Execution
Copy
SECURITIES
PURCHASE AGREEMENT
THIS
SECURITIES PURCHASE AGREEMENT (“Agreement”)
is
made as of this 12th day of April, 2007 (the “Signing
Date”)
by and
among Novelos Therapeutics, Inc., a Delaware corporation (the “Company”),
Xmark
Opportunity Fund, L.P., a Delaware limited partnership (“Xmark
LP”),
Xmark
Opportunity Fund, Ltd., a Cayman Islands exempted company (“Xmark
Ltd”),
Xmark
JV Investment Partners LLC, a Delaware limited liability company (“Xmark
LLC”
and
together with Xmark LP and Xmark Ltd, the “Xmark
Entities”),
Caduceus Master Fund Limited, a Bermuda corporation (“Caduceus
Master”),
Caduceus Capital II, L.P., a Delaware limited partnership (“Caduceus
Capital”),
UBS
Eucalyptus Fund, L.L.C., a Delaware registered investment company (“UBS
Eucalyptus”),
PW
Eucalyptus Fund, Ltd., a Cayman Islands investment company (“PW
Eucalyptus”)
and
HFR SHC Aggressive Master Trust, a Bermuda trust (“HFR”
and
together with Caduceus Master, Caduceus Capital, UBS Eucalyptus, PW Eucalyptus,
the “OrbiMed
Entities”,
and
the OrbiMed Entities and the Xmark Entities together, the “Lead
Investors”),
and
the other investors set forth on Schedule
I affixed
hereto, as such Schedule may be amended from time to time in accordance with
the
terms of this Agreement (each an “Investor”
and
collectively the “Investors”;
for
the avoidance of doubt, the Lead Investors are each an Investor).
Recitals:
A. The
Company desires, pursuant to this Agreement, to raise up to the Investment
Amount (as defined below) through the issuance and sale of the following to
the
Investors (the “Private
Placement”):
(i)
up to 1,500 shares of a newly created series of the Company’s Preferred Stock,
designated “Series B Convertible Preferred Stock”, par value $0.00001 per share
(the “Preferred
Stock”),
which
Preferred Stock shall have the rights, preferences and privileges set forth
in
the Certificate of Designations, Preferences and Rights, in the form of
Exhibit
A
annexed
hereto and made a part hereof (the “Certificate
of Designations”),
and
each share of Preferred Stock shall have a stated value of $10,000.00 and shall
initially be convertible into shares of the Company's Common Stock, par value
$0.00001 per share (the “Common
Stock”),
at a
price of $1.00 per share (the “Conversion
Price”),
for
an aggregate of 15,000,000 shares of Common Stock; and (ii) warrants to acquire
up to 7,500,000 shares of Common Stock, equal to 50% of the number of shares
of
Common Stock underlying the Preferred Stock on the date of issue, at an exercise
price of $1.25 per share, in the form of Exhibit
B
annexed
hereto and made a part hereof (the “Warrants”);
B. The
Investors desire to purchase from the Company, and the Company desires to issue
and sell to the Investors, upon the terms and conditions stated in this
Agreement, such number of shares of Preferred Stock and Warrants to purchase
such number of shares of Common Stock as is set forth next to each such
Investor’s name on Schedule
I
affixed
hereto;
C. Subject
to the conditions hereinafter set forth, on the date hereof, the Investors
will
purchase $15,000,000 of the Preferred Stock and Warrants in the Private
Placement (the “Closing”);
D. The
Company has engaged Rodman & Renshaw, LLC as its placement agent (the
“Placement
Agent”)
for
the Private Placement on a “best efforts” basis;
E. Contemporaneous
with the sale of the Preferred Stock and the Warrants at the Closing, the
parties hereto will enter into a Registration Rights Agreement, in the form
attached hereto as Exhibit
C
(the
“Registration
Rights Agreement”),
pursuant to which, among other things, the Company will provide certain
registration rights to the Investors with respect to the Private Placement
under
the Securities Act of 1933 (as amended, the “1933
Act”)
and
the rules and regulations promulgated thereunder, and applicable state
securities laws; and
F. The
Company and the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation
D”),
as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under
the 1933 Act and Regulation S (“Regulation
S”),
as
promulgated by the SEC under the 1933 Act.
NOW,
THEREFORE,
in
consideration of the mutual promises made herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the
parties hereto agree as follows:
1. Definitions.
In
addition to those terms defined above and elsewhere in this Agreement, for
the
purposes of this Agreement, the following terms shall have the meanings set
forth in this Section
1:
“1933
Act”
has
the
meaning set forth in the Recitals.
“1934
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“10-KSB”
has
the
meaning set forth in Section
5.6.
“Affiliate”
means,
with respect to any Person, any other Person which directly or indirectly
Controls, is Controlled by, or is under common Control with, such
Person.
“Agreement”
has
the
meaning set forth in the Recitals.
“Alternative
Transaction”
has
the
meaning set forth in Section
8.10.
“Business
Day”
means
a
day, other than a Saturday or Sunday, on which banks in New York City are open
for the general transaction of business.
“Buy-In
Price”
has
the
meaning set forth in Section
8.15.
“Certificate
of Designations”
has
the
meaning set forth in the Recitals.
“Company
Counsel Opinion”
means
a
legal opinion from the Company Counsel, dated as of the applicable Closing
Date,
in the form attached hereto as Exhibit
D.
“Closing”
has
the
meaning set forth in Section
4.
“Closing
Date”
means,
as applicable, the first Closing Date and/or any subsequent Closing
Dates.
“Common
Stock”
has
the
meaning set forth in the Recitals, and also includes any securities into which
the Common Stock may be reclassified.
“Company”
has
the
meaning set forth in the Recitals.
“Company
Counsel”
means
Foley Hoag LLP, counsel to the Company
“Company’s
Knowledge”
means
the actual knowledge of the officers of the Company, after due inquiry and
investigation.
“Confidential
Information”
means
trade secrets, confidential information and know-how (including but not limited
to ideas, formulae, compositions, processes, procedures and techniques, research
and development information, computer program code, performance specifications,
support documentation, drawings, specifications, designs, business and marketing
plans, and customer and supplier lists and related information).
“Control”
means
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
“Conversion
Price”
has
the
meaning set forth in the Recitals.
“Conversion
Shares”
means
the shares of Common Stock issuable upon conversion of the Preferred
Stock.
“Covenant
Expiration Event”
has
the
meaning set forth in Section
8.8.
“Deadline
Date”
has
the
meaning set forth in Section
8.15.
“Disclosure
Schedules”
has
the
meaning set forth in Section
5.
“Eligible
Market”
means
the Trading Market on which the Common Stock is primarily listed on and quoted
for trading, which, as of the Closing Date means the OTC Bulletin Board
(“OTCBB”).
“Environmental
Laws”
has
the
meaning set forth in Section
5.15.
“Escrow
Amount”
has
the
meaning set forth in Section
3.1(a).
“Escrow
Termination Date”
means
the 15th calendar day after the Signing Date; provided,
however,
the
Lead Investors and the Company may jointly agree to extend the Escrow
Termination Date for up to two additional 15-day periods by giving written
notice to the Lead Investor Counsel of their election to so extend the Escrow
Termination Date, in each case for up to an additional 15 calendar days, and
in
each such case, the Escrow Termination Date shall be the date specified in
such
notice; provided,
further,
however,
the
Escrow Termination Date shall not be later than May 25 2007, on which date,
if
the Closing has not occurred, Lead Investor Counsel shall return the Escrow
Amount in accordance with Section
3.1(b);
provided,
further,
however,
the
Escrow Termination Date shall occur upon termination of this Agreement pursuant
to Section
8.13.
“Indemnified
Person”
has
the
meaning set forth in Section
9.3.
“Intellectual
Property”
means
all of the following: (i) patents, patent applications, patent disclosures
and
inventions (whether or not patentable and whether or not reduced to practice);
(ii) trademarks, service marks, trade dress, trade names, corporate names,
logos, slogans and Internet domain names, together with all goodwill associated
with each of the foregoing; (iii) copyrights and copyrightable works; (iv)
registrations, applications and renewals for any of the foregoing; (v) trade
secrets, Confidential Information and know-how (including, but not limited
to,
ideas, formulae, compositions, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, business and marketing plans, and customer and supplier lists and
related information); and (vi) computer software (including, but not limited
to,
data, data bases and documentation).
“Investment
Amount”
means
an amount equal to $15,000,000.
“Investor(s)”
has
the
meaning set forth in the Recitals.
“Lead
Investors”
has
the
meaning set forth in the Recitals.
“Lead
Investor Counsel”
has
the
meaning set forth in Section
3.1(a).
“Lead
Investor Counsel Duties”
has
the
meaning set forth in Section
3.2(a).
“Lead
Investor Counsel Fees”
has
the
meaning set forth in Section
10.5.
“Lead
Investor Director”
has
the
meaning set forth in Section
8.7(a).
“Lead
Investor Observer”
has
the
meaning set forth in Section
8.7(b).
“License
Agreements”
has
the
meaning set forth in Section
5.14(b).
“Losses”
has
the
meaning set forth in Section
9.2.
“Material
Adverse Effect”
means
a
material adverse effect on (i) the assets and liabilities, prospects, results
of
operations, condition (financial or otherwise) or business of the Company and
its Subsidiaries taken as a whole, or (ii) the ability of the Company to issue
and sell the Securities and to perform its obligations under the Transaction
Documents; provided,
however,
that:
(A) any adverse effect that results from general economic, business or industry
conditions, the taking by the Company of any action permitted or required by
the
Agreement, or the announcement or pendency of transactions contemplated
hereunder, shall not, in and of itself, constitute a "Material Adverse Effect"
on the Company, and shall not be considered in determining whether there has
been or would be a "Material Adverse Effect" on the Company and (B) a decline
in
the Company's stock price shall not, in and of itself, constitute a "Material
Adverse Effect" on the Company and shall not be considered in determining
whether there has been or would be a "Material Adverse Effect" on the Company.
“Material
Contract”
means
any contract of the Company or any Subsidiary (i) that was required to be filed
as an exhibit to the SEC Filings pursuant to Item 601(b)(4) or Item 601(b)(10)
of Regulation S-B of the 1933 Act or (ii) the loss of which could reasonably
be
expected to have a Material Adverse Effect.
“OrbiMed
Entities”
has
the
meaning set forth in the Recitals.
“Person”
means
an individual, corporation, partnership, limited liability company, trust,
business trust, association, joint stock company, joint venture, sole
proprietorship, unincorporated organization, governmental authority or any
other
form of entity not specifically listed herein.
“Placement
Agent”
has
the
meaning set forth in the Recitals.
“Placement
Agent Agreement”
means
that certain letter from the Company to the Placement Agent, dated February
12,
2007.
“Placement
Agent Fee”
has
the
meaning set forth in Section
5.19.
“Preferred
Stock”
has
the
meaning set forth in the Recitals.
“Press
Release”
has
the
meaning set forth in Section
8.13.
“Private
Placement”
has
the
meaning set forth in the Recitals.
“Registration
Rights Agreement”
has
the
meaning set forth in the Recitals.
“Regulation
D”
has
the
meaning set forth in the Recitals.
“Requisite
Holders”
shall
mean the holders of at least a majority of the then outstanding shares of
Preferred Stock which majority must include (i) the Xmark Entities, provided
such Xmark Entities have purchased an aggregate of $4,000,000 of Preferred
Stock
pursuant to this Agreement and hold at least one-third of the Preferred Stock
issued to the Xmark Entities at Closing as of the date of determination and
(ii)
the OrbiMed Entities, provided such OrbiMed Entities have purchased an aggregate
of $5,000,000 of Preferred Stock pursuant to this Agreement and hold at least
one-third of the Preferred Stock issued to the OrbiMed Entities at Closing
as of
the date of determination (appropriately adjusted for any stock dividend, stock
split, reverse stock split, reclassification, stock combination or other
recapitalization occurring after the date hereof).
“Rule
144”
has
the
meaning set forth in Section
8.14.
“SEC”
has
the
meaning set forth in the Recitals.
“SEC
Filings”
has
the
meaning set forth in Section
5.6.
“Securities”
means
the Preferred Stock, the Conversion Shares, the shares of Common Stock issuable
as payment-in-kind dividends on the Preferred Stock in accordance with the
terms
thereof, the Warrants and the Warrant Shares.
“Signing
Date”
has
the
meaning set forth in the Recitals.
“Subsidiary”
has
the
meaning set forth in Section
5.1.
“Transaction
Documents”
means
this Agreement, the Warrants and the Registration Rights Agreement.
“Warrant
Shares”
means
the shares of Common Stock issuable upon exercise of the Warrants.
“Warrants”
has
the
meaning set forth in the Recitals.
“Xmark
Entities”
has
the
meaning set forth in the Recitals.
2. Purchase
and Sale of Securities.
