obligation
of the Company to Consummate the Closing. The obligation of
the Company to consummate the Closing and to issue and sell to each of the
Purchasers the Securities to be purchased by it at the Closing is subject to the
satisfaction of the following conditions precedent:
(a) The
representations and warranties contained herein of such Purchaser shall be true
and correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date (it being understood and agreed by the
Company that, in the case of any representation and warranty of each Purchaser
contained herein which is not hereinabove qualified by application thereto of a
materiality standard, such representation and warranty need be true and correct
only in all material respects in order to satisfy as to such representation or
warranty the condition precedent set forth in the foregoing provisions of this
Section 5.2(a)).
11
(b) The
applicable Notes shall have been executed and delivered by each
Purchaser.
(c) Each
Purchaser shall have performed all obligations and conditions herein required to
be performed or observed by such Purchaser on or prior to the Closing
Date.
(d) No
proceeding challenging this Agreement or the transactions contemplated hereby,
or seeking to prohibit, alter, prevent or materially delay the Closing, shall
have been instituted before any court, arbitrator or governmental body, agency
or official and shall be pending.
(e) The
sale of the Securities by the Company shall not be prohibited by any law or
governmental order or regulation. All necessary consents, approvals,
licenses, permits, orders and authorizations of, or registrations, declarations
and filings with, any governmental or administrative agency or of any other
person with respect to any of the transactions contemplated hereby shall have
been duly obtained or made and shall be in full force and effect.
(f) All
instruments and corporate proceedings in connection with the transactions
contemplated by this Agreement to be consummated at the Closing shall be
satisfactory in form and substance to the Company, and the Company shall have
received counterpart originals, or certified or other copies of all documents,
including without limitation records of corporate or other proceedings, which it
may have reasonably requested in connection therewith.
(g) The
Company shall have received executed Purchase Agreements representing an
aggregate Purchase Price of $2,000,000 and principal Loan Amounts of
$1,000,000.
(h) Each
Purchaser shall have irrevocably delivered such Purchaser’s Purchase Price and
Loan Amount to the Company in immediately available funds.
6. Transfer, Legends; Piggyback
Registration Rights.
6.1 Securities Law Transfer
Restrictions.
(a) Each
Purchaser acknowledges that the certificates or instruments representing the
Securities shall bear restrictive legends substantially as follows:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION
UNDER SAID ACT AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS
EXEMPT FROM SAID ACT.”
12
“THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE PURSUANT TO A PURCHASE AGREEMENT, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.”
(b) Each
Purchaser understands that the Securities have not been registered under the
Securities Act or any state securities laws. In that connection, such
Purchaser is aware of Rule 144 under the Securities Act and the restrictions
imposed thereby. Such Purchaser will not engage in hedging or other
similar transactions which would include, without limitation, effecting any
short sale or having in effect any short position (whether or not such sale or
position is against the box and regardless of when such position was entered
into) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to the Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Common Stock of the Company.
6.2. Piggyback
Registration Rights.
(a) If,
at any time the Company shall determine to register any of its securities either
for its own account or for the account of a security holder or for any of its
Affiliate other than (i) a registration relating solely to employee benefit
plans, or (ii) a registration relating solely to a Rule 145 (or its successor
rule under the Securities Act) transaction, or (iii) a registration on any
registration form that does not permit secondary sales (such as Form S-4 or S-8)
the Company will:
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|
(A)
|
at
least five (5) business days prior to filing any such registration
statement under the Securities Act, give to each Purchaser written notice
thereof; and
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|
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(B)
|
use
its commercially reasonable efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Shares and Conversion Stock
specified in a written request or requests, made by any Purchaser and
received by the Company within five (5) days after the written notice from
the Company described in clause (A) above is mailed or delivered by the
Company. Such written request may specify all or a part of a
Purchaser's Shares and Conversion Stock. Piggyback registration
rights shall be afforded to such Purchasers in accordance with the
priorities set forth in Section 6.2(d)
hereof.
