ANNEX A
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
May __, 2005 among Novelos Therapeutics, Inc., a Delaware corporation (the
"Company"), Common Horizons, Inc., a Nevada corporation (the "Holding Company"),
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") and Rule 506 promulgated thereunder, the Holding Company
desires to issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, desires to purchase from the Holding Company, in the aggregate, up
to $11,500,000 of Common Stock and Warrants on the Closing Date.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company, the Holding Company and
each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in
Section 3.1(j).
"Additional Closing" shall have the meaning ascribed to such
term in Section 2.1 hereof.
"Additional Closing Date" means the date of each Additional
Closing.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the
same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.
"Closing Date(s)" means the date of the First Closing which
shall occur on the Reverse Merger Effective Date and each Additional
Closing.
"Closing Price" means on any particular date (a) the last
reported closing sale price per share, or, if not available, then the
average of the last reported bid and asked prices of Common Stock on
such date on the Trading Market (as reported by Bloomberg L.P. at 4:15
PM (New York time) as the last reported closing sale price (or bid and
asked prices) for regular session trading on such day), or (b) if there
is no such price on such date, then the closing sale price, or, if not
available, then the average of the average of the closing bid and asked
prices, on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 PM (New York time) as the
closing sale price (or bid and asked prices) for regular session
trading on such day), or (c) if the Common Stock is not then listed or
quoted on the Trading Market and if prices for the Common Stock are
then reported in the "pink sheets" published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent sale price per
share of the Common Stock so reported or, if not available, the average
of the most recent bid and asked prices reported, or (d) if the shares
of Common Stock are not then publicly traded the fair market value of a
share of Common Stock as determined by an appraiser selected in good
faith by the Purchasers of a majority in interest of the Shares then
outstanding.
"Closing(s)" means collectively, the closings of the purchase
and sale of the Securities pursuant to Section 2.1, and any reference
to "Closing" or "Closings" shall be construed to include the First
Closing and each Additional Closing unless only one such closing is
expressly referred to.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Holding Company,
par value $0.001 per share, and any other class of securities into
which such securities may hereafter have been reclassified or changed.
"Common Stock Equivalents" means any securities of the Holding
Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument
that is at any time convertible into or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock.
"Effective Date" means the date that the Registration
Statement is first declared effective by the Commission.
"Escrow Agent" means Signature Bank, a New York State
chartered bank and having an office at, 000 Xxxxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000.
"Escrow Agreement" shall mean the Escrow Agreement, dated
April __, 2005, by and among vFinance Investments, Inc., the Company
and the Escrow Agent pursuant to which the Purchasers, prior to the
date hereof, deposited Subscription Amounts with the Escrow Agent to be
applied to the transactions contemplated hereunder.
"Evaluation Date" shall have the meaning ascribed to such
term in Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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"Exempt Issuance" means the issuance of (a) shares of Common
Stock or options to employees, officers or directors of the Holding
Company pursuant to any stock or option plan duly adopted by a majority
of the non-employee members of the Board of Directors of the Holding
Company or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the
exercise of or conversion of any Securities issued hereunder,
convertible securities, options or warrants issued and outstanding on
the First Closing Date, provided that such securities have not been
amended since the First Closing Date to increase the number of such
securities or to decrease the exercise or conversion price of any such
securities, (c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person
which is, itself or through its subsidiaries, an operating company in a
business synergistic with the business of the Holding Company and in
which the Holding Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the
Holding Company is issuing securities primarily for the purpose of
raising capital or to an entity whose primary business is investing in
securities and (d) securities issued on the same terms and condition as
the transactions consummated hereunder in a Subsequent Closing.
"First Closing" shall have the meaning ascribed to such term
in Section 2.1 hereof.
"First Closing Date" means the date of the First Closing.
"FW" means Xxxxxxx Xxxxxxxxx LLP with offices at 000
Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Intellectual Property Rights" shall have the meaning ascribed
to such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such
term in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning ascribed to
such term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such
term in Section 3.1(m).
"Memorandum" shall mean that certain Confidential Private
Placement Memorandum for Accredited Investors Only of Novelos
Therapeutics Inc., dated April __, 2005, as amended and supplemented
through each Closing Date.
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"Per Share Purchase Price" equals $1.25, subject to adjustment
for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchaser Party" shall have the meaning ascribed to such term
in Section 4.8.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the First Closing Date, among the Holding Company and
the Purchasers, in the form of Exhibit A attached hereto.
"Registration Statement" means a registration statement
meeting the requirements set forth in the Registration Rights Agreement
and covering the resale by the Purchasers of the Shares and the Warrant
Shares.
"Required Approvals" shall have the meaning ascribed to such
term in Section 3.1(e).
"Reverse Merger" means the reverse merger that the Company
shall complete by the date hereof whereby Novo Acquisition, Inc., a
wholly-owned subsidiary of the Holding Company, will merge into the
Company, pursuant to which all outstanding securities of the Company
will be exchanged for securities of the Holding Company, and the Common
Stock shall be listed on a Trading Market.
"Reverse Merger Effective Date" means such date as the Reverse
Merger becomes binding and effective on the Company and the Holding
Company.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued or issuable
to each Purchaser pursuant to this Agreement.
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"Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act.
"Subscription Amount" means, as to each Purchaser, the
aggregate amount to be paid for Shares and Warrants purchased hereunder
as specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount", in United
States Dollars and in immediately available funds, which shall not be
less than $25,000 for any Purchaser.