2.1. Closing.
Subject
to the terms and conditions of this Agreement, including without limitation,
the
conditions set forth in Section
7,
there
shall be a closing at which the Company shall issue and sell, and each Investor
listed on Schedule
I
attached
hereto, which Schedule
I
may be
amended from time to time, with the prior written consent of the Lead Investors,
to add additional Investors who agree to purchase Preferred Stock in the Private
Placement by executing a counterpart to this Agreement following the date
hereof, shall severally, and not jointly, purchase, the number of shares of
Preferred Stock and the number of Warrants, in each case, in the respective
amounts set forth opposite their names on Schedule
I
affixed
hereto, in exchange for the cash consideration set forth as the “Closing
Purchase Price” opposite their respective names on Schedule
I
affixed
hereto.
3. Escrow.
3.1. (a)
Simultaneously with the execution and delivery of this Agreement by an Investor,
such Investor shall promptly cause a wire transfer of immediately available
funds (U.S. dollars) in an amount representing the “Aggregate Purchase Price” on
such Investor’s signature page affixed hereto and opposite such Investor’s name
thereon, to be paid to a non-interest bearing escrow account of Lowenstein
Sandler PC, the Lead Investors’ counsel (“Lead
Investor Counsel”),
set
forth on Schedule
II
affixed
hereto (the aggregate amounts received being held in escrow by Lead Investor
Counsel are referred to herein as the “Escrow
Amount”).
Lead
Investor Counsel shall hold the Escrow Amount in escrow in accordance with
Section
3.1(b).
(b) The
Lead
Investor Counsel shall continue to hold the Escrow Amount in escrow in
accordance with and subject to this Agreement, from the date of its receipt
of
the funds constituting the Escrow Amount until the soonest of:
(i)
the
Escrow Termination Date,
in
which case, if Lead Investor Counsel then holds any portion of the Escrow
Amount, then: (A) Lead Investor Counsel shall return the portion of the Escrow
Amount received from each Investor which it then holds, to each such Investor,
in accordance with written wire transfer instructions received from such
Investor; and (B) if Lead Investor Counsel has not received written wire
transfer instructions from any Investor before the 30th
day
after the Escrow Termination Date, then Lead Investor Counsel may, in its sole
and absolute discretion, either (x) deposit that portion of the Escrow Amount
to
be returned to such Investor in a court of competent jurisdiction on written
notice to such Investor, and Lead Investor Counsel shall thereafter have no
further liability with respect to such deposited funds, or (y) continue to
hold
such portion of the Escrow Amount pending receipt of written wire transfer
instructions from such Investor or an order from a court of competent
jurisdiction; OR
(ii)
in
the
case of the Closing,
receipt
of written instructions from the Lead Investors that the Closing shall have
been
consummated, in which case, Lead Investor Counsel shall release the Escrow
Amount constituting the aggregate “Closing Purchase Price” as follows: (A) the
cash portion of the Placement Agent Fee applicable to the Placement Agent,
(B)
the Lead Investor Counsel Fees to the Lead Investor Counsel, and (C) the balance
of the aggregate “Closing Purchase Price” to the Company.
3.2. The
Company and the Investors acknowledge and agree for the benefit of Lead Investor
Counsel (which shall be deemed to be a third party beneficiary of this
Section
3 and
of
Section
10)
as
follows:
(a) Lead
Investor Counsel: (i) is not responsible for the performance by the Company,
the
Investors or Placement Agent of this Agreement or any of the Transaction
Documents or for determining or compelling compliance therewith; (ii) is only
responsible for (A) holding the Escrow Amount in escrow pending receipt of
written instructions from the Lead Investors directing the release of the Escrow
Amount, and (B) disbursing the Escrow Amount in accordance with the written
instructions from the Lead Investors, each of the responsibilities of Lead
Investor Counsel in clause (A) and (B) is ministerial in nature, and no implied
duties or obligations of any kind shall be read into this Agreement against
or
on the part of Lead Investor Counsel (collectively, the “Lead
Investor Counsel Duties”);
(iii)
shall not be obligated to take any legal or other action hereunder which might
in its judgment involve or cause it to incur any expense or liability unless
it
shall have been furnished with indemnification acceptable to it, in its sole
discretion; (iv) may rely on and shall be protected in acting or refraining
from
acting upon any written notice, instruction (including, without limitation,
wire
transfer instructions, whether incorporated herein or provided in a separate
written instruction), instrument, statement, certificate, request or other
document furnished to it hereunder and believed by it to be genuine and to
have
been signed or presented by the proper Person, and shall have no responsibility
for making inquiry as to, or for determining, the genuineness, accuracy or
validity thereof, or of the authority of the Person signing or presenting the
same; (v) may consult counsel satisfactory to it, and the opinion or advice
of
such counsel in any instance shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or advice of such counsel;
and
(vi) shall be authorized to receive from the Escrow Amount, on the applicable
Closing Date, the Lead Investor Counsel Fees. Documents and written materials
referred to in this Section
3.2(a)
include,
without limitation, e-mail and other electronic transmissions capable of being
printed, whether or not they are in fact printed; and any such e-mail or other
electronic transmission may be deemed and treated by Lead Investor Counsel
as
having been signed or presented by a Person if it bears, as sender, the Person’s
e-mail address.
(b) Lead
Investor Counsel shall not be liable to anyone for any action taken or omitted
to be taken by it hereunder, except in the case of Lead Investor Counsel’s gross
negligence or willful misconduct in breach of the Lead Investor Counsel Duties.
IN NO EVENT SHALL LEAD INVESTOR COUNSEL BE LIABLE FOR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGE OR LOSS (INCLUDING BUT NOT LIMITED TO LOST
PROFITS) WHATSOEVER, EVEN IF LEAD INVESTOR COUNSEL HAS BEEN INFORMED OF THE
LIKELIHOOD OF SUCH LOSS OR DAMAGE AND REGARDLESS OF THE FORM OF ACTION.
(c) The
Company and the Investors hereby indemnify and hold harmless Lead Investor
Counsel from and against any and all loss, liability, cost, damage and expense,
including, without limitation, reasonable counsel fees and expenses, which
Lead
Investor Counsel may suffer or incur by reason of any action, claim or
proceeding brought against Lead Investor Counsel arising out of or relating
to
the performance of the Lead Investor Counsel Duties, unless such action, claim
or proceeding is exclusively the result of the willful misconduct, bad faith
or
gross negligence of Lead Investor Counsel.
(d) Lead
Investor Counsel has acted as legal counsel to one or more of the Investors
in
connection with this Agreement and the other Transaction Documents, is merely
acting as a stakeholder under this Agreement and is, therefore, hereby
authorized to continue acting as legal counsel to such Lead Investors including,
without limitation, with regard to any dispute arising out of this Agreement,
the other Transaction Documents, the Escrow Amount or any other matter. Each
of
the Company and the Investors hereby expressly consents to permit Lead Investor
Counsel to represent such Investors in connection with all matters relating
to
this Agreement, including, without limitation, with regard to any dispute
arising out of this Agreement, the other Transaction Documents, the Escrow
Amount or any other matter, and hereby waives any conflict of interest or
appearance of conflict or impropriety with respect to such representation.
Each
of the Company and the Investors has consulted with its own counsel specifically
about this Section
3
to the
extent they deemed necessary, and has entered into this Agreement after being
satisfied with such advice.
(e) Lead
Investor Counsel shall have the right at any time to resign for any reason
and
be discharged of its duties as escrow agent hereunder (including without
limitation the Lead Investor Counsel Duties) by giving written notice of its
resignation to the Company and the Lead Investors at least ten (10) calendar
days prior to the specified effective date of such resignation. All obligations
of the Lead Investor Counsel hereunder shall cease and terminate on the
effective date of its resignation and its sole responsibility thereafter shall
be to hold the Escrow Amount, for a period of ten (10) calendar days following
the effective date of resignation, at which time,
(i) Lead
Investor Counsel shall be entitled to receive from the Escrow Amount the Lead
Investor Counsel Fees through and including the effective date of resignation;
and
(ii) if
a
successor escrow agent shall have been appointed and have accepted such
appointment in a writing to both the Company and the Lead Investors, then upon
written notice thereof given to each of the Investors, the Lead Investor Counsel
shall deliver the Escrow Amount to the successor escrow agent, and upon such
delivery, Lead Investor Counsel shall have no further liability or obligation;
or
(iii) if
a
successor escrow agent shall not have been appointed, for any reason whatsoever,
Lead Investor Counsel shall at its option in its sole discretion, either (A)
deliver the Escrow Amount to a court of competent jurisdiction selected by
Lead
Investor Counsel and give written notice thereof to the Company and the
Investors, or (B) continue to hold Escrow Amount in escrow pending written
direction from the Company and the Lead Investors in form and formality
satisfactory to Lead Investor Counsel.
(f) In
the
event that the Lead Investor Counsel shall be uncertain as to its duties or
rights hereunder or shall receive instructions with respect to the Escrow Amount
or any portion thereunder which, in its sole discretion, are in conflict either
with other instructions received by it or with any provision of this Agreement,
Lead Investor Counsel shall have the absolute right to suspend all further
performance under this Agreement (except for the safekeeping of such Escrow
Amount) until such uncertainty or conflicting instructions have been resolved
to
the Lead Investor Counsel’s sole satisfaction by final judgment of a court of
competent jurisdiction, joint written instructions from the Company and all
of
the Investors, or otherwise. In the event that any controversy arises between
the Company and one or more of the Investors or any other party with respect
to
this Agreement or the Escrow Amount, the Lead Investor Counsel shall not be
required to determine the proper resolution of such controversy or the proper
disposition of the Escrow Amount, and shall have the absolute right, in its
sole
discretion, to deposit the Escrow Amount with the clerk of a court selected
by
the Lead Investor Counsel and file a suit in interpleader in that court and
obtain an order from that court requiring all parties involved to litigate
in
that court their respective claims arising out of or in connection with the
Escrow Amount. Upon the deposit by the Lead Investor Counsel of the Escrow
Amount with the clerk of such court in accordance with this provision, the
Lead
Investor Counsel shall thereupon be relieved of all further obligations and
released from all liability hereunder.
(g) The
provisions of this Section
3
shall
survive any termination of this Agreement.
4. Closings.
4.1
Place.
The
closings of the transactions contemplated by this Agreement (the “Closing”)
shall
take place at the offices of Lead Investor Counsel, 1251 Avenue of the Americas,
New York, New York, or at such other location and on such other date as the
Company and the Lead Investors shall mutually agree, on the Closing
Date.
4.2 Closing.
Upon
satisfaction of the conditions to Closing set forth in Section
7
hereof,
the Lead Investors shall instruct Lead Investor Counsel to immediately release,
and upon receipt of such instructions, Lead Investor Counsel shall release,
that
portion of the Escrow Amount constituting the aggregate “Closing Purchase Price”
as follows: (A) the portion of the Cash Placement Agent Fee applicable to the
Placement Agent, (B) the Lead Investor Counsel Fees to the Lead Investor
Counsel, and (C) the balance of the aggregate “Closing Purchase Price” to the
Company (the date of receipt of such balance by the Company is hereinafter
referred to as the “Closing
Date”).
On
the Closing Date, the Company shall issue or cause to be issued to each Investor
a certificate or certificates, registered in such name or names as each such
Investor may designate, representing the number of shares of Preferred
Stock as
is set
forth opposite such Investor’s name on Schedule
I
affixed
hereto and shall also issue to each such Investor, or such Investor’s respective
designees, the number of Warrants as is set forth opposite such Investor’s name
on Schedule I
affixed
hereto.
5. Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Investors on and as of the Signing
Date and on the Closing Date, knowing and intending their reliance hereon,
that,
except as set forth in the schedules delivered on the Signing Date
(collectively, the “Disclosure
Schedules”):
5.1. Organization,
Good Standing and Qualification.
Each of
the Company and its Subsidiaries, a complete list of which is set forth in
Schedule
5.1
hereto
(“Subsidiaries”),
is a
corporation duly incorporated, validly existing and in good standing under
the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to carry on its business as now conducted and to own its
properties. Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or its leasing of property
makes such qualification or licensing necessary, unless the failure to so
qualify would not have a Material Adverse Effect.
5.2. Authorization.
The
Company has full power and authority and has taken all requisite action on
the
part of the Company, its officers, directors and stockholders necessary for
(i)
the authorization, execution and delivery of the Transaction Documents and
the
Certificate of Designations, (ii) authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the
Securities.
The
Transaction Documents constitute the legal, valid and binding obligations of
the
Company, enforceable against the Company in accordance with their respective
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting
creditors’ rights generally.
5.3. Capitalization.
(a) Schedule
5.3
sets
forth (i) the authorized capital stock of the Company on the date hereof, (ii)
the number of shares of capital stock issued and outstanding, (iii) the number
of shares of capital stock issuable pursuant to the Company’s stock plans, and
(iv) the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Securities) exercisable for, or
convertible into or exchangeable for any shares of capital stock of the Company.