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13
(b) If
the registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Purchasers
as a part of the written notice given pursuant to Section 6.2(a). In
such event, the right of any Purchaser to registration pursuant to this Section
6.2 shall be conditioned upon such Purchaser's participation in such
underwriting and the inclusion of such Purchaser's Shares and Conversion Stock
in the underwriting to the extent provided herein. All Purchasers proposing to
distribute their securities through such underwriting shall (together with the
Company and the other Purchasers of securities of the Company with registration
rights to participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary form for
offerings of the type proposed with the representative of the underwriter or
underwriters selected by the Company.
(c) Notwithstanding
any other provision of this Section 6.2, if the managing underwriter(s) advises
the Company in writing that marketing factors require a limitation on the number
of Shares to be underwritten, the managing underwriter(s) may limit the number
of Registrable Securities to be included in the registration and underwriting in
accordance with Section 6.2(d) hereof; provided, however, that to the
extent the Company proposed the underwriting, the Company shall have first
priority to have all of its securities included in such underwriting without
cutback and the rest of the underwriting shall be allocated pro rata among the
selling shareholders (including the Purchasers); provided, further, to the
extent any selling shareholder (including any Purchaser) demanded the
underwriting, all selling shareholder shall have first priority to have all of
their securities included in such underwriting (pro rata) without cutback, then
all securities to be registered by the Company. If any Purchaser does
not agree to the terms of any such underwriting, such Purchaser shall be
excluded therefrom by written notice from the Company or the
underwriter. Any Shares, Conversion Stock or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration. If securities are so withdrawn from the registration
and if the number of shares of Shares and Conversion Stock to be included in
such registration was previously reduced as a result of marketing factors, the
Company shall then offer to all persons who have retained the right to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the persons requesting additional
inclusion in accordance with Section 6.2(d) hereof.
(d) In
any circumstance in which all of the Shares and Conversion Stock and other
securities of the Company with registration rights (the "Other Shares")
requested to be included in a registration on behalf of the Purchasers or other
selling shareholder cannot be so included due to marketing factors or other
reasons, the following rules of priority shall apply: (a) the Company may limit,
to the extent so advised by the managing underwriter(s), the amount of
securities (including Shares and Conversion Stock) to be included in the
registration by the Company's shareholders (including the Purchasers), or may
exclude, to the extent so advised by the underwriter(s), such underwritten
securities entirely from the registration. The Company shall so
advise all Purchasers of securities requesting registration, and, subject to the
preceding sentence, the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated first to the
Company for securities being sold for its own account and thereafter to the
Purchasers for the Shares and Conversion Stock and the holders of the Other
Shares electing to include shares in the registration on a pro rata
basis. If any Purchaser or other selling shareholder does not request
inclusion of the maximum number of shares of Shares, Conversion Stock and Other
Shares allocated to him pursuant to the above-described procedure, the remaining
portion of such person's allocation shall be reallocated among those requesting
Purchasers and other selling shareholders whose allocations did not satisfy
their requests pro rata on the basis of the number of shares of Shares,
Conversion Stock and Other Shares which would be held by such Purchasers and
other selling shareholders, assuming conversion, and this procedure shall be
repeated until all of the Shares, Conversion Stock and Other Shares which may be
included in the registration on behalf of the Purchasers and other selling
shareholders have been so allocated. The Company shall not limit the
number of Shares and Conversion Stock to be included in a registration pursuant
to this Agreement in order to include Shares held by shareholders with no
registration rights or to include any shares issued to employees, officers,
directors, or consultants pursuant to any of the Company's employee stock option
plans.
14
(e) Notwithstanding the above, this Section 6.2 shall not
apply to registrations of the Company’s securities that are not underwritten
public offerings (x) when the Shares or Conversion Stock, as the case may be,
are covered by an effective registration statement or (y) where with respect to
any Purchaser, all of such Purchaser’s Shares or Conversion Stock, as the case
may be, may be sold without restriction under Rule 144 (or its successor rule
under the Securities Act).