"Subsidiary" shall mean any subsidiary of the Holding Company,
including but not limited to, the Company.
"Trading Day" means a day on which the Common Stock is traded
on a Trading Market
"Trading Market" means the following markets or exchanges on
which the Common Stock is listed or quoted for trading on the date in
question: the OTC Bulletin Board, the "Pink Sheets" published by Pink
Sheets, LLC, the Nasdaq SmallCap Market, the American Stock Exchange,
the New York Stock Exchange or the Nasdaq National Market.
"Transaction Documents" means this Agreement, the Warrants,
the Escrow Agreement, the Registration Rights Agreement, the Memorandum
and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"vFinance" shall mean vFinance Investments, Inc., the lead
placement agent to the transactions contemplated hereunder.
"Warrants" means the Common Stock Purchase Warrants, in the
form of Exhibit B, delivered to the Purchasers at the applicable
Closing in accordance with Section 2.2(a)(iii) hereof, which warrants
shall be exercisable immediately upon issuance and until the three year
anniversary of the final Closing Date and have an exercise price per
share of Common Stock equal to $2.25, subject to adjustment as provided
therein.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On each Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Holding Company agrees to sell, and each
Purchaser agrees to purchase, in the aggregate among all Closings, severally and
not jointly with the other Purchasers, up to $11,500,000 of Shares and Warrants
(the "Maximum Amount"), of which up to $1,500,000,
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including the Bridge Proceeds as hereinafter defined, may be placed directly by
the Company, but no less than $2,000,000 in the aggregate, including in each
case the $450,000 of proceeds (the "Bridge Proceeds") of the bridge financing
completed by the Company in March 2005. There shall be one or more Closings as
set forth below (respectively, the "First Closing" and "Additional Closing(s)").
Upon satisfaction of the conditions set forth in Section 2.2, as determined by
the Company and vFinance, each Closing shall occur at the offices of FW, or such
other location as the parties shall mutually agree and the Company and vFinance
shall deliver to the Escrow Agent the Form of Escrow Release Notice (as defined
in the Escrow Agreement), duly executed.
a) First Closing. The First Closing shall be for an aggregate
Subscription Amount of up to $2,000,000 (including the Bridge Proceeds)
and shall occur within 5 Trading Days of the date hereof.
b) Additional Closings. After the First Closing, the Holding
Company may hold Additional Closings with vFinance as the sole
placement agent on the same terms, conditions and prices as the First
Closing until the Maximum Amount has been sold, provided that each
Additional Closing shall occur on or before July 31, 2005.
2.2 Deliveries.
a) At or prior to each Closing Date (except as noted),
the Company and the Holding Company shall deliver or
cause to be delivered pursuant to the written
instructions of vFinance the following:
(i) a counterpart of this Agreement duly
executed by each of the Company and the
Holding Company;
(ii) a copy of the irrevocable instructions to
the Company's transfer agent instructing the
transfer agent to deliver, on an expedited
basis, a certificate evidencing a number of
Shares equal to such Purchaser's
Subscription Amount divided by the Per Share
Purchase Price, registered in the name of
such Purchaser;
(iii) a Warrant, registered in the name of such
Purchaser, pursuant to which such Purchaser
shall have the right to acquire up to the
number of shares of Common Stock equal to
50% of the Shares to be issued to such
Purchaser;
(iv) a counterpart of the Registration Rights
Agreement duly executed by the Holding
Company;
(v) a Memorandum and one or more supplements
incorporating the terms of the Reverse
Merger;
(vi) as to the First Closing, a copy of the legal
opinion delivered by counsel to the Holding
Company and Company in connection with
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the Reverse Merger and other matters related
to the transactions contemplated by this
Agreement, in the form of Exhibit C, which
opinion shall be reasonably satisfactory to
each Purchaser, and as to each subsequent
Closing a letter from such counsel bringing
down such opinion to the date of such
Closing; and
(vii) the Lock-Up Agreement, in the form attached
hereto as Exhibit D, executed by the
stockholders identified in the Memorandum
(as to the First Closing only) and Schedule
D-1 which identifies (A) each stockholder
who will enter into such agreement, (B) the
number of shares of Common Stock for such
stockholder and (C) the time period of the
lock-up for such stockholder.
b) At or prior to each Closing Date, each Purchaser
shall deliver or cause to be delivered to FW the
following:
(i) a counterpart of this Agreement duly
executed by such Purchaser;
(ii) such Purchaser's Subscription Amount as to
the applicable Closing by wire transfer to
the Escrow Agent; and
(iii) a counterpart of the Registration Rights
Agreement duly executed by such Purchaser.
2.3 Closing Conditions.
a) The obligations of the Company and the Holding Company
hereunder in connection with each Closing are subject to the
following conditions being met:
(i) the accuracy in all material respects when made and
on the applicable Closing Date of the representations
and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to
the applicable Closing Date shall have been
performed; and
(iii) the delivery by the Purchasers of the items set forth
in Section 2.2(b) of this Agreement.