All of the issued and outstanding shares of the Company’s capital stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of pre-emptive rights and were issued in full compliance with applicable
law and any rights of third parties. All of the issued and outstanding shares
of
capital stock of each Subsidiary have been duly authorized and validly issued
and are fully paid, nonassessable and free of pre-emptive rights, were issued
in
full compliance with applicable law and any rights of third parties and are
owned by the Company, beneficially and of record, and, except as described
on
Schedule
5.3,
are
subject to no lien, encumbrance or other adverse claim. No Person is entitled
to
pre-emptive or similar statutory or contractual rights with respect to any
securities of the Company. Except as described on Schedule
5.3,
there
are no outstanding warrants, options, convertible securities or other rights,
agreements or arrangements of any character under which the Company or any
of
its Subsidiaries is or may be obligated to issue any equity securities of any
kind and, except as contemplated by this Agreement, neither the Company nor
any
of its Subsidiaries is currently in negotiations for the issuance of any equity
securities of any kind. Except as described on Schedule
5.3
and
except for the Registration Rights Agreement, there are no voting agreements,
buy-sell agreements, option or right of first purchase agreements or other
agreements of any kind among the Company and any of its security holders
relating to the securities of the Company. Except as described on Schedule
5.3,
the
Company has not granted any Person the right to require the Company to register
any of its securities under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.
(b)
Schedule 5.3
sets
forth a true and complete table setting forth the pro forma capitalization
of
the Company on a fully diluted basis giving effect to (i) the issuance of the
Preferred Stock and the Warrants at the time of the Closing, (ii) any
adjustments in other securities resulting from the issuance of the Preferred
Stock and the Warrants at the time of the Closing, and (iii) the exercise or
conversion of all outstanding securities. Except as described on Schedule
5.3,
the
issuance and sale of the Securities hereunder will not obligate the Company
to
issue shares of Common Stock or other securities to any other Person (other
than
the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.
(c) Except
as
set forth on Schedule
5.3,
the
Company does not have outstanding stockholder purchase rights or any similar
arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
5.4. Valid
Issuance.
The
Preferred Stock has been duly and validly authorized and when issued to the
Investors in accordance with the terms of this Agreement will be validly issued,
fully paid and nonassessable, shall have the rights, preferences and limitations
set forth in the Certificate of Designations and shall be free and clear of
all
liens, claims, encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents and the Certificate of
Designations or imposed by applicable securities laws. Upon the due conversion
of the Preferred Stock, the Conversion Shares will be validly issued, fully
paid
and nonassessable, and shall be free and clear of all liens, claims,
encumbrances and restrictions, except for restrictions on transfer set forth
in
the Transaction Documents and the Certificate of Designations or imposed by
applicable securities laws. The Warrants have been duly and validly authorized
and, upon the due exercise of the Warrants, the Warrant Shares will be validly
issued, fully paid and non-assessable, and shall be free and clear of all liens,
claims, encumbrances and restrictions, except for restrictions on transfer
set
forth in the Transaction Documents and the Certificate of Designations or
imposed by applicable securities laws. The Company has reserved a sufficient
number of shares of Common Stock for issuance upon conversion of the Preferred
Stock and exercise of the Warrants.
5.5. Consents.
The
execution, delivery and performance by the Company of the Transaction Documents
and the Certificate of Designations and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than those consents
set
forth on Schedule
5.5
and
filings that have been made pursuant to applicable state securities laws and
post-sale filings pursuant to applicable state and federal securities laws
which
the Company undertakes to file within the applicable time periods. The Company
has taken all action necessary to exempt (i) the issuance and sale of the
Securities, (ii) the issuance of the Conversion Shares upon due conversion
of
the Preferred Stock, (iii) the issuance of the Warrant Shares upon due exercise
of the Warrants, and (iv) the other transactions contemplated by the Transaction
Documents from the provisions of any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company
or
any of its assets and properties may be subject or any provision of the
Company’s Certificate of Incorporation, Bylaws or any stockholder rights
agreement that is or could become applicable to the Investors as a result of
the
transactions contemplated hereby, including without limitation, the issuance
of
the Securities and the ownership, disposition or voting of the Securities by
the
Investors or the exercise of any right granted to the Investors pursuant to
this
Agreement, the Certificate of Designations or the other Transaction
Documents.
5.6. Delivery
of SEC Filings; Business.
Copies
of the Company’s most recent Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2006 (the “10-KSB”),
and
all other reports filed by the Company pursuant to the 1934 Act since the filing
of the 10-KSB and prior to the date hereof (collectively, the “SEC
Filings”)
are
available on EDGAR. The SEC Filings are the only filings required of the Company
pursuant to the 1934 Act for such period. The Company and its Subsidiaries
are
engaged only in the business described in the SEC Filings and the SEC Filings
contain a complete and accurate description in all material respects of the
business of the Company and its Subsidiaries, taken as a whole.
5.7. No
Material Adverse Change.
Except
as contemplated herein, identified and described in the SEC Filings or as
described on Schedule
5.7(a),
since
January 1, 2007, there has not been:
(i) any
change in the consolidated assets, liabilities, financial condition or operating
results of the Company from that reflected in the financial statements included
in the SEC Filings, except for changes in the ordinary course of business which
have not and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;
(ii) any
declaration or payment of any dividend, or any authorization or payment of
any
distribution, on any of the capital stock of the Company, or any redemption
or
repurchase of any securities of the Company;
(iii) any
material damage, destruction or loss, whether or not covered by insurance to
any
assets or properties of the Company or its Subsidiaries;
(iv) any
waiver, not in the ordinary course of business, by the Company or any Subsidiary
of a material right or of a material debt owed to it;
(v) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or a Subsidiary, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results, prospects or business of the Company and its
Subsidiaries taken as a whole;
(vi) any
change or amendment to the Company's Certificate of Incorporation or Bylaws,
or
material change to any material contract or arrangement by which the Company
or
any Subsidiary is bound or to which any of their respective assets or properties
is subject;
(vii) any
material labor difficulties or labor union organizing activities with respect
to
employees of the Company or any Subsidiary;
(viii) any
transaction entered into by the Company or a Subsidiary other than in the
ordinary course of business;
(ix) the
loss
of the services of any key employee, or material change in the composition
or
duties of the senior management of the Company or any Subsidiary;
(x) the
loss
or threatened loss of any customer which has had or could reasonably be expected
to have a Material Adverse Effect; or
(xi) any
other
event or condition of any character that has had or could reasonably be expected
to have a Material Adverse Effect.
5.8. SEC
Filings.
(a) At
the
time of filing thereof, the SEC Filings complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The Company is not (with or without
the lapse of time or the giving of notice, or both) in breach or default of
any
Material Contract and, to the Company’s Knowledge, no other party to any
Material Contract is (with or without the lapse of time or the giving of notice,
or both) in breach or default of any Material Contract. Neither the Company
nor
any Subsidiary has received any notice of the intention of any party to
terminate any Material Contract.
(b) Except
as
set forth on Schedule
5.8(b),
the
Company’s Post-Effective Amendment No. 2 to Registration Statement on Form SB-2
(No. 333-133043), filed by the Company pursuant to the 1933 Act and the rules
and regulations thereunder, as of the date such post-effective amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
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; and each prospectus relating to such post-effective
amendment filed pursuant to Rule 424(b) under the 1933 Act, as of its issue
date
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they
were
made, not misleading.
5.9. No
Conflict, Breach, Violation or Default.
The
execution, delivery and performance of the Transaction Documents and the
Certificate of Designations by the Company and the issuance and sale of the
Securities will not conflict with or result in a breach or violation of any
of
the terms and provisions of, or constitute a default under (i) the Company’s
Certificate of Incorporation or Bylaws, both as in effect on the date hereof
(true and accurate copies of which have been provided to the Investors before
the date hereof), or (ii)(a) any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company, any Subsidiary or any of their respective assets
or properties, or (b) except as set forth on Schedule
5.9,
any
agreement or instrument to which the Company or any Subsidiary is a party or
by
which the Company or a Subsidiary is bound or to which any of their respective
assets or properties is subject.
5.10. Tax
Matters.
Each of
the Company and each Subsidiary has timely prepared and filed all tax returns
required to have been filed by the Company or such Subsidiary with all
appropriate governmental agencies and timely paid all taxes shown thereon or
otherwise owed by it. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company
or
any Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of
any additional taxes, penalties or interest for any fiscal period or audits
by
any federal, state or local taxing authority except for any assessment which
is
not material to the Company and its Subsidiaries, taken as a whole. All taxes
and other assessments and levies that the Company or any Subsidiary is required
to withhold or to collect for payment have been duly withheld and collected
and
paid to the proper governmental entity or third party when due. There are no
tax
liens or claims pending or, to the Company’s Knowledge, threatened against the
Company or any Subsidiary or any of their respective assets or properties.
Except as described on Schedule
5.10,
there
are no outstanding tax sharing agreements or other such arrangements between
the
Company and any Subsidiary or other corporation or entity. Neither the Company
nor any Subsidiary is presently undergoing any audit by a taxing authority,
or
has waived or extended any statute of limitations at the request of any taxing
authority.
5.11. Title
to Properties.
Except
as disclosed in the SEC Filings or as set forth on Schedule
5.11,
the
Company and each Subsidiary has good and marketable title to all real properties
and all other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with
the
use made or currently planned to be made thereof by them.
5.12. Certificates,
Authorities and Permits.
The
Company and each Subsidiary possess adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by it, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation
or
modification of any such certificate, authority or permit that, if determined
adversely to the Company or such Subsidiary, could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate.
5.13. No
Labor Disputes.
No
material labor dispute with the employees of the Company or any Subsidiary
exists or, to the Company’s Knowledge, is imminent.
5.14. Intellectual
Property.
(a) All
Intellectual Property of the Company and its Subsidiaries is currently in
compliance with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable. Except as listed on Schedule
5.14(a),
no
Intellectual Property of the Company or its Subsidiaries which is necessary
for
the conduct of Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted has been or is
now
involved in any cancellation, dispute or litigation, and, to the Company’s
Knowledge, no such action is threatened. Except as listed on Schedule
5.14(a),
no
patent of the Company or its Subsidiaries has been or is now involved in any
interference, reissue, re-examination or opposition proceeding.
(b) All
of
the licenses and sublicenses and consent, royalty or other agreements concerning
Intellectual Property which are necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted to which the Company or any Subsidiary is
a
party or by which any of their assets are bound (other than generally
commercially available, non-custom, off-the-shelf software application programs
having a retail acquisition price of less than $25,000 per license)
(collectively, “License
Agreements”)
are
valid and binding obligations of the Company or its Subsidiaries that are
parties thereto and, to the Company’s Knowledge, the other parties thereto,
enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors’ rights generally, and there exists no event or
condition which will result in a material violation or breach of or constitute
(with or without due notice or lapse of time or both) a default by the Company
or any of its Subsidiaries under any such License Agreement.
(c) The
Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted, free and clear of all liens, encumbrances,
adverse claims or obligations to license all such owned Intellectual Property
and Confidential Information, other than licenses entered into in the ordinary
course of the Company’s and its Subsidiaries’ businesses. The Company and its
Subsidiaries have a valid and enforceable right to use all third party
Intellectual Property and Confidential Information used or held for use in
the
respective businesses of the Company and its Subsidiaries as currently conducted
or as currently proposed to be conducted.
(d) To
the
Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted and as currently proposed to be conducted
does
not and will not infringe any Intellectual Property rights of any third party
or
any confidentiality obligation owed to a third party. To the Company’s
Knowledge, the Intellectual Property and Confidential Information of the Company
and its Subsidiaries which are necessary for the conduct of Company’s and each
of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted are not being infringed by any third party.
Except as set forth on Schedule
5.14(d),
there
is no litigation or order pending or outstanding or, to the Company’s Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information of the Company and its Subsidiaries and the Company’s
and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is no
valid basis for the same.
(e) The
consummation of the transactions contemplated hereby will not result in the
alteration, loss, impairment of or restriction on the Company’s or any of its
Subsidiaries’ ownership or right to use any of the Intellectual Property or
Confidential Information which is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted.
(f) To
the
Company’s Knowledge, all software owned by the Company or any of its
Subsidiaries, and, to the Company’s Knowledge, all software licensed from third
parties by the Company or any of its Subsidiaries, (i) is free from any material
defect, bug, virus, or programming, design or documentation error; (ii) operates
and runs in a reasonable and efficient business manner; and (iii) conforms
in
all material respects to the specifications and purposes thereof.
(g) The
Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information. Each employee, consultant and contractor who has
had
access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement
to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms therefor. To the Company’s Knowledge, there has been no material
disclosure of any of the Company’s or its Subsidiaries’ Confidential Information
to any third party without the Company’s consent.
5.15. Environmental
Matters.