7. Termination; Liabilities
Consequent Thereon. This Agreement may be terminated and the
transactions contemplated hereunder abandoned at any time prior to the Closing
only as follows:
(a) at
any time by mutual written agreement of the Company and the Purchasers;
or
(b) by
the Purchasers, if there has been any breach of any representation or warranty
or any material breach of any covenant of the Company (including but not limited
to the conditions to Closing set forth in Section 5) contained herein and the
same has not been cured within 15 days after written notice thereof (it being
understood and agreed by each Purchaser that, in the case of any representation
or warranty of the Company contained herein which is not hereinabove qualified
by application thereto of a materiality standard, such representation or
warranty will be deemed to have been breached for purposes of this Section
7.1(b) only if such representation or warranty was not true and correct in all
material respects at the time such representation or warranty was made by the
Company); or
(c) by
the Company with respect to all Purchasers, if there has been any breach of any
representation, warranty or any material breach of any covenant of any Purchaser
contained herein (including but not limited to the conditions to
Closing set forth in Section 5) and the same has not been cured within 15 days
after written notice thereof (it being understood and agreed by the Company
that, in the case of any representation and warranty of any Purchaser contained
herein which is not hereinabove qualified by application thereto of a
materiality standard, such representation or warranty will be deemed to have
been breached for purposes of this Section 7.1(c) only if such representation or
warranty was not true and correct in all material respects at the time such
representation or warranty was made by any Purchaser).
Any
termination pursuant to this Section 7 shall be without liability on the part of
any party, unless such termination is the result of a material breach of this
Agreement by a party to this Agreement in which case such breaching party shall
remain liable for such breach notwithstanding any termination of this
Agreement.
15
8. Miscellaneous
Provisions.
8.1 Further
Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
the other parties to better evidence and reflect the transactions described
herein and contemplated hereby, and to carry into effect the intents and
purposes of this Agreement.
8.2 Rights
Cumulative. Each and all of the various rights, powers and
remedies of the parties shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or
remedy shall neither constitute the exclusive election thereof nor the waiver of
any other right, power or remedy available to such party.
8.3 Pronouns. All
pronouns or any variation thereof shall be deemed to refer to the masculine,
feminine or neuter, singular or plural, as the identity of the person, persons,
entity or entities may require.
8.4 Notices. Any
notices, reports or other correspondence (hereinafter collectively referred to
as "correspondence")
required or permitted to be given hereunder shall be in writing and shall be
sent by postage prepaid first class mail, courier or telecopy or delivered by
hand to the party to whom such correspondence is required or permitted to be
given hereunder, and shall be deemed sufficient upon receipt when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
three (3) business days after being deposited in the regular mail as certified
or registered mail (airmail if sent internationally) with postage prepaid, if
such notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below:
(a) All
correspondence from the Purchasers or the Company involving matters related
prior to and as of the Closing shall be addressed as follows:
▇▇▇▇
▇▇▇▇▇ LLP
▇▇▇
▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇.▇▇▇▇
(b) All
correspondence to any Purchaser shall be sent to such Purchaser at the address
set forth in Exhibit A, with a copy,
in each instance to:
Morse,
Zelnick, Rose & Lander, LLP
▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇
▇. ▇▇▇▇, Esq.
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
16
(c) Any
party may change the address to which correspondence to it is to be addressed by
written notification as provided for herein.
8.5 Captions. The
captions and paragraph headings of this Agreement are solely for the convenience
of reference and shall not affect its interpretation.
8.6 Severability. Should
any part or provision of this Agreement be held unenforceable or in conflict
with the applicable laws or regulations of any jurisdiction, the invalid or
unenforceable part or provisions shall be replaced with a provision which
accomplishes, to the extent possible, the original business purpose of such part
or provision in a valid and enforceable manner, and the remainder of this
Agreement shall remain binding upon the parties hereto.
8.7 Governing Law; Injunctive
Relief.