b) The respective obligations of each Purchaser hereunder in
connection with their respective Closing are subject to the
following conditions being met:
(i) the accuracy in all material respects on the
applicable Closing Date of the representations and
warranties of the Company and the Holding Company
contained herein;
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(ii) all obligations, covenants and agreements of the
Company and the Holding Company required to be
performed at or prior to the applicable Closing Date
shall have been performed;
(iii) the delivery by the Company and the Holding Company,
as applicable, of the items set forth in Section
2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with
respect to the Company or the Holding Company since
the date hereof;
(v) immediately prior to the First Closing, the Reverse
Merger shall have been consummated and evidence
thereof shall be delivered to vFinance (including,
without limitation, (A) evidence of the filing of a
certificate of merger filed with the state of
Delaware, (B) evidence of notifying (x) the Holding
Company's transfer agent, (y) Nasdaq (if required)
and (z) the CUSIP Bureau (including, if required,
obtaining a new CUSIP number of the Common Stock)
that the Reverse Merger has been consummated and (C)
such other documents as may reasonably be requested
by vFinance) and the Company shall be a wholly owned
subsidiary of the Holding Company; and
(vi) from the date hereof to the applicable Closing Date,
trading in the Common Stock shall not have been
suspended by the Commission (except for any
suspension of trading of limited duration agreed to
by the Holding Company, which suspension shall be
terminated prior to the First Closing), and, at any
time prior to the applicable Closing Date, trading in
securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or
limited, or minimum prices shall not have been
established on securities whose trades are reported
by such service, or on any Trading Market, nor shall
a banking moratorium have been declared either by the
United States or New York State authorities nor shall
there have occurred any material outbreak or
escalation of hostilities or other national or
international calamity of such magnitude in its
effect on, or any material adverse change in, any
financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Shares
at the applicable Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
in the Memorandum, the Company and the Holding Company, jointly and severally,
hereby make the representations and warranties set forth below.
(a) Subsidiaries. All of the direct and indirect subsidiaries
of the Company and the Holding Company are set forth in the Memorandum.
The Company owns, directly or indirectly, all of the capital stock or
other equity interests of each Subsidiary free and clear of any Liens,
and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase
securities. If the Company or Holding Company has no subsidiaries, then
references in the Transaction Documents to Subsidiaries will be
disregarded.
(b) Organization and Qualification. The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and
is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be,
could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the
Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company's or Holding Company's ability to perform
in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect") and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
(c) Authorization; Enforcement. Each of the Company and the
Holding Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of
the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the Holding Company and the consummation
by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and the
Holding Company, as applicable, and no further action is required by
the Company or the Holding Company in connection therewith other than
in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company
and the Holding Company and, when delivered in accordance with the
terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
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(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by each of the Company and the Holding
Company, the issuance and sale of the Shares and the consummation by
the Company and the Holding Company of the other transactions
contemplated thereby do not and will not (i) conflict with or violate
any provision of the Company's, Holding Company's or any Subsidiary's
certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company, the Holding
Company or any Subsidiary, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse
of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material
Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor
the Holding Company is required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the
execution, delivery and performance by the Company or the Holding
Company of the Transaction Documents, other than (i) the filing with
the Commission of the Registration Statement by the Holding Company and
such other filings as are required by applicable provisions of the
Exchange Act, (ii) application(s) by the Holding Company to each
applicable Trading Market for the listing of the Shares and Warrant
Shares for trading thereon in the time and manner required thereby,
(iii) the filing of Form D with the Commission and such filings as are
required to be made under applicable state securities laws and (iv) the
filing of merger certificates that are required with respect to the
Reverse Merger by applicable state law (collectively, the "Required
Approvals").
(f) Issuance of the Securities. The Shares and Warrants are
duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Holding
Company other than restrictions on transfer provided for in the
Transaction Documents. The Warrant Shares, when issued in accordance
with the terms
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of the Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Holding
Company. The Holding Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants.
(g) Capitalization. The capitalization of the Company and the
Holding Company is as set forth in the Memorandum. Neither the Company
nor the Holding Company has issued any capital stock other than as set
forth in the Memorandum. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights
to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary
is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issue and sale of the Securities will not
obligate the Holding Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Holding Company securities to adjust
the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the
Holding Company are validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws,
and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder,
the Board of Directors of the Holding Company or others is required for
the issuance and sale of the Shares. There are no stockholders
agreements, voting agreements or other similar agreements with respect
to the Holding Company's capital stock to which the Holding Company is
a party or, to the knowledge of the Holding Company, between or among
any of the Holding Company's stockholders.
(h) SEC Reports; Financial Statements. The Holding Company has
filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the Holding
Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
Reports") on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of
the Commission promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements of the Company and the Holding Company
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for the last two years or such shorter period as such companies have
been in existence are set forth in the Memorandum as to the Company and
in the registration statement on Form SB-2 filed with the Commission by
the Holding Company, and there have been no material changes in the
financial condition of either company since the dates of such
statements, except as disclosed in the Memorandum. Such financial
statements comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP"), except as may be otherwise
specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the
financial position of the Company and the Holding Company and its
consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes. Since the date of the latest audited
financial statements included in the SEC Reports as to the Holding
Company and in the Memorandum as to the Company, except as specifically
disclosed in the Memorandum, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result
in a Material Adverse Effect, (ii) neither the Company nor the Holding
Company has incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company's or the Holding Company's
financial statements pursuant to GAAP or required to be disclosed in
filings made with the Commission, (iii) neither the Company nor the
Holding Company has altered its method of accounting, (iv) neither the
Company nor the Holding Company has declared or made any dividend or
distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any
shares of its capital stock and (v) neither the Company nor the Holding
Company has issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company or Holding Company stock
option plans. The Holding Company does not have pending before the
Commission any request for confidential treatment of information.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company or the Holding Company, threatened against or affecting the
Company, the Holding Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely
affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result
in a Material Adverse Effect. Neither the Company, the Holding Company
nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach
of
12
fiduciary duty. There has not been, and to the knowledge of the Company
or the Holding Company, there is not pending or contemplated, any
investigation by the Commission involving the Company, the Holding
Company or any current or former director or officer of the Company or
the Holding Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement
filed by the Holding Company or any Subsidiary under the Exchange Act
or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company which could reasonably be expected to result
in a Material Adverse Effect.