Neither
the Company nor any Subsidiary (i) is in violation of any statute, rule,
regulation, decision or order of any governmental agency or body or any court,
domestic or foreign, relating to the use, disposal or release of hazardous
or
toxic substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”),
(ii)
owns or operates any real property contaminated with any substance that is
subject to any Environmental Laws, (iii) is liable for any off-site disposal
or
contamination pursuant to any Environmental Laws, and (iv) is subject to any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or,
to
the Company’s Knowledge, threatened investigation that might lead to such a
claim.
5.16. Litigation.
Except
as disclosed in the SEC Filings, there are no pending actions, suits or
proceedings against or affecting the Company, its Subsidiaries or any of its
or
their properties; and to the Company’s Knowledge, no such actions, suits or
proceedings are threatened or contemplated.
5.17. Financial
Statements.
The
financial statements included in each SEC Filing fairly present the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis. Except as set
forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof, neither the Company nor any of its Subsidiaries
has incurred any liabilities, contingent or otherwise, except those which,
individually or in the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect.
5.18. Insurance
Coverage.
The
Company and each Subsidiary maintains in full force and effect insurance
coverage and the Company reasonably believes such insurance coverage is
adequate.
5.19. Brokers
and Finders.
Except
for the commission consisting of cash and warrants to be paid (the “Placement
Agent Fee”)
to the
Placement Agent pursuant to the terms of the Placement Agent Agreement as
disclosed in Schedule
5.19
and the
warrants and fees issuable and payable to the holders of the Company’s Series A
8% Cumulative Convertible Preferred Stock as disclosed on Schedule
5.19,
no
Person will have, as a result of the transactions contemplated by this
Agreement, any valid right, interest or claim against or upon the Company,
any
Subsidiary or any Investor for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding entered into by or
on
behalf of the Company.
5.20. No
Directed Selling Efforts or General Solicitation.
Neither
the Company nor any Affiliate, nor any Person acting on its behalf has conducted
any “general solicitation” or “general advertising” (as those terms are used in
Regulation D) in connection with the offer or sale of any of the
Securities.
5.21. No
Integrated Offering.
Neither
the Company nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any Company
security or solicited any offers to buy any security, under circumstances that
would adversely affect reliance by the Company on Section 4(2) of the 1933
Act
for the exemption from the registration requirements imposed under Section
5 of
the 1933 Act for the transactions contemplated hereby or would require such
registration the 1933 Act.
5.22. Private
Placement.
Subject
to the accuracy of the representations and warranties of the Investors contained
in Section
6
hereof,
the offer and sale of the Securities to the Investors as contemplated hereby
is
exempt from the registration requirements of the 1933 Act.
5.23. Questionable
Payments.
Neither
the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any of
their respective current or former stockholders, directors, officers, employees,
agents or other Persons acting on behalf of the Company or any Subsidiary,
has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful
or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary;
or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.
5.24. Transactions
with Affiliates.
Except
as disclosed in SEC Filings made on or prior to the date hereof, none of the
officers or directors of the Company or a Subsidiary and, to the Company’s
Knowledge, none of the employees of the Company is presently a party to any
transaction with the Company or a Subsidiary or to a presently contemplated
transaction (other than for services as employees, officers and directors)
that
would be required to be disclosed pursuant to Item 404 of Regulation S-B
promulgated under the 1933 Act.
5.25. Trading
Compliance.
The
Common Stock is traded on the OTCBB and the Company has taken no action designed
to, or which to the Company’s Knowledge is likely to have the effect of, causing
the Common Stock not to continue to be traded on the OTCBB. No order ceasing
or
suspending trading in any securities of the Company or prohibiting the issuance
and/or sale of the Securities is in effect and no proceedings for such purpose
are pending or threatened.
6. Representations
and Warranties of the Investors.
Each of
the Investors hereby severally, and not jointly, represents and warrants to
the
Company on and as of the Signing Date and on the applicable Closing Date,
knowing and intending that the Company rely thereon, that:
6.1. Authorization.
The
execution, delivery and performance by the Investor of the Transaction Documents
to which such Investor is a party have been duly authorized and will each
constitute the valid and legally binding obligation of the Investor, enforceable
against the Investor in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.
6.2. Purchase
Entirely for Own Account.
The
Securities to be received by the Investor hereunder will be acquired for the
Investor’s own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the 1933 Act, and
the
Investor has no present intention of selling, granting any participation in,
or
otherwise distributing the same in violation of the 1933 Act. The Investor
is
not a registered broker dealer or an entity engaged in the business of being
a
broker dealer.
6.3. Investment
Experience.
The
Investor acknowledges that it can bear the economic risk and complete loss
of
its investment in the Securities and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment contemplated hereby. The Investor has significant
experience in making private investments, similar to the purchase of the
Securities hereunder.
6.4. Disclosure
of Information.
The
Investor has had an opportunity to receive all additional information related
to
the Company requested by it and to ask questions of and receive answers from
the
Company regarding the Company, its business and the terms and conditions of
the
offering of the Securities. The Investor acknowledges receipt of copies of
and
its satisfactory review of the SEC Filings. Neither such inquiries nor any
other
due diligence investigation conducted by the Investor shall modify, amend or
affect the Investor’s right to rely on the Company’s representations and
warranties contained in this Agreement.
6.5. Restricted
Securities.
The
Investor understands that the Securities are characterized as “restricted
securities” under the U.S. federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering
and
that under such laws and applicable regulations such securities may be resold
without registration under the 1933 Act only in certain limited
circumstances.
6.6. Legends.
(a) It
is
understood that, except as provided below, certificates evidencing such
Securities may bear the following or any similar legend:
“THE
SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES
HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR (II) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY
TO
IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES
LAWS.”
(b) If
required by the authorities of any state in connection with the issuance of
sale
of the Securities, the legend required by such state authority.
(c) From
and
after the earlier of (i) the effectiveness of the registration of the Conversion
Shares and the Warrant Shares for resale pursuant to the Registration Rights
Agreement and (ii) the time when such Securities may be transferred pursuant
to
Rule 144(k) of the 1933 Act, the Company shall, upon an Investor’s written
request, promptly cause certificates evidencing such Securities to be replaced
with certificates which do not bear such restrictive legends. When the Company
is required to cause unlegended certificates to replace previously issued
legended certificates, if unlegended certificates are not delivered to an
Investor within three (3) Business Days of submission by that Investor of
legended certificate(s) to the Company’s transfer agent together with a
representation letter in customary form, the Company shall be liable to the
Investor for liquidated damages equal to 1.5% of the aggregate purchase price
of
the Securities evidenced by such certificate(s) for each 30-day period (or
portion thereof) beyond such three (3) Business Day-period that the unlegended
certificates have not been so delivered.
(d) Each
Investor, severally and not jointly with the other Investors, agrees that the
removal of the restrictive legend from certificates representing Securities
as
set forth in this Section 6.6 is predicated upon the warranty of the Investors
to sell any Securities pursuant to either the registration requirements of
the
Securities Act, including any applicable prospectus delivery requirements,
or an
exemption therefrom.
6.7. Accredited
Investor.
The
Investor is an “accredited investor” as defined in Rule 501(a) of Regulation D,
as amended, under the 1933 Act.
6.8. No
General Solicitation.
The
Investor did not learn of the investment in the Securities as a result of any
“general advertising” or “general solicitation” as those terms are contemplated
in Regulation D, as amended, under the 1933 Act.
6.9. Brokers
and Finders.
No
Person will have, as a result of the transactions contemplated by this
Agreement, any valid right, interest or claim against or upon the Company,
any
Subsidiary or any other Investor for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding entered into by or
on
behalf of the Investor.
7. Conditions
to Closing.
7.1. Conditions
to the Investors’ Obligations.
The
obligation of the Investors to purchase the Securities at Closing is subject
to
the fulfillment to the Lead Investors’ satisfaction, on or prior to the Closing
Date, of the following conditions, any of which may be waived in writing by
the
Lead Investors:
(a) The
representations and warranties made by the Company in Section
5
hereof
that are qualified as to materiality shall be true and correct in all respects,
and those not so qualified shall be true and correct in all material respects,
at all times prior to and on the Closing Date. The Company shall have performed
in all material respects all obligations herein required to be performed or
observed by it on or prior to the relevant Closing Date;
(b) The
Company shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Securities then being issued and sold, and
all
of which shall be and remain so long as necessary in full force and
effect;
(c) The
Company shall have executed and delivered a counterpart to the Registration
Rights Agreement to the Investors;
(d) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order
of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, or
self-regulatory organization enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction
Documents;
(e) The
Company shall have delivered a Certificate, executed on behalf of the Company
by
its Chief Executive Officer or its Chief Financial Officer, dated as of the
Closing Date, certifying to the fulfillment of the conditions specified in
subsections (a), (b), (d) and (h) of this Section
7.1;
(f) The
Company shall have delivered a Certificate, executed on behalf of the Company
by
its Secretary, dated as of the Closing Date, certifying the resolutions adopted
by the Board of Directors of the Company approving the transactions contemplated
by this Agreement and the other Transaction Documents and the issuance and
sale
of the Securities, certifying the current versions of the Certificate of
Incorporation and Bylaws of the Company and certifying as to the signatures
and
authority of persons signing the Transaction Documents and all related documents
on behalf of the Company;
(h) The
Company shall have delivered to the Investors a duly executed exchange
agreement, dated as of the Closing Date, between the Company and the holders
of
the Company’s Series A Preferred Stock, which exchange agreement, together with
the certificate of designations for Series C Preferred Stock attached thereto,
shall be in form and substance reasonably satisfactory to the Lead Investors
and
which shall be in full force and effect;
(i)
The
Investors shall have received the applicable Company Counsel
Opinion;
(j) No
stop
order or suspension of trading shall have been imposed by any Person with
respect to public trading in the Common Stock;
(k) The
Company shall have delivered evidence satisfactory to the Lead Investors of
the
filing of the Certificate of Designations with the Secretary of State of the
State of Delaware; and
(l) The
Escrow Amount shall, as of the Closing, equal or exceed the Investment
Amount.
7.2. Conditions
to Obligations of the Company.
The
Company's obligation to sell and issue the Securities at Closing is subject
to
the fulfillment to the satisfaction by the Company on or prior to the Closing
Date of the following conditions, any of which may be waived in writing by
the
Company:
(a) The
holders of the Company’s Series A Preferred Stock shall have delivered a duly
executed exchange agreement effective as of the Closing Date and the Company
shall have filed a certificate of designations for Series C Preferred Stock
to
effect the exchange pursuant thereto.
(b) The
representations and warranties made by the Investors in Section
6
hereof
shall be true and correct in all material respects when made, and shall be
true
and correct in all material respects on the Closing Date with the same force
and
effect as if they had been made on and as of said date;
(c) The
Investors shall have executed and delivered the Registration Rights Agreement
to
the Company;
(d) Each
of
the Investors shall have delivered to Lead Investor Counsel the “Aggregate
Purchase Price” set forth opposite such Investor’s name on Schedule
I
affixed
hereto; and
(e) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order
of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, or
self-regulatory organization enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction
Documents.
8. Covenants
and Agreements of the Company.
8.1. Reservation
of Common Stock.
The
Company shall at all times reserve and keep available out of its authorized
but
unissued shares of Common Stock, solely for the purpose of providing for the
conversion of the Preferred Stock and the exercise of the Warrants, such number
of shares of Common Stock as shall from time to time equal 125% (which
percentage shall be decreased to 100% in the event the Company’s shareholders do
no approve an amendment to the Company’s certificate of incorporation to
increase the number of authorized shares of Common Stock to 150,000,000) of
the
number of shares sufficient to permit the conversion of the Preferred Stock
and
the exercise of the Warrants issued pursuant to this Agreement in accordance
with their respective terms, without regard to any exercise limitations
contained therein.
8.2. Amendment
to Charter.
The
Company shall present to its shareholders for approval at its next annual
meeting of shareholders an amendment to its certificate of incorporation to
increase the number of authorized shares of Common Stock to 150,000,000, and
the
Company shall file as soon as practicable thereafter such approval.
8.3. No
Conflicting Agreements.
The
Company will not take any action, enter into any agreement or make any
commitment that would conflict or interfere in any material respect with the
Company’s obligations to the Investors under the Transaction
Documents.
8.4. Insurance.
The
Company shall not materially reduce the insurance coverages described in
Section
5.18.
8.5. Compliance
with Laws.
The
Company will comply in all material respects with all applicable laws, rules,
regulations, orders and decrees of all governmental authorities, except to
the
extent non-compliance would not have a Material Adverse Effect.
8.6. Termination
of Certain Covenants.
The
provisions of Sections
8.2
through
8.5
shall
terminate and be of no further force and effect upon the date on which the
Company’s obligations under the Registration Rights Agreement to register and
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate. The provisions of Sections
8.7
through
8.15
shall
survive indefinitely.
8.7 Board/Observer
Rights.