(a) This
Agreement shall be governed by and construed in accordance with the internal and
substantive laws of the State of Delaware and without regard to any conflicts of
laws concepts which would apply the substantive law of some other jurisdiction.
Venue for all purposes hereunder shall be in the applicable state or federal
court located within the State of Delaware.
(b) Each
of the parties hereto acknowledges and agrees that damages will not be an
adequate remedy for any material breach or violation of this Agreement if such
material breach or violation would cause immediate and irreparable harm (an
"Irreparable
Breach"). Accordingly, in the event of a threatened or ongoing
Irreparable Breach, each party hereto shall be entitled to seek, equitable
relief of a kind appropriate in light of the nature of the ongoing or threatened
Irreparable Breach, which relief may include, without limitation, specific
performance or injunctive relief; provided, however, that if the
party bringing such action is unsuccessful in obtaining the relief sought, the
moving party shall pay the non-moving party's reasonable costs, including
attorney's fees, incurred in connection with defending such
action. Such remedies shall not be the parties' exclusive remedies,
but shall be in addition to all other remedies provided in this
Agreement.
8.8 Amendments. This
Agreement may be not be amended or modified except pursuant to an instrument in
writing signed by the Purchasers and the Chairman of the Board or the Chief
Executive Officer of the Company in office immediately prior to the
Closing.
8.9 Waiver. No
waiver of any term, provision or condition of this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be, or be
construed as, a further or continuing waiver of any such term, provision or
condition or as a waiver of any other term, provision or condition of this
Agreement.
8.10 Expenses. The
Company will bear the costs and expenses of all parties in connection with this
Agreement; provided, however that the reimbursement of the Purchasers’ expenses,
which shall occur at the Closing, shall not exceed $100,000.
17
8.11 Assignment. The
rights and obligations of the parties hereto shall inure to the benefit of and
shall be binding upon the authorized successors and permitted assigns of each
party. Neither party may assign its rights or obligations under this
Agreement or designate another person (i) to perform all or part of its
obligations under this Agreement or (ii) to have all or part of its rights and
benefits under this Agreement, in each case without the prior written consent of
the other party. In the event of any assignment in accordance with
the terms of this Agreement, the assignee shall specifically assume and be bound
by the provisions of the Agreement by executing and agreeing to an assumption
agreement reasonably acceptable to the other party.
8.12 Survival. The
respective representations and warranties given by the parties hereto, and the
other covenants and agreements contained herein, shall survive the Closing Date
and the consummation of the transactions contemplated herein for a period of one
year, without regard to any investigation made by any party.
8.13 Counterpart. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one
instrument.
8.14 Entire
Agreement. This Agreement and the Notes constitute the entire
agreement between the parties hereto respecting the subject matter hereof and
supersede all prior agreements, negotiations, understandings, representations
and statements respecting the subject matter hereof, whether written or
oral. No modification, alteration, waiver or change in any of the
terms of this Agreement shall be valid or binding upon the parties hereto unless
made in writing and duly executed by the Purchasers and the Chairman of the
Board or the Chief Executive Officer of the Company in office immediately prior
to the Closing.
[Signature
Page to Follow]
18
IN
WITNESS WHEREOF, the parties hereto have executed this Note and Common Stock
Purchase Agreement as of the day and year first above written.
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PROTALEX,
INC.
|
||
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By:
|
/s/ ▇▇▇▇ ▇▇▇▇
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▇▇▇▇
▇▇▇▇, Chief Financial Officer
|
||
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NIOBE
VENTURES, LLC
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||
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By:
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
|
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▇▇▇▇▇▇
▇▇▇▇▇, Manager
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||
19
Exhibit
A
SCHEDULE OF
PURCHASERS
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Purchaser Name and
Address
|
Number of Shares to be
Purchased
|
Aggregate Share
Purchase Price
|
Loan Amount
|
|||||||||
|
Niobe
Ventures, LLC
|
43,478,260 | $ | 2,000,000.00 | $ | 1,000,000.00 | |||||||