(l) Compliance. Except as disclosed in the Memorandum, neither
the Company nor the Holding Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company, the Holding Company or any
Subsidiary under), nor has the Company, the Holding Company or any
Subsidiary received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or
any other agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and
local laws applicable to its business except in each case as could not
have a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in
Schedule 3.1(m), except where the failure to possess such permits could
not have or reasonably be expected to result in a Material Adverse
Effect ("Material Permits"), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have
good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for
Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment
of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and
the Subsidiaries are in compliance.
13
(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the
Memorandum and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights").
Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of
any of the Intellectual Property Rights of others.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To the
best of Company's knowledge, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set
forth in the Memorandum, none of the officers or directors of the
Company or the Holding Company and, to the knowledge of the Company and
the Holding Company, none of the employees of the Company or the
Holding Company is presently a party to any transaction with the
Company, the Holding Company or any Subsidiary (other than for services
as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services
to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company or the Holding
Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee
or partner, in each case in excess of $60,000 other than (i) for
payment of salary or consulting fees for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company or the
Holding Company and (iii) for other employee benefits, including stock
option agreements under any stock option plan of the Company or the
Holding Company.
(r) Internal Accounting Controls. The Holding Company is in
material compliance with all provisions of the Sarbanes Oxley Act of
2002 which are applicable to it as of the Closing Date. The Company,
the Holding Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and
to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
14
(s) Certain Fees. Except as described in the Memorandum, no
brokerage or finder's fees or commissions are or will be payable by the
Company or the Holding Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by this Agreement.
The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement.
(t) Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and
sale of the Securities by the Holding Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder
does not contravene the rules and regulations of the Trading Market.
(u) Investment Company. The Holding Company is not, and is not
an Affiliate of, and immediately after receipt of payment for the
Shares, will not be or be an Affiliate of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
The Holding Company shall conduct its business in a manner so that it
will not become subject to the Investment Company Act.
(v) Registration Rights. Except as described in the Memorandum
and other than each of the Purchasers, no Person has any right to cause
the Holding Company to effect the registration under the Securities Act
of any securities of the Holding Company.
(w) Listing and Maintenance Requirements. The Holding Company
is subject to the reporting requirements of Section 15(d) of the
Exchange Act, and the Holding Company has taken no action designed to,
or which to its knowledge is likely to have the effect of, terminating
such reporting obligation of the Common Stock under the Exchange Act
nor has the Holding Company received any notification that the
Commission is contemplating any action that would terminate such
obligations. The Holding Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the
Holding Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Holding Company is, and has no
reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such listing and maintenance
requirements.
15
(x) Application of Takeover Protections. The Holding Company
and its Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Holding
Company's Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the
Holding Company fulfilling their obligations or exercising their rights
under the Transaction Documents, including without limitation as a
result of the Holding Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
(y) Disclosure. All disclosure provided to the Purchasers
regarding the Company, its business, the Holding Company, its business
and the transactions contemplated hereby, including the Memorandum,
furnished by or on behalf of the Company or the Holding Company with
respect to the representations and warranties made herein are true and
correct with respect to such representations and warranties and do 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 light of the circumstances under which they were made, not
misleading.
(z) No Integrated Offering. Assuming the accuracy of the
Purchasers' representations and warranties set forth in Section 3.2,
neither the Company nor the Holding 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 security or solicited any
offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the
Company or the Holding Company for purposes of the Securities Act or
any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of any Trading Market on
which any of the securities of the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company
and the Holding Company as of each Closing Date after giving effect to
the receipt by the Holding Company of the proceeds from the sale of the
Securities hereunder, (i) the Company's and the Holding Company's fair
saleable value of its assets exceeds the amount that will be required
to be paid on or in respect of the Company's and Holding Company's
existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's and Holding Company's
assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed
to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the
Company and the Holding Company, and projected capital requirements and
capital availability thereof; and (iii) the current cash flow of the
Company and the Holding Company, together with the proceeds the Company
and the Holding Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash,
would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company and the Holding
Company does not intend to incur debts beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). Neither the Company
nor the Holding Company has knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the last Closing Date. The financial
statements described in Section 3.1(h) hereof set forth as of the dates
thereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary
has commitments. For the purposes of this Agreement, "Indebtedness"
shall mean (a) any liabilities for borrowed money or amounts owed in
excess of $50,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and
other contingent obligations in respect of Indebtedness of others,
whether or not the same are or should be reflected in the Company's and
Holding Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
and (c) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP.
Neither the Company nor any Subsidiary is in default with respect to
any Indebtedness.