(a) From
and
after the Closing until such time as the Xmark Entities are no longer Requisite
Holders, the Xmark Entities shall have the right to designate one (1) member
to
the Company’s Board of Directors (the “Lead
Investor Director”). The
Company shall use its best efforts to cause the Lead Investor Director to be
elected to the Company’s Board of Directors. The Xmark Entities shall have the
right to remove or replace the Lead Investor Director by giving notice to such
Lead Investor Director and the Company, and the Company shall use its best
efforts to effect the removal or replacement of any such Lead Investor Director.
Subject to any limitations imposed by applicable law, the Lead Investor Director
shall be entitled to the same perquisites, including stock options,
reimbursement of expenses and other similar rights in connection with such
person's membership on the Board of Directors of the Company, as every other
non-employee member of the Board of Directors of the Company.
(b) From
and
after the Closing until such time as the Lead Investors are no longer Requisite
Holders the Lead Investors shall have the right to designate one (1) observer
to
attend all meetings of the Company’s Board of Directors, committees thereof and
access to all information made available to members of the Board (the
“Lead
Investor Observer”). The
Lead
Investor Observer shall have the same rights as those who customarily attend
such position. Notwithstanding the foregoing, the Company reserves the right
to
exclude the Lead Investor Observer from access to any material, meeting or
portion thereof if the Company believes, based on an opinion from its counsel,
that such exclusion is necessary to preserve attorney-client, work product
or
similar privilege. The Lead Investor Observer shall hold in confidence and
trust
and not use or disclose any confidential information provided to or learned
by
him or her in connection with the Lead Investor Observer’s rights hereunder for
any purpose other than the monitoring and administration of the transactions
contemplated hereby, unless otherwise required by law, so long as such
information is not in the public domain. If requested by the Company, the Lead
Investor Observer shall execute a standard confidentiality agreement prior
to
attending any meetings.
8.8 Affirmative
Covenants.
From
and after the Signing Date until the Escrow Termination Date (after taking
into
account any extensions of the Escrow Termination Date)(the “Covenant
Expiration Event”),
the
Company shall (and shall cause its Subsidiaries to):
(a) use
its
best efforts to consummate the Closing on or before the Escrow Termination
Date;
(b) use
its
best efforts to keep in full force and effect its corporate existence and all
material rights, franchises, intellectual property rights and goodwill relating
or pertaining to its businesses;
(c) conduct
its operations only in the ordinary course of business consistent with past
practice;
(d) maintain
its books, accounts and records in accordance with past practice or as required
by generally accepted accounting principles;
(e) duly
pay
and discharge, or cause to be paid and discharged, before the same shall become
overdue, all taxes, assessments and other governmental charges imposed upon
it
and its properties (real and personal), sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid could reasonably be expected to
by
law become a lien on any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or any Subsidiary shall have set aside on its books adequate
reserves with respect thereto in accordance with generally accepted accounting
principals, consistently applied; and provided, further that it pay all such
taxes, assessments, charges, levies or claims forthwith upon the commencement
of
proceedings to foreclose any lien or other encumbrance that may have attached
as
security therefore;
(f) use
its
best efforts to obtain all authorizations, consents, waivers, approvals or
other
actions and to make all filings and applications necessary or desirable to
consummate the transactions contemplated hereby and to cause the conditions
to
the obligation to close to be satisfied;
(g) promptly
notify the Investors in writing if, to the Company’s Knowledge, (i) any of the
representations and warranties (together with the Disclosure Schedules) made
by
it herein or in any of the other Transaction Document cease to be accurate
and
complete in all material respects, or (ii) it fails to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by it hereunder or under any other Transaction Document;
(h)
give
notice to the Investors in writing within three (3) days of becoming aware
of
any litigation or proceedings threatened in writing against the Company or
any
of its Subsidiaries or any of its directors or officers or any pending
litigation and proceedings affecting the Company or any of its Subsidiaries
or
any of its directors or officers or to which any of them is or becomes a party
involving a claim against any of them, stating the nature and status of such
litigation or proceedings, provided,
however,
that
the Investors shall not be provided with material non-public information without
their express prior written consent;
(i) promptly
notify the Investors in writing of the occurrence of any breach of any term
of
this Agreement; and
(j) comply
in
all material respects with (i) the applicable laws and regulations wherever
its
business is conducted, (ii) the provisions of its Certificate of Incorporation
and Bylaws, (iii) all material agreements by which the Company, its Subsidiaries
or any of their respective properties may be bound, and (iv) all applicable
decrees, orders, and judgments.
8.9 Negative
Covenants.
From
and after the Signing Date until the occurrence of the Covenant Expiration
Event, without the prior written consent of the Lead Investors, the Company
shall not (and shall cause its respective Subsidiaries not to):
(a) take
any
action that would likely result in the representations and warranties set forth
herein (other than representations made as of a particular date) becoming false
or inaccurate in any material respect (or, as to representations and warranties,
which, by their terms, are qualified as to materiality, becoming false or
inaccurate in any respect);
(b) take
or
omit to be taken any action, or permit any of its Affiliates to take or to
omit
to take any action, which would reasonably be expected to result in a Material
Adverse Effect;
(c) directly
or indirectly, merge or consolidate with any Person, or sell, transfer, lease
or
otherwise dispose of all or any substantial portion of its assets in one
transaction or a series of related transactions,
(d) except
for the filing of the Certificate of Designations, amend, alter or modify,
its
Certificate of Incorporation (except for such amendments to increase the number
of authorized capital stock of the Company to 150,000,000 and the filing of
a
Series C Certificate of Designations upon the exchange of the Series A 8%
Cumulative Convertible Preferred Stock as contemplated hereby) or Bylaws, or
change its jurisdiction of organization, structure, status or existence, or
liquidate or dissolve itself;
(e) (i)
increase the compensation or benefits payable or to become payable to its
directors, officers or employees other than pursuant to the terms of any
agreement as in effect on the Signing Date, (ii) pay any compensation or
benefits not required by any existing plan or arrangement (including the
granting of stock options, stock appreciation rights, shares of restricted
stock
or performance units) or grant any severance or termination pay to (except
pursuant to existing agreements, plans or policies), or enter into any
employment or severance agreement with, any director, officer or other employee,
or (iii) establish, adopt, enter into, amend or take any action to
accelerate rights under any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
savings, welfare, deferred compensation, employment, termination, severance
or
other employee benefit plan, agreement, trust, fund, policy or arrangement
for
the benefit or welfare of any directors, officers or current or former
employees, except in each case to the extent required by applicable
law;
(f) make
any
loans to its directors, officers or stockholders;
(g) waive,
release, assign, settle or compromise any material rights, claims or litigation;
(h) create,
incur, assume or suffer to exist, or increase the amount of, any liability
for
borrowed money, directly or indirectly other than: (i) indebtedness existing
on
the date hereof; and (ii) purchase money indebtedness of the Company (including,
without limitation, capital leases to the extent secured by purchase money
security interests in equipment acquired pursuant thereto);
(i) assume,
endorse, be or become liable for or guaranty the obligations of any other Person
except in the ordinary course of business;
(j) directly
or indirectly, pay any dividends or distributions on, or purchase, redeem or
retire, any shares of any class of its capital stock or other equity interests
or any securities convertible into capital stock, whether now or hereafter
outstanding, or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement
or
other acquisition of its capital stock or other equity interests, or make any
other distribution in respect thereof, either directly or indirectly, whether
in
cash or property or in obligations of the Company or any of its
Subsidiaries;
(k) enter
into any transaction with any Affiliates or its or any of its Affiliate’s equity
holders, directors, officers, employees (including upstreaming and downstreaming
of cash and intercompany advances and payments) in an amount in excess of
$25,000 in the aggregate or amend any material provision of any agreement with
any Affiliate, or waive any material right of the Company or any Subsidiary
under any such agreement;
(l) at
any
time create any direct or indirect Subsidiary, enter into any joint venture
or
similar arrangement or become a partner in any general or limited partnership
or
enter into any management contract permitting third party management rights
with
respect to the business of the Company or any of its Subsidiaries;
(m)
cancel
any liability or debt owed to it, except for consideration equal to or exceeding
the outstanding balance of such liability or debt, and in any event, in the
ordinary course of business;
(n) create,
incur, assume or suffer to exist, any lien, charge or other encumbrance on
any
of their or its respective properties or assets now owned or hereafter
acquired;
(o)
make
any
changes in any of its business objectives, purposes, or operations or engage
in
any business other than that presently engaged in or presently proposed to
be
engaged in by the Company;
(p) issue
any
capital stock or any security or instrument which, pursuant to its terms, may
be
converted, exercised or exchanged for capital stock, other than upon the
conversion or exercise of any presently outstanding options, warrants or
convertible securities; or
(q) enter
into an agreement to do any of the foregoing.
8.10. No
Solicitation or Negotiation.
The
Company agrees that from and after the Signing Date until the occurrence of
the
Covenant Expiration Event, neither the Company, nor any of its Subsidiaries,
Affiliates, officers, directors, representatives or agents will: (1) solicit,
initiate, consider, encourage or accept any other proposals or offers from
any
Person (i) relating to any acquisition or purchase of all or any portion of
the
capital stock of the Company or assets of the Company, or (ii) to enter into
any
merger, consolidation, reorganization, or other business combination with the
Company (each of the events described in clauses (i) and (ii) an “Alternative
Transaction”),
or
(2) participate in any discussions, conversations, negotiations or other
communications regarding, or furnish to any other Person any information with
respect to, or otherwise cooperate in any way, assist or participate in,
facilitate or encourage any effort or attempt by any other Person to seek to
do
any Alternative Transaction. The Company shall immediately cease and cause
to be
terminated all existing discussions, conversations, negotiations and other
communications with any Persons conducted heretofore with respect to any of
the
foregoing. The Company shall notify the Investors promptly if any such proposal
or offer, or any inquiry or other contact with any Person with respect thereto,
is made and shall, in any such notice to the Investors, indicate in reasonable
detail the identity of the Person making such proposal, offer, inquiry or
contact and the terms and conditions of such proposal, offer, inquiry or other
contact. The Company agrees not to, without the prior written consent of the
Requisite Holders, release any Person from, or waive any provision of, any
confidentiality or standstill agreement to which it is a party. For the purposes
of clarification, joint ventures or other similar collaborative transactions
with non-financial participants which are not primarily intended to raise
capital shall not be deemed an Alternative Transaction.
8.11. Trading.
The
Company shall promptly following the date hereof secure and maintain the listing
of the Conversion Shares and the Warrant Shares upon each securities exchange
or
quotation system upon which the Common Stock is then traded, so that as of
the
relevant Closing Date such Conversion Shares and Warrant Shares shall have
been
authorized for trading on the relevant securities exchange or quotation
system.
8.12. Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Securities for general
corporate purposes, and not for (i) the repayment of any outstanding
indebtedness for borrowed money of the Company or any of its Subsidiaries or
(ii) redemption or repurchase of any of its or its Subsidiaries’ equity
securities.
8.13. Press
Release.
On or
before 9:00 a.m., New York City time, on the first Business Day following the
date of this Agreement, the Company shall issue a press release, which shall
have been reviewed and approved by the Lead Investors, announcing the
transactions contemplated by the Transaction Documents (the “Press
Release”).
In
addition, the Company will file a Current Report on Form 8-K with the SEC
describing the terms of the Transaction Documents (and including as exhibits
to
such Current Report on Form 8-K the material Transaction Documents (including,
without limitation, this Agreement and the Registration Rights Agreement)).
Without any such Investor’s prior consent, the Company agrees not to disclose in
the Press Release the names, addresses or any other information about an
Investor, except as required by law and to satisfy its obligations under the
Registration Rights Agreement.
8.14. Furnishing
of Information.
As long
as any Investor owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period)
all
reports required to be filed by the Company after the date hereof pursuant
to
the 1934 Act. As long as any Investor owns Preferred Shares, Warrants or the
Warrant Shares, if the Company is not required to file reports pursuant to
such
laws, it will prepare and furnish to the Investors and make publicly available
in accordance with Rule 144(c) promulgated by the SEC pursuant to the 1933
Act,
as such Rule may be amended from time to time, such information as is required
for the Investors to sell the Preferred Shares and Warrant Shares under Rule
144
promulgated by the SEC pursuant to the 1933 Act, as such Rule may be amended
from time to time (“Rule
144”).
The
Company further covenants that it will take such further action as any holder
of
Preferred Shares, Warrants or the Warrant Shares may reasonably request, all
to
the extent required from time to time to enable such Person to sell the
Preferred Shares and Warrant Shares without registration under the 1933 Act
within the limitation of the exemptions provided by Rule 144.