16
(bb) Tax Status. Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company, the Holding Company
and each Subsidiary has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and neither the Company nor the Holding Company
has any knowledge of a tax deficiency which has been asserted or
threatened against the Company, the Holding Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor the
Holding Company nor, assuming the accuracy of the representations of
the Purchasers in Section 3.2(e) hereof and that vFinance has not and
has not permitted any broker participating in the transactions
contemplated by this Agreement to engage in a general solicitation or
general advertising, any person acting on behalf of the Company or the
Holding Company has offered or sold any of the Shares by any form of
general solicitation or general advertising. The Company and the
Holding Company has offered the Shares for sale only to the Purchasers
and certain other "accredited investors" within the meaning of Rule 501
under the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company nor the
Holding Company nor to the knowledge of the Company or the Holding
Company, any agent or other person acting on behalf of the Company or
Holding Company, has (i) directly or indirectly, used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose fully any contribution
made by the Company or the Holding Company (or made by any person
acting on its behalf of which the Company or the Holding Company is
aware) which is in violation of law, or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.
17
(ee) Accountants. The Company's and Holding Company's
accountants are identified in their opinions on the financial
statements described in Section 3.1(h) hereof. To the Company's
knowledge and the Holding Company' knowledge, such accountants, who the
Company expects will express their opinion with respect to the
financial statements to be included in the Holding Company's upcoming
financial statements and in the Registration Statement, are a
registered public accounting firm as required by the Securities Act.
(ff) Acknowledgment Regarding Purchasers' Purchase of Shares.
Each of the Company and the Holding Company acknowledges and agrees
that each of the Purchasers is acting solely in the capacity of an
arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby. The Company and the Holding
Company further acknowledge that no Purchaser is acting as a financial
advisor or fiduciary of the Company or the Holding Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of
their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental
to the Purchasers' purchase of the Shares. The Company and the Holding
Company further represents to each Purchaser that the Company's and the
Holding Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the transactions contemplated
hereby by the Company, the Holding Company and their representatives.
(gg) Completion of Reverse Merger. The Reverse Merger has been
consummated on or before the date hereof. All documents required to be
delivered in connection with the Reverse Merger have been delivered and
were duly authorized and represent valid and binding obligations of the
parties thereto in accordance with their respective terms. All
conditions to the closing of the Reverse Merger were satisfied and no
conditions set forth in any agreement required to be delivered in
connection therewith have been waived. A copy of all consents,
authorizations, orders, notices, filings and registrations made with
any court or other federal, state, local or other governmental
authority in connection with the Reverse Merger are attached hereto as
Schedule 3.1(ff). All securities of the Holding Company issued to the
former security holders of the Company in connection with the Reverse
Merger were duly authorized, validly issued, fully paid and
nonassessable. Such issuances were exempt from the registration
requirements of the Securities Act and applicable state securities
laws. As of the date hereof and after giving effect to the Reverse
Merger, the Company is a wholly-owned subsidiary of the Holding
Company. After giving effect to the Reverse Merger, there are no shares
of capital stock of the Company outstanding or securities, rights or
obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of capital stock of
the Company other than 100shares of common stock which are owned by the
Holding Company.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the applicable Closing Date to the Company and the Holding
Company as follows:
18
(a) Organization; Authority. Such Purchaser, if not an
individual, is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into
and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by such Purchaser of the
transactions contemplated by this Agreement, if such Purchaser is not
an individual, have been duly authorized by all necessary corporate or
similar action on the part of such Purchaser. Each Transaction Document
to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof,
will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(b) Own Account. Such Purchaser understands that the
Securities are "restricted securities" and have not been registered
under the Securities Act or any applicable state securities law and is
acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such
Securities in violation of the Securities Act or any applicable state
securities law and has no arrangement or understanding with any other
persons regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law.
Such Purchaser is acquiring the Securities hereunder in the ordinary
course of its business. Such Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute
any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants, it will be an "accredited investor"
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under
the Securities Act. Such Purchaser is not required to be registered as
a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
19
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality. Other than the
transaction contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including
Short Sales (but not including the location and/or reservation of
borrowable shares of Common Stock), in the securities of the Holding
Company during the period commencing from the time that such Purchaser
first received the identity of the Holding Company to the date hereof
("Discussion Time"). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets
and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of
such Purchaser's assets, the representation set forth above shall only
apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this
Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including
the existence and terms of this transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement
or Rule 144, to the Holding Company or to an affiliate of a Purchaser
or in connection with a pledge as contemplated in Section 4.1(b), the
Holding Company may require the transferor thereof to provide to the
Holding Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Holding Company, the form and substance of
which opinion shall be reasonably satisfactory to the Holding Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of
transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 4.1(b), of a legend on any of the Securities
in the following form:
20
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT.
The Holding Company acknowledges and agrees that a Purchaser
may from time to time pledge pursuant to a bona fide margin agreement
with a registered broker-dealer or grant a security interest in some or
all of the Securities to a financial institution that is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the
Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not
be subject to approval of the Holding Company and no legal opinion of
legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required
of such pledge. At the appropriate Purchaser's expense, the Holding
Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if
the Securities are subject to registration pursuant to the Registration
Rights Agreement, the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the
list of Selling Stockholders thereunder.
(c) Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b)), (i)(A) as to any Purchaser who is an institutional investor,
with a Subscription Amount greater than $200,000 on the respective
Closing Date, while a registration statement (including the
Registration Statement) covering the resale of such security which is
effective under the Securities Act and (B) as to all other Purchasers,
following a sale pursuant to a registration statement (including the
Registration Statement) covering the resale of such security which is
effective under the Securities Act, or (ii) following any sale of such
Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares
or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the Staff of the Commission). The Holding Company shall cause
its counsel to issue a legal opinion to the Holding Company's transfer
agent promptly after the Effective Date if
21
required by the Holding Company's transfer agent to effect the removal
of the legend hereunder. If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement
to cover the resale of the Warrant Shares, such Warrant Shares shall be
issued free of all legends. The Holding Company agrees that at such
time as such legend is no longer required under this Section 4.1(c), it
will, no later than three Trading Days following the delivery by a
Purchaser to the Holding Company or the Holding Company's transfer
agent of a certificate representing Shares or Warrant Shares, as the
case may be, issued with a restrictive legend (such date, the "Legend
Removal Date"), deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all
restrictive and other legends. The Holding Company may not make any
notation on its records or give instructions to any transfer agent of
the Holding Company that enlarge the restrictions on transfer set forth
in this Section. Certificates for Securities subject to legend removal
hereunder shall be transmitted by the transfer agent of the Holding
Company to the Purchasers by crediting the account of the Purchaser's
prime broker with the Depository Trust Company System.
(d) In addition to such Purchaser's other available remedies,
such Purchaser shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1
is predicated upon the Holding Company's reliance that the Purchaser
will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.
(f) Until the one year anniversary of the Effective Date, the
Holding Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent
of the Purchasers holding a majority in interest of the Shares;
provided, however, the Holding Company may undertake a reverse or
forward stock split or reclassification of the Common Stock as
described in the Memorandum.
4.2 Furnishing of Information. So long as any Purchaser owns
Securities, the Holding 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 Holding Company after the date hereof pursuant to
the Exchange Act. As long as any Purchaser owns Securities, if the Holding
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Holding Company further covenants that it will
take such further action as any holder of Securities may reasonably request, all
to the extent required from time to time to enable such Person to sell such
Securities without registration under the Securities Act within the limitation
of the exemptions provided by Rule 144.
22
4.3 Integration. Neither the Company nor the Holding Company shall
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities
to the Purchasers or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market.
4.4 Securities Laws Disclosure; Publicity. The Holding Company shall,
within one Trading Day of the Reverse Merger Effective Date, issue a press
release, reasonably acceptable to vFinance disclosing the material terms of the
transactions contemplated hereby and the Reverse Merger, and shall, within 4
Trading Days, file a Current Report on Form 8-K attaching the Transaction
Documents thereto (including all exhibits and schedules to the Transaction
Documents). As of the date of the filing of the Registration Statement, the
Holding Company shall make any such disclosures to the extent necessary such
that none of the Purchasers or their agent or counsel, except with such
Purchaser's written consent, are in possession of any information that
constitutes or might constitute material, non-public information. The Company
and vFinance shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
the registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company, the Holding Company or, to the knowledge of the Company or the Holding
Company, any other Person that any Purchaser is an "Acquiring Person" under any
shareholder rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company or the Holding Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company, the Holding Company and the Purchasers. The
Holding Company shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.
4.6 Non-Public Information. The Holding Company covenants and agrees
that neither it nor any other Person acting on its behalf will provide any
Purchaser or its agents or counsel with any information that the Holding Company
believes constitutes material non-public information, unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information. The Holding Company understands and confirms that
each Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Holding Company.
23
4.7 Use of Proceeds. Except as set forth in the Memorandum, the Company
shall use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company's
debt (other than payment of trade payables in the ordinary course of the
Company's business and prior practices), to redeem any Common Stock or Common
Stock Equivalents or to settle any outstanding litigation.
4.8 Indemnification of Purchasers. Subject to the provisions of this
Section 4.8, the Company and the Holding Company, severally and jointly, will
indemnify and hold the Purchasers and their directors, officers, shareholders,
partners, employees and agents (each, a "Purchaser Party") harmless from any and
all losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company or
the Holding Company in this Agreement or in the other Transaction Documents or
(b) any action instituted against a Purchaser, or any of them or their
respective Affiliates, by any stockholder of the Company or the Holding Company
who is not an Affiliate of such Purchaser, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Purchaser's representations, warranties or covenants
under the Transaction Documents or any agreements or understandings such
Purchaser may have with any such stockholder or any violations by the Purchaser
of state or federal securities laws or any conduct by such Purchaser which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company or Holding Company in writing, and the Company or
Holding Company shall have the right to assume the defense thereof with counsel
of its own choosing. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company or the Holding Company in writing, (ii) the Company or
Holding Company has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company or the Holding Company and the
position of such Purchaser Party, provided, however, that the Holding Company
and Company shall not be liable pursuant to this sentence for the reasonable
fees and expenses of more than one set of counsel and, if applicable, one set of
local counsel, in any single action or group of related actions arising out of
substantially the same set of operative facts. The Company and the Holding
Company will not be liable to any Purchaser Party under this Agreement (i) for
any settlement by a Purchaser Party effected without the Company's or the
Holding Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by the
Purchasers in this Agreement or in the other Transaction Documents.
4.9 Reservation of Common Stock. The Holding Company shall continue to
reserve and keep available at all times, free of preemptive rights, a sufficient
number of shares of Common Stock for the purpose of enabling the Holding Company
to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
exercise of the Warrants.
24
4.10 Listing of Common Stock. The Holding Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Holding Company's
reporting, filing and other obligations under the bylaws or rules of the Trading
Market. The Holding Company further agrees, if the Holding Company applies to
have the Common Stock traded on any other Trading Market, it will include in
such application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and Warrant Shares to be
listed on such other Trading Market as promptly as possible.
4.11 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and the Holding Company and negotiated separately
by each Purchaser, and is intended to treat for the Company and the Holding
Company the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.