8.15. Buy-In.
If the
Company shall fail for any reason or for no reason to issue to an Investor
unlegended certificates within three (3) Business Days of receipt of documents
necessary for the removal of the legend set forth above (the “Deadline
Date”),
then,
in addition to all other remedies available to such Investor, if on or after
the
Business Day immediately following such three (3) Business Day period, such
Investor or Investor’s broker, acting on behalf of such Investor, purchases (in
an open market transaction or otherwise) shares of Common Stock to deliver
in
satisfaction of a sale by the holder of shares of Common Stock that such
Investor anticipated receiving from the Company without any restrictive legend,
then the Company shall, within three (3) Business Days after such Investor’s
request and in such Investor’s sole discretion, either (i) pay cash to the
Investor in an amount equal to such Investor’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
(the
“Buy-In
Price”),
at
which point the Company’s obligation to deliver such certificate (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Investor a certificate or certificates
representing such shares of Common Stock and pay cash to the Investor in an
amount equal to the excess (if any) of the Buy-In Price over the product of
(a)
such number of shares of Common Stock, times (b) the closing bid price on the
Deadline Date.
8.16. Limited
Participation Right.
In the
event the Requisite Holders approve an amendment to the Certificate of
Designations which materially adversely affects all of the Investors, and if,
during the twelve (12) month period following such amendment, the Company agrees
to sell, offers for sale or solicits offers to buy its securities in a
transaction in which one or more Lead Investors participates, the Company shall
provide notice of such transaction to each Investor who held shares of Preferred
Stock on the date of such amendment and on the date of such transaction (each,
an "Eligible Investor") and shall give each Eligible Investor the right to
participate in such transaction on a pro rata basis among the participating
Lead
Investors and the Eligible Investors (based upon the number of shares of
Preferred Stock held by the Investors participating in the transaction at the
time of such transaction).
9. Survival
and Indemnification.
9.1. Survival.
Subject
to Section
8.6,
all
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements as of the date hereof and shall survive the Closing Date until the
third anniversary thereof; provided,
however,
that
the provisions contained in: (a) Sections
3.2,
5.4,
9.1,
9.2
and
9.3
hereof
shall survive indefinitely; and (b) Sections
5.10
and
5.15
shall
survive until 90 days after the applicable statute of limitations.
9.2. Indemnification.
The
Company agrees to indemnify and hold harmless, each Investor and its Affiliates
and the directors, officers, employees and agents of each Investor and its
Affiliates, from and against any and all losses, claims, damages, liabilities
and expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement hereof) (collectively, “Losses”)
to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by, or to be performed
on
the part of, the Company under the Transaction Documents, and will reimburse
any
such Person for all such amounts as they are incurred by such
Person.
9.3. Conduct
of Indemnification Proceedings.
Promptly
after receipt by any Person (the “Indemnified
Person”)
of
notice of any demand, claim or circumstances which would or might give rise
to a
claim or the commencement of any action, proceeding or investigation in respect
of which indemnity may be sought pursuant to Section
9.2,
such
Indemnified Person shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall assume the payment of all
fees and expenses; provided,
however, that
the
failure of any Indemnified Person so to notify the Company shall not relieve
the
Company of its obligations hereunder except to the extent that the Company
is
actually and materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of
such Indemnified Person unless: (i) the Company and the Indemnified Person
shall
have mutually agreed to the retention of such counsel; (ii) in the reasonable
judgment of counsel to such Indemnified Person (A) representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them, or (B) the Company shall have failed to
promptly assume the defense of such proceeding. The Company shall not be liable
for any settlement of any proceeding effected without its written consent,
which
consent shall not be unreasonably withheld, delayed or conditioned, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Company shall indemnify and hold harmless such Indemnified Person from
and
against any Losses by reason of such settlement or judgment. Without the prior
written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, delayed or conditioned, the Company shall not effect
any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes
an
unconditional release of such Indemnified Person from all liability arising
out
of such proceeding.
10. Miscellaneous.
10.1. Successors
and Assigns.
This
Agreement may not be assigned by a party hereto without the prior written
consent of the Company and the Lead Investors; provided,
however,
that an
Investor may assign its rights and delegate its duties hereunder in whole or
in
part to an Affiliate or to a third party acquiring some or all of its Securities
in a private transaction without the prior written consent of the Company or
the
other Investors, after notice duly given by such Investor to the Company;
provided,
that no
such assignment or obligation shall affect the obligations of such Investor
hereunder. The provisions of this Agreement shall inure to the benefit of and
be
binding upon the respective permitted successors and assigns of the parties.
Except for the Lead Investor Counsel, which is an express intended third party
beneficiary of this Agreement, and except for provisions of this Agreement
expressly to the contrary, nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
10.2. Counterparts;
Faxes.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument. This Agreement may also be executed via facsimile, which shall
be
deemed an original.
10.3. Titles
and Subtitles.
The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
10.4. Notices.
Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by telex or telecopier, then such notice
shall be deemed given upon receipt of confirmation of complete transmittal,
(iii) if given by mail, then such notice shall be deemed given upon the earlier
of (A) receipt of such notice by the recipient or (B) three (3) Business Days
after such notice is deposited in first class mail, postage prepaid, and (iv)
if
given by a nationally recognized overnight air courier, then such notice shall
be deemed given one (1) Business Day after delivery to such carrier. All notices
shall be addressed to the party to be notified at the address as follows, or
at
such other address as such party may designate by ten (10) days’ advance written
notice to the other party:
If
to the
Company:
Novelos
Therapeutics, Inc.
One
Gateway Center, Suite 504
Newton,
MA 02458
Attention:
Chief Executive Officer
Fax:
(617) 964-6331
With
a
copy to:
Foley
Hoag LLP
Seaport
World Trade Center West
155
Seaport Boulevard
Boston,
MA 02210
Attn:
Paul Bork
Fax:
(617) 832-7000
If
to any
of the Investors:
to
the
addresses set forth on Schedule
I
affixed
hereto.
With
a
copy to:
Lowenstein
Sandler PC
1251
Avenue of the Americas
New
York,
NY 10020
Attn:
Steven E. Siesser, Esq.
Fax:
(973) 597-2507
10.5. Expenses.
The
Company shall pay the Lead Investors for their reasonable out-of-pocket
expenses, including the reasonable fees and expenses of Lead Investor Counsel
in
connection with the Private Placement (which Lead Investor Counsel Fees shall
include, without limitation, the fees and expenses associated with the
negotiation, preparation and execution and delivery of this Agreement and the
other Transaction Documents and any amendments, modifications or waivers
thereto)(the “Lead
Investor Counsel Fees”),
in an
amount not to exceed $100,000 (of which $25,000 has already been paid to the
Lead Investor Counsel) through the Closing Date. The Lead Investor Counsel
Fees
shall be paid to Lead Investor Counsel on the Closing Date by release to Lead
Investor Counsel of the portion of the Escrow Amount equal to the Lead Investor
Counsel Fees applicable to such Closing Date. Except as set forth above, the
Company and the Investors shall each bear their own expenses in connection
with
the negotiation, preparation, execution and delivery of this Agreement. In
the
event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or
the
other Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata share of the
reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.
10.6. Amendments
and Waivers.
This
Agreement shall not be amended and the observance of any term of this Agreement
shall not be waived (either generally or in a particular instance and either
retroactively or prospectively) without the prior written consent of the Company
and the Requisite Holders; provided,
however,
that
any provision affecting the rights or obligations of Lead Investor Counsel,
shall not be waived or amended without the prior written consent of the Lead
Investor Counsel.
Any
amendment or waiver effected in accordance with this Section
10.6
shall be
binding upon each holder of any Securities purchased under this Agreement at
the
time outstanding, each future holder of all such Securities, and the
Company.
10.7. Publicity.
Except
as provided in Section
8.13,
No
public release or announcement concerning the transactions contemplated hereby
shall be issued by the Company or the Investors without the prior consent of
the
Company (in the case of a release or announcement by the Investors) or the
Lead
Investors, as representative of the Investors (in the case of a release or
announcement by the Company) (which consents shall not be unreasonably
withheld), except as such release or announcement may be required by law or
the
applicable rules or regulations of any securities exchange or securities market
on which the Securities are then listed and trading, in which case the Company
or the Lead Investors, as the case may be, shall allow the Investors or the
Company, as applicable, to the extent reasonably practicable in the
circumstances, reasonable time to comment on such release or announcement in
advance of such issuance.
10.8. Severability.
Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof but shall be interpreted as if it were written so as to be
enforceable to the maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law
which
renders any provision hereof prohibited or unenforceable in any
respect.
10.9. Entire
Agreement.
This
Agreement, including the Exhibits and Disclosure Schedules, and the other
Transaction Documents constitute the entire agreement among the parties hereof
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter hereof and thereof. Prior drafts or versions
of
this Agreement shall not be used to interpret this Agreement.
10.10. Further
Assurances.
The
parties shall execute and deliver all such further instruments and documents
and
take all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.
10.11. Governing
Law; Consent to Jurisdiction.
This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York
for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served
on
each party hereto anywhere in the world by the same methods as are specified
for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that
any
such suit, action or proceeding brought in any such court has been brought
in an
inconvenient forum.
THE COMPANY AND EACH OF THE INVESTORS HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO OR ARISING OUT OF
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
[signature
page follows]
[Company
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
| |
|
|
| |
NOVELOS THERAPEUTICS,
INC. |
|
|
|
| |
By: |
/s/ Harry
S.
Palmin |
| |
Name:
Harry S. Palmin
Title:
President and CEO
|
| |
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
Xmark
Opportunity Fund, Ltd.
Print
name of entity
|
| |
|
|
(Printed
Name)
|
|
|
|
By:
Xmark
Opportunity Manager, LLC,
its
Investment Manager
By:
Xmark
Opportunity Partners, LLC,
its
Sole Member
By:
Xmark
Capital Partners, LLC,
its
Managing Member
|
| |
By:
/s/
Mitchell D. Kaye
Name:
Mitchell D. Kaye
|
| |
Title:
Chief Executive Officer
|
| |
|
| |
Cayman
Islands
Print
jurisdiction of organization of entity
|
| |
|
|
Address:
|
Address:
301
Tresser Blvd, Suite 1320
Stamford,
CT 06901
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
2,000,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
Xmark
Opportunity Fund, L.P.
Print
name of entity
|
| |
|
|
|
|
|
|
By:
Xmark
Opportunity GP, LLC
its
General Partner
By:
Xmark
Opportunity Partners, LLC,
its
Sole Member
By:
Xmark
Capital Partners, LLC,
its
Managing Member
|
| |
By:
/s/
Mitchell D. Kaye
Name:
Mitchell D. Kaye
|
| |
Title:
Chief Executive Officer
|
| |
|
| |
Delaware
Print
jurisdiction of organization of entity
|
| |
|
|
Address:
|
Address:
301
Tresser Blvd, Suite 1320
Stamford,
CT 06901
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
1,000,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
Xmark
JV Investment Partners, LLC
Print
name of entity
|
| |
|
|
|
|
|
|
By:
Xmark
Opportunity Partners, LLC
its
Investment Manager
By:
Xmark
Capital Partners, LLC,
its
Managing Member
|
| |
By:
/s/
Mitchell D. Kaye
Name:
Mitchell D. Kaye
|
| |
Title:
Chief Executive Officer
|
| |
|
| |
Delaware
Print
jurisdiction of organization of entity
|
| |
|
|
Address:
|
Address:
301
Tresser Blvd, Suite 1320
Stamford,
CT 06901
|
| |
|
| |
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
1,000,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
(Signature)
|
|
|
|
Caduceus
Capital Master Fund Limited
Print
name of entity
|
| |
|
|
|
|
|
|
|
| |
By:
/s/
Samuel D. Isaly
Name:
Samuel D. Isaly
|
| |
Title:
Managing Partner, OrbiMed Advisors LLC
|
| |
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
c/o
OrbiMed Advisors LLC
767
Third Avenue, 30th
Floor
New
York, NY 10017
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
2,000,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
Caduceus
Capital II, L.P.
Print
name of entity
|
| |
|
|
|
|
|
(Printed
Name)
|
|
| |
By:
/s/
Samuel D. Isaly
Name:
Samuel D. Isaly
|
| |
Title:
Managing Partner, OrbiMed Advisors LLC
|
| |
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
c/o
OrbiMed Advisors LLC
767
Third Avenue, 30th
Floor
New
York, NY 10017
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
1,300,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
UBS
Eucalyptus Fund, L.L.C.
Print
name of entity
|
| |
|
|
|
|
|
(Printed
Name)
|
|
| |
By:
/s/
Samuel D. Isaly
Name:
Samuel D. Isaly
|
| |
Title:
Managing Partner, OrbiMed Advisors LLC
|
| |
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
c/o
OrbiMed Advisors LLC
767
Third Avenue, 30th
Floor
New
York, NY 10017
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
1,300,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
HFR
SHC Aggressive Master Trust
Print
name of entity
|
| |
|
|
|
|
|
(Printed
Name)
|
|
| |
By:
/s/
Dora Hines
Name:
Dora Hines
|
| |
Title:
for and on behalf of HFR Asset Management, LLC as
attorney-in-fact
|
| |
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
Butterfield
Fund Services (Bermuda) Limited
65
Front Street
Hamilton
HM11
Bermuda
Re:
HFR SHC Aggressive Master Trust
|
| |
|
| |
Send
correspondence to:
c/o
OrbiMed Advisors LLC
767
Third Avenue, 30th
Floor
New
York, NY 10017
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
250,000
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
PW
Eucalyptus Fund, Ltd.