4.12 Subsequent Equity Sales.
(a) From the date hereof until 60 days after the Effective
Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, the 60 day
period set forth in this Section 4.12 shall be extended for the number
of Trading Days during such period in which (i) trading in the Common
Stock is suspended by any Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by
the Purchasers for the resale of the Shares and Warrant Shares;
provided, however, this Section 4.12(a) shall not apply, from August 1,
2005 until the earlier of (i) the Filing Date (as defined in the
Registration Rights Agreement) and (ii) the actual filing date of the
initial Registration Statement, for any issuance of shares of Common
Stock or Common Stock Equivalents, in the aggregate, equal to the
difference between $5,000,000 and the aggregate Subscription Amounts
for the Closings.
(b) From the date hereof until the two year anniversary of the
date hereof, the Company shall be prohibited from effecting or entering
into an agreement to effect any Subsequent Financing involving a
"Variable Rate Transaction". The term "Variable Rate Transaction" shall
mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of
Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of
or quotations for the shares of Common Stock at any time after the
initial issuance of such debt or equity securities, or (B) with a
conversion, exercise or exchange price that is subject to being reset
at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the
market for the Common Stock or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price. Any Purchaser
shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any
right to collect damages.
25
(c) Notwithstanding the foregoing, this Section 4.12 shall not
apply in respect of (i) an Exempt Issuance, except that no Variable
Rate Transaction shall be an Exempt Issuance.
4.13 Short Sales and Confidentiality. Each Purchaser severally and not
jointly with the other Purchasers covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales during the period after the Discussion Time and ending at the time
that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.4. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Holding Company as
described in Section 4.4, such Purchaser will maintain, the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock "against the box" prior to the Effective Date of the
Registration Statement with the Securities is a violation of Section 5 of the
Securities Act, as set forth in Item 65, Section 5 under Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.4. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.14 Board of Directors. The Holding Company shall cause one designee
from vFinance to serve on the Board of Directors, the Compensation Committee and
the Audit Committee of the Holding Company until the earlier of (a) the date of
the next annual shareholder meeting following the date hereof and (b) May 1,
2006.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company, the Holding Company and the other
Purchasers, by written notice to the other parties, if the First Closing has not
been consummated on or before [June 15,] 2005; provided, however, that no such
termination will affect the right of any party to xxx for any breach by the
other party (or parties).
26
5.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Holding Company shall pay all
stamp and other taxes and duties levied in connection with the delivery of the
Securities.
5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
5.6 Headings The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
27
5.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither the Company nor the Holding Company may assign this Agreement or any
rights or obligations hereunder without the prior written consent of each
Purchaser. Any Purchaser may assign any or all of its rights under this
Agreement to any Person to whom such Purchaser assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions hereof that apply to the
"Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.
5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
5.10 Survival. The representations and warranties herein shall survive
each Closing and delivery of the Shares and Warrant Shares.
5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
28
5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Documents and the Company or the Holding
Company does not timely perform its related obligations within the periods
therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company or the Holding
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Holding
Company shall issue or cause to be issued in exchange and substitution for and
upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Holding Company of such loss, theft or destruction and
customary and reasonable indemnity and bond, if requested. The applicants for a
new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Holding Company will be entitled to seek specific performance
under the Transaction Documents. The parties agree that monetary damages may not
be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. For reasons of
administrative convenience only, Purchasers and their respective counsel have
chosen to communicate with the Company and the Holding Company through FW. FW
does not represent all of the Purchasers but only vFinance. The Company and the
Holding Company have elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and the Holding Company
and not because it was required or requested to do so by the Purchasers.
29
5.17 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)
30
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
NOVELOS THERAPEUTICS, INC. Address for Notice:
-------------------
By:
-------------------------------------------
Name:
Title:
With a copy to (which shall not constitute notice):
COMMON HORIZONS, INC. Address for Notice:
-------------------
By:
-------------------------------------------
Name:
Title:
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
31
[PURCHASER SIGNATURE PAGES TO NOVELOS SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
Name of Purchaser:
-------------------------------------------------------------
Signature of Authorized Signatory of Purchaser:
-------------------------------
Name of Authorized Signatory:
-------------------------------------------------
Title of Authorized Signatory:
------------------------------------------------
Email Address of Purchaser:
----------------------------------------------------
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount (not less than $25,000):
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
32
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May ___, 2005, among Common Horizons, Inc., a Nevada
corporation (the "Company"), and the purchasers signatory hereto (each such
purchaser is a "Purchaser" and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
CAPITALIZED TERMS USED AND NOT OTHERWISE DEFINED HEREIN THAT ARE
DEFINED IN THE PURCHASE AGREEMENT SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN
THE PURCHASE AGREEMENT. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have the meaning set forth in Section 6(d).
"Effectiveness Date" means, with respect to the Registration
Statement required to be filed hereunder, the earlier of (a) the 180th
calendar day following the date of the final Closing, and (b) the fifth
Trading Day following the date on which the Company is notified by the
Commission that the Registration Statement will not be reviewed or is
no longer subject to further review and comments.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 2(b).
"Event Date" shall have the meaning set forth in Section 2(b).
"Filing Date" means, with respect to the Registration
Statement required to be filed hereunder, the 60th calendar day
following the date of the final Closing.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
1
"Plan of Distribution" shall have the meaning set forth in
Section 2(a).