Print
name of entity
|
| |
|
|
|
|
|
(Printed
Name)
|
|
| |
By:
/s/
Samuel D. Isaly
Name:
Samuel D. Isaly
|
| |
Title:
Managing Partner, OrbiMed Advisors LLC
|
| |
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
c/o
OrbiMed Advisors LLC
767
Third Avenue, 30th
Floor
New
York, NY 10017
|
| |
|
| |
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
150,000
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
Knoll
Capital Fund II Master Fund Ltd.
Print
name of entity
|
| |
|
|
|
|
|
(Printed
Name)
|
|
| |
By:
/s/
Fred Knoll
Name:
Fred Knoll
|
| |
Title:
KOM Capital Management
|
| |
Investment
Manager
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
c/o
KOM Capital Management
666
Fifth Avenue, Suite 3702,
New
York, NY 10103
|
| |
|
| |
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
2,000,000.00
|
|
[Investor
Signature Page]
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
|
Date:
April 12, 2007
|
|
| |
|
|
IF
AN INDIVIDUAL:
|
IF
A CORPORATION, PARTNERSHIP,
|
| |
TRUST,
ESTATE OR OTHER ENTITY:
|
|
|
|
|
(Signature)
|
Europa
International, Inc.
Print
name of entity
|
| |
|
|
|
|
|
(Printed
Name)
|
|
| |
By: /s/
Fred Knoll
Name:
Fred Knoll
|
| |
Title:
Knoll Capital Management
|
| |
Investment
Manager for
Europa
International, Inc.
|
| |
|
| |
Print
jurisdiction of organization of entity
|
|
Address:
|
Address:
c/o
Knoll Capital Management
666
Fifth Avenue, Suite 3702,
New
York, NY 10103
|
| |
|
| |
|
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
2,000,000.00
|
|
Signature
Page for Securities Purchase Agreement
Dated:
April 12, 2007
Between
Novelos Therapeutics, Inc. and Hunt-BioVentures, L.P.
IN
WITNESS WHEREOF, the undersigned has executed this Securities Purchase Agreement
or caused its duly authorized officers to execute this Securities Purchase
Agreement as of the date first above written.
Hunt-BioVentures,
L.P., a Delaware Limited Partnership
By:
HBV
GP, L.L.C., its General Partner
By:
/s/
J.
Fulton Murray, III
J.
Fulton
Murray, III, Manager
Aggregate
dollar amount of Securities committed to be purchased pursuant to the terms
of
the Agreement:
|
Aggregate
Purchase Price:
|
|
$
|
2,000,000.00
|
|
SCHEDULE
I
INVESTORS
CLOSING
|
Name
of Investor
|
|
Closing
Purchase
Price
|
|
Number
of Shares of
Preferred Stock
|
|
Number
of
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
Xmark
Opportunity Fund, Ltd.
|
|
$
|
2,000,000
|
|
|
40
|
|
|
1,000,000
|
|
|
Xmark
Opportunity Fund, L.P.
|
|
$
|
1,000,000
|
|
|
20
|
|
|
500,000
|
|
|
Xmark
JV Investment Partners, LLC
|
|
$
|
1,000,000
|
|
|
20
|
|
|
500,000
|
|
|
Caduceus
Capital Master Fund Limited
|
|
$
|
2,000,000
|
|
|
40
|
|
|
1,000,000
|
|
|
Caduceus
Capital II, L.P.
|
|
$
|
1,300,000
|
|
|
26
|
|
|
650,000
|
|
|
UBS
Eucalyptus Fund, L.L.C.
|
|
$
|
1,300,000
|
|
|
26
|
|
|
650,000
|
|
|
HFR
SHC Aggressive Master Trust
|
|
$
|
250,000
|
|
|
5
|
|
|
125,000
|
|
|
PW
Eucalyptus Fund, Ltd.
|
|
$
|
150,000
|
|
|
3
|
|
|
75,000
|
|
|
Knoll
Capital Fund II Master Fund, Ltd.
|
|
$
|
2,000,000
|
|
|
40
|
|
|
1,000,000
|
|
|
Europa
International, Inc.
|
|
$
|
2,000,000
|
|
|
40
|
|
|
1,000,000
|
|
|
Hunt-BioVentures,
L.P.
|
|
$
|
2,000,000
|
|
|
40
|
|
|
1,000,000
|
|
SCHEDULE
II
Lead
Investor Counsel Wire Instructions
For
Escrow Amount
Wire
Room
of: PNC Bank New Jersey
ABA
#
031207607
For
credit to: Lowenstein
Sandler PC Special Trust Account I
Account
#
8025720174
Exhibits
|
Exhibit
A
|
Certificate
of Designations
|
|
Exhibit
B
|
Form
of Warrant
|
|
Exhibit
C
|
Registration
Rights Agreement
|
|
Exhibit
D
|
Company
Counsel Opinion
|
Schedules
|
Schedule
5.1
|
Subsidiaries
|
|
Schedule
5.3
|
Capitalization
|
|
Schedule
5.5
|
Consents
|
|
Schedule
5.7(a)
|
Material
Adverse Changes
|
|
Schedule
5.8(b)
|
SEC
Filings
|
|
Schedule
5.9
|
Conflicts
|
|
Schedule
5.10
|
Taxes
|
|
Schedule
5.11
|
Title
to Properties
|
|
Schedule
5.14(a)
|
Intellectual
Property
|
|
Schedule
5.14(d)
|
IP
Litigation
|
|
Schedule
5.19
|
Brokers
and Finders
|
Exhibit
A
Certificate
of Designations
[See
Exhibit 3.2 of this filing]
Exhibit
B
Form
of Warrant
[See
Exhibit 4.1 of this filing]
Exhibit
C
Registration
Rights Agreement
[See
Exhibit 10.3 of this filing]
Exhibit
D
Company
Counsel Opinion
|
TO:
Each
of the Purchasers under the Securities Purchase Agreement
|
|
Re: Securities
Purchase Agreement
Ladies
and Gentlemen:
We
have
acted as counsel for Novelos Therapeutics, Inc., a Delaware corporation (the
“Company”),
in
connection with the negotiation of the Securities Purchase Agreement by and
among the purchasers signatory thereto (the “Purchasers”)
and
the Company dated as of April 12, 2007 (as amended on May 2, 2007, the
“Purchase
Agreement”)
and
the Registration Rights Agreement between the Purchasers and the Company dated
as of even date herewith (the “Registration
Rights Agreement”).
The
Purchase Agreement provides for the issuance and sale by the Company of (i)
300
shares of a newly created series of the Company’s Preferred Stock, designated
“Series B Convertible Preferred Stock”, par value $0.00001 per share (the
“Preferred
Stock”),
which
Preferred Stock shall have the rights, preferences and privileges set forth
in
the Certificate of Designations, Preferences and Rights (the “Certificate
of Designations”),
a
stated value of $50,000.00 per share and shall initially be convertible into
shares of the Company's Common Stock, par value $0.00001 per share (the
“Common
Stock”),
at a
price of $1.00 per share, and (ii) warrants to purchase up to 7,500,000 shares
of Common Stock of the Company (the “Warrants”)
(the
shares of Common Stock issuable upon conversion of the Preferred Stock are
referred to herein as the “Conversion
Shares”
and
the
shares of Common Stock issuable upon exercise of the Warrants are referred
to
herein as the “Warrant
Shares”)
(the
Purchase Agreement, Registration Rights Agreement and Warrants are collectively
referred to herein as the “Transaction
Documents”).
All
terms used herein have the meanings defined for them in the Purchase Agreement
unless otherwise defined herein.
This
opinion is furnished to you pursuant to the Purchase Agreement. In rendering
the
opinions expressed below, we have examined originals or copies of: (i) the
Transaction Documents, (ii) the Company’s Certificate of Incorporation, as
amended through the date hereof (“Certificate
of Incorporation”),
and
(iii) the Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and
we have examined and considered such corporate records, certificates and matters
of law as we have deemed appropriate as a basis for our opinions set forth
below. In rendering the opinions expressed below, we have relied, as to factual
matters, upon the representations and warranties of the Company contained in
the
Transaction Documents.
Based
upon and subject to the foregoing, we are of the opinion that:
1. The
Company is a corporation validly existing and in good standing under the laws
of
the State of Delaware and has all requisite corporate power and authority to
carry on its business as it is currently being conducted, to own, lease and
operate its properties and assets, and to enter into and perform its obligations
under the Transaction Documents and the Certificate of Designations. The Company
is qualified as a foreign corporation to do business and is in good standing
in
the Commonwealth of Massachusetts.
2. The
execution, delivery and performance by the Company of the Transaction Documents,
the issuance of the Preferred Stock and the Warrants, the issuance of the
Conversion Shares upon due conversion of the Preferred Stock and the issuance
of
the Warrant Shares upon due exercise of the Warrants have been duly authorized
by all requisite corporate action on the part of the Company and do not require
any further approval of its directors or stockholders.
3. Each
of
the Transaction Documents has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
4. The
Certificate of Designations has been filed with the Secretary of State of the
State of Delaware. The Preferred Stock has the relative rights, preferences
and
limitations set forth in the Certificate of Designations.
5. The
execution and delivery by the Company of each of the Transaction Documents,
the
issuance of the Preferred Stock and Warrants, the issuance of the Conversion
Shares upon due conversion of the Preferred Stock and the issuance of the
Warrant Shares upon due exercise of the Warrants and the performance by the
Company of the Transaction Documents will not violate or contravene or be in
conflict with (a) any
provision of the Certificate of Incorporation of By-laws; (b) any
provision of the General Corporation Law of the State of Delaware and any
provision of any federal or Massachusetts law, rule or regulation applicable
to
the Company in transactions of the nature contemplated by the Transaction
Documents; (c) any order, judgment or decree of any court or other
governmental agency which is known to us and which is binding on the Company
or
any of its property; (d) any agreement, indenture or other written agreement
or
understanding to which the Company or a Subsidiary is a party which has been
identified as a material agreement in the certificate of the Chief Executive
Officer of the Company attached hereto (collectively, “Material
Agreements”).
6. No
further consents, approvals, authorizations, registrations, declarations or
filings are required to be obtained or made by the Company from or with any
federal or Massachusetts governmental authority or pursuant to the General
Corporation Law of the State of Delaware or from any other Person under any
Material Agreement in order for it to execute and deliver each of the
Transaction Documents, to issue the Preferred Stock and Warrants, to issue
the
Conversion Shares upon due conversion of the Preferred Stock, to issue the
Warrant Shares upon due exercise of the Warrants and to perform its obligations
under the Transaction Documents, other than those consents, approvals,
authorizations, registrations, declarations or filings that have already been
obtained and remain in full force and effect and except
for (a) the filing of a Form D (the “Form D”)
with
the Securities and Exchange Commission pursuant to Regulation D promulgated
under the Securities Act of 1933, as amended (the “Securities
Act”)
and
(b) the filing of the Form D with requisite state
jurisdictions.
7. The
shares of Preferred Stock, upon payment as provided in the Purchase Agreement,
will be validly issued, fully paid and non-assessable. The
shares of Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants have been duly authorized and, upon issuance and
delivery upon conversion of such Preferred Stock in accordance with the terms
of
the Purchase Agreement and exercise of such Warrants in accordance with the
terms of the Warrants, will be validly issued, fully paid and nonassessable.
Other than as disclosed in the Purchase Agreement, and the Disclosure Schedules
delivered in connection with the Purchase Agreement, there are no statutory
preemptive rights or, to the best of our knowledge, any options, warrants or
other such rights evidenced by written instruments presently outstanding to
purchase any of the authorized but unissued capital stock of the
Company.
8. Assuming
the accuracy of the representations and warranties of the Purchasers set forth
in Section 6 of the Purchase Agreement, the offer, issuance and sale to the
Purchasers pursuant to the Purchase Agreement of (i) the Preferred Stock and
Warrants, (ii) the Conversion Shares if the Preferred Stock were converted
by
the Purchasers on the date hereof and (iii) the Warrant Shares issuable upon
exercise of the Warrants if the Warrants were exercised by the Purchasers on
the
date hereof, are exempt from the registration requirements of the Securities
Act.
The
opinions expressed herein are subject to the following assumptions, limitations,
qualifications and exceptions:
(a) We
have
made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion.
(b) We
have
examined, among other things, originals or copies of such corporate records
of
the Company, certificates of public officials and such other documents and
questions of law that we consider necessary or advisable for the purpose of
rendering this opinion. In such examination we have assumed the genuineness
of
all signatures or original documents, the authenticity and completeness of
all
documents submitted to us as originals, the conformity to original documents
of
all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to
due
execution and delivery by the Company) where due execution and delivery are
a
prerequisite to the effectiveness thereof.
(c) As
used
in this opinion, the expression “to our knowledge” refers to the current actual
knowledge of the attorneys of this firm who have worked on matters for the
Company solely in connection with the Transaction Documents and the transactions
contemplated thereby.
(d)
For
purposes of this opinion, we have assumed that you have all requisite power
and
authority, and have taken any and all necessary corporate action, to execute
and
deliver the Transaction Documents, and we are assuming that the representations
and warranties made by the Purchasers in the Transaction Documents and pursuant
thereto are true and correct.
(e) Our
opinion is based upon our knowledge of the facts as of the date hereof and
assumes no event will take place in the future which would affect the opinions
set forth herein other than future events contemplated by the Transaction
Documents. We assume no duty to communicate with you with respect to any change
in law or facts which comes to our attention hereafter.
(f) In
rendering the opinion in paragraph 1 with respect to legal existence and good
standing of the Company in the State of Delaware, we have relied solely upon
a
certificate of the Secretary of State of Delaware and we express such opinion
as
of the date of such certificate. In rendering the opinion in paragraph 1 with
respect to the qualification and good standing of the Company in The
Commonwealth of Massachusetts, we have relied solely upon a certificate of
the
Secretary of State of Massachusetts and we express such opinion as of the date
of such certificate. We express no opinion as to the tax good standing of the
Company.
We
have
made such examination of Massachusetts law, federal law, and the Delaware
General Corporation Law as we have deemed necessary for the purpose of this
opinion. In rendering opinions concerning the Delaware General Corporation
Law,
we have, with your consent, relied exclusively upon a review of published
statutes. We express no opinion herein as to the laws of any jurisdiction other
than The Commonwealth of Massachusetts, the federal laws of the United States
of
America and the Delaware General Corporation Law.
The
opinions expressed herein are qualified to the extent that (1) the
enforceability of any provisions of the Transaction Documents or any instrument
or of any right granted thereunder may be subject to or affected by any
bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or
other similar law of general application relating to or affecting the rights
or
remedies of creditors generally, which law may be in effect from time to time,
(2) the remedy of specific performance or any other equitable remedy may be
unavailable or may be withheld as a matter of judicial discretion, (3) equitable
principles and principles of public policy may be applied in construing or
enforcing the provisions of the Transaction Documents or of any other agreement,
instrument or document, and (4) the enforceability, validity or binding effect
of any remedial provision of the Transaction Documents may be limited by
applicable law which may limit particular rights and remedies but not so as
to
interfere materially with the practical realization of the benefits intended
to
be provided to you by the Transaction Documents. In addition, the opinions
expressed herein are subject to the qualification that the enforcement of any
of
your rights are in all cases subject to the your implied duty of good faith
and
fair dealing.
We
express no opinion herein as to the validity or enforceability of any provision
of the Transaction Documents or any other instrument or document to the extent
that such provision purports to (1) constitute a waiver by the Company of any
statutory right except where advance waiver is expressly permitted by the
relevant statute; (2) require the Company to indemnify or to hold harmless
you
or any other person or entity from the consequences of any negligent or other
wrongful act or omission of you or such other person or entity; (3) provide
for
indemnification or contribution by the Company in connection with the
Transaction Documents, the transactions contemplated thereby or otherwise to
the
extent such indemnification or contribution may be limited by applicable laws
or
as a matter of public policy; or (4) constitute a waiver of any right to a
hearing on or adjudication of any issue or the right to trial by jury. We
express no opinion with respect to whether any of the provisions of the
Transaction Documents or the transactions contemplated by the Transaction
Documents comply with the usury laws of any jurisdiction.
This
opinion shall be interpreted in accordance with the Legal Opinions Principles
issued by the Committee on Legal Opinions of the American Bar Association’s
Business Law Section as published in 53 Business Lawyer 831 (May
1998).
This
opinion is furnished to the Purchasers solely for their benefit in connection
with the transactions described above and, except as otherwise expressly set
forth herein, may not be relied upon by any other person or for any other
purpose without our prior written consent, except that the opinions expressed
in
paragraph (7) and (8) above may be relied upon by American Stock Transfer &
Trust Company as Transfer Agent.
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Very
truly yours,
FOLEY
HOAG LLP
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|
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By: |
|
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A
Partner |
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Schedule
5.1
Subsidiaries
None.
Schedule
5.3
Capitalization
5.3(a)(i)
At the date hereof authorized capital stock of the Company consists of
100,000,000 shares of $.00001 par value common stock and 7,000 shares of
preferred stock.
5.3(a)(ii)
At the date hereof there are 39,235,272 shares of common stock outstanding
and
3,264 shares of preferred stock outstanding.
5.3(a)(iii)
At the date hereof there are 3,612,651 shares of common stock issuable pursuant
to the Company’s stock plans.
5.3(a)(iv)
At the date hereof, the following shares are reserved for future issuance upon
exercise of stock options or warrants or conversion of preferred stock:
|
2000
Stock Option Plan
|
|
|
73,873
|
|
|
2006
Stock Incentive Plan
|
|
|
5,000,000
|
|
|
Options
issued outside of formalized plans
|
|
|
2,578,778
|
|
|
Warrants
|
|
|
14,561,449
|
|
|
Preferred
stock
|
|
|
4,231,104
|
|
| |
|
|
|
|
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Total
shares reserved for future issuance
|
|
|
26,445,204
|
|
Schedule
5.3 (continued)
5.3(a)
Other
The
following is a listing of documents available on EDGAR that contain the rights
of Novelos security holders at the date hereof:
|
Document
Description
|
|
Filed
with Form
|
|
Filing
Date
|
|
Exhibit
No.
|
|
Certificate
of Designations of Series A cumulative convertible preferred
stock
|
|
8-K
|
|
October
3, 2005
|
|
99.2
|
| |
|
|
|
|
|
|
|
2000
Stock Option and Incentive Plan
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|
SB-2
|
|
November
16, 2005
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|
10.2
|
| |
|
|
|
|
|
|
|
Form
of 2004 non-plan non-qualified stock option
|
|
SB-2
|
|
November
16, 2005
|
|
10.3
|
| |
|
|
|
|
|
|
|
Form
of non-plan non-qualified stock option used from February to May
2005
|
|
SB-2
|
|
November
16, 2005
|
|
10.4
|
| |
|
|
|
|
|
|
|
Form
of non-plan non-qualified stock option used after May 2005
|
|
SB-2
|
|
November
16, 2005
|
|
10.5
|
| |
|
|
|
|
|
|
|
Form
of common stock purchase warrant issued in March 2005
|
|
SB-2
|
|
November
16, 2005
|
|
10.6
|
| |
|
|
|
|
|
|
|
Form
of securities purchase agreement dated May 2005
|
|
8-K
|
|
June
2, 2005
|
|
99.1
|
| |
|
|
|
|
|
|
|
Form
of subscription agreement dated September 30, 2005
|
|
8-K
|
|
October
3, 2005
|
|
99.1
|
| |
|
|
|
|
|
|
|
Form
of Class A common stock purchase warrant dated September 30,
2005
|
|
8-K
|
|
October
3, 2005
|
|
99.3
|
| |
|
|
|
|
|
|
|
Form
of share escrow agreement
|
|
8-K
|
|
November
3, 2005
|
|
10.3
|
| |
|
|
|
|
|
|
|
Form
of securities purchase agreement dated March 2, 2006
|
|
8-K
|
|
March
3, 2006
|
|
99.2
|
| |
|
|
|
|
|
|
|
Form
of common stock purchase warrant dated March 2006
|
|
8-K
|
|
March
3, 2006
|
|
99.3
|
| |
|
|
|
|
|
|
|
2006
Stock Incentive Plan
|
|
10-QSB
|
|
November
6, 2006
|
|
10.1
|
| |
|
|
|
|
|
|
|
Form
of Incentive Stock Option under Novelos Therapeutics, Inc.’s 2006 Stock
Incentive Plan
|
|
8-K
|
|
December
15, 2006
|
|
10.1
|
| |
|
|
|
|
|
|
|
Form
of Non-Statutory Stock Option under Novelos Therapeutics, Inc.’s 2006
Stock Incentive Plan
|
|
8-K
|
|
December
15, 2006
|
|
10.2
|
| |
|
|
|
|
|
|
|
Form
of Non-Statutory Director Stock Option under Novelos Therapeutics,
Inc.’s
2006 Stock Incentive Plan
|
|
8-K
|
|
December
15, 2006
|
|
10.3
|
Schedule
5.3 (continued)
5.3(b)
The following table sets forth the pro forma capitalization of the Company
on a
fully diluted basis giving effect to (i) the issuance of Preferred Stock and
the
Warrants at the time of Closing, (ii) any adjustments in other securities
resulting from the issuance of the Preferred Stock and the Warrants at the
time
of Closing, and (iii) the exercise or conversion of all outstanding securities:
Schedule
5.5
Consents
In
connection with the closing of the preferred stock and warrant financing, we
anticipate entering into an Agreement to Exchange and Consent with the holders
of our Series A 8% Cumulative Convertible Preferred Stock (“Series A
Investors”). The agreement provides that Novelos will issue a total of 1,333,333
warrants to purchase shares of our common stock at $1.25 per share together
with
a cash payment totaling $40,000 to Series A Investors in exchange for their
consent to exchange all their shares of Series A Preferred Stock for shares
of
Series C Preferred Stock that is junior to the Series B Preferred Stock.
Schedule
5.7(a)
Material
Adverse Changes
Since
January 1, 2007, Novelos has paid dividends totaling $65,280 to holders of
Series A 8% Cumulative Convertible Preferred Stock.
Schedule
5.8b
SEC
Filings
None.
Schedule
5.9
Conflicts
The
Series A Preferred Stock’s Certificate of Designations contains certain
prohibitions on amendments to the Company’s Certificate of Incorporation which
would change the relative seniority rights of the Series A Preferred Stock
or
create a series of capital stock entitled to seniority as to the payment of
dividends or liquidation preference in relation to the Series A Preferred Stock.
In
connection with the closing of the preferred stock and warrant financing, we
anticipate entering into an Agreement to Exchange and Consent with the holders
of Series A Preferred Stock whereby each holder consents to the issuance of
the
Series B Preferred Stock and the filing of the Certificate of Designations
setting forth the relative rights, privileges and preferences of the Series
B
Preferred Stock and each holder of the Series A Preferred Stock agrees to
exchange all shares of Series A Preferred Stock owned by such holder for shares
of Series C Preferred Stock that are junior to the Series B Preferred Stock.
As
consideration for the consent of the holders of Series A Preferred Stock
described above the
Company has agreed to issue warrants to purchase an aggregate of 1,333,333
shares of Common Stock at an exercise price per share of $1.25 and pay a $40,000
restructuring fee to the holders of Series A Preferred Stock
Schedule
5.10
Taxes
None.
Schedule
5.11
Title
to Properties
As
disclosed in our 10-KSB for the year ended December 31, 2006, in connection
with
the purchase of chemotherapy drugs to be used in Phase 3 clinical trial
activities outside of the United States the Company was required to enter into
a
standby letter of credit arrangement with a bank, expiring in August 2007.
At
the date hereof, the balance on the standby letter of credit equals the
remaining purchase commitment of approximately $837,000. In connection with
the
letter of credit, at the date hereof, the Company has pledged cash of
approximately $995,000 to the bank as collateral on the letter of credit. The
pledged cash is included in our restricted cash balance. Also included in
restricted cash is approximately $57,000 of cash held in escrow as contractually
required under an employment agreement.
Schedule
5.14 (a)
Intellectual
Property
None.
Schedule
5.14 (d)
IP
Litigation
None.
Schedule
5.19
Brokers
and Finders
On
February 12, 2007 the Company entered into a letter agreement with the Placement
Agent that requires the Company to pay the Placement Agent a cash placement
fee
of 7% of the aggregate proceeds from the Private Placement. The letter agreement
also provides that the Company will issue warrants to the Placement Agent equal
to 6% of the total shares underlying the Preferred Stock issued in the Private
Placement and reimburse the Placement Agent for reasonable and documented out
of
pocket expenses, not to exceed $25,000 without the prior approval of the
Company.
In
connection with the closing of the preferred stock and warrant financing, we
anticipate entering into an Agreement to Exchange and Consent with the holders
of our Series A 8% Cumulative Convertible Preferred Stock (“Series A
Investors”). The agreement provides that Novelos will issue a total of 1,333,333
warrants to purchase shares of our common stock at $1.25 per share together
with
a cash payment totaling $40,000 to Series A Investors in exchange for their
consent to exchange the shares of Series A Preferred Stock for shares of Series
C Preferred Stock that are subordinate to the Series B Preferred Stock.