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means all of (i) the Shares issuable,
(ii) the Warrant Shares issuable, and (iii) shares issuable to the
placement agent pursuant to the warrant issuable to such placement
agent, together with any shares of Common Stock issued or issuable upon
any stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing.
"Registration Statement" means the registration statements
required to be filed hereunder, including (in each case) the
Prospectus, amendments and supplements to the registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in the registration statement.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such
Rule.
"Rule 424" means Rule 424 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such
Rule.
"Selling Shareholder Questionnaire" shall have the meaning set
forth in Section 3(a).
2
2. Registration
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission the Registration Statement covering the resale of all
of the Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement required hereunder shall be on
Form S-3 (except if the Company is not then eligible to use such form, in which
case it may register for resale the Registrable Securities on Form SB-2). The
Registration Statement required hereunder shall contain (except if otherwise
directed by the Holders) substantially the "Plan of Distribution" attached
hereto as Annex A. Subject to the terms of this Agreement, the Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event not later than the Effectiveness Date, and shall use its best
efforts to keep the Registration Statement continuously effective under the
Securities Act until the date when all Registrable Securities covered by the
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to
a written opinion letter to such effect, addressed and acceptable to the
Company's transfer agent and the affected Holders (the "Effectiveness Period").
The Company shall telephonically request effectiveness of a Registration
Statement as of 5:00 pm Eastern Time on a Trading Day. The Company shall
immediately notify the Holders via facsimile of the effectiveness of the
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission, which shall be the date requested
for effectiveness of the Registration Statement. The Company shall, by 9:30 am
Eastern Time on the Trading Day after the Effective Date (as defined in the
Purchase Agreement), file a Form 424(b)(5) with the Commission.
(b) If: (i) a Registration Statement is not filed on or prior to
the Filing Date, or (ii) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 461 promulgated under the Securities
Act, within five Trading Days of the date that the Company is notified (orally
or in writing, whichever is earlier) by the Commission that a Registration
Statement will not be "reviewed," or is not subject to further review, or (iii)
prior to the date when such Registration Statement is first declared effective
by the Commission, the Company fails to file a pre-effective amendment and
otherwise respond in writing to comments made by the Commission in respect of
such Registration Statement within 20 business days after the receipt of
comments by or notice from the Commission that such amendment is required in
order for a Registration Statement to be declared effective, or (iv) a
Registration Statement filed or required to be filed hereunder is not declared
effective by the Commission on or before the Effectiveness Date, or (v) after a
Registration Statement is first declared effective by the Commission, it ceases
for any reason to remain continuously effective as to all Registrable Securities
for which it is required to be effective, or the Holders are not permitted to
utilize the Prospectus therein to resell such Registrable Securities, for in any
such case 10 consecutive calendar days but no more than an aggregate of 15
calendar days during any 12 month period (which need not be consecutive Trading
Days)(any such failure or breach being referred to as an "Event," and for
purposes of clause (i) or (iv) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 20 business day
period is exceeded, or for purposes of clause (v) the date on which such 10 or
15 calendar day period, as applicable, is exceeded being referred to as "Event
Date"), then in addition to any other rights the Holders may have hereunder or
under applicable law, then, on each such Event Date and on each monthly
anniversary of each such Event Date (if the applicable Event shall not have been
cured by such date) until the applicable Event is cured, the Company shall pay
to each Holder an amount in cash, as partial liquidated damages and not as a
penalty, equal to 2.0% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement for any Registrable Securities then held by
such Holder. If the Company fails to pay any partial liquidated damages pursuant
to this Section in full within seven days after the date payable, the Company
will pay interest thereon at a rate of 15% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such partial liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro-rata basis for any
portion of a month prior to the cure of an Event.
3
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Not less than five Trading Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto, the Company shall furnish to the Holders with a Subscription Amount at
least equal to $200,000 copies of all such documents proposed to be filed
(including documents incorporated or deemed incorporated by reference to the
extent requested by such Person) which documents will be subject to the review
of such Holders. Each Holder agrees to furnish to the Company a completed
Questionnaire in the form attached to this Agreement as Annex B (a "Selling
Shareholder Questionnaire") within 5 Trading Days of request of the Company.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the Prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424; (iii) respond as
promptly as reasonably possible to any comments received from the Commission
with respect to the Registration Statement or any amendment thereto and, as
promptly as reasonably possible, upon request, provide the Holders true and
complete copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold as promptly
as reasonably possible (i) with respect to the Registration Statement or any
post~effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the Registration Statement or Prospectus; (iii) of the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable
4
Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (v) of the occurrence of any event or passage
of time that makes the financial statements included in the Registration
Statement ineligible for inclusion therein or any statement made in the
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) Furnish to each Holder, without charge, at least one conformed copy
of the Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(f) Promptly deliver to each Holder, without charge, as many copies of
the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request in
connection with resales by the Holder of Registrable Securities. Subject to the
terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving on any notice pursuant to Section 3(c).
(g) If NASDR Rule 2710 requires any broker-dealer to make a filing
prior to executing a sale by a Holder, make an Issuer Filing with the NASDR,
Inc. Corporate Financing Department pursuant to NASDR Rule 2710(b)(10)(A)(i) and
respond within five Trading Days to any comments received from NASDR in
connection therewith, and pay the filing fee required in connection therewith.
(h) Prior to any resale of Registrable Securities by a Holder, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from the Registration or qualification) of such Registrable Securities
for the resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep the Registration Statement or qualification (or exemption
therefrom) effective during the
5
Effectiveness Period and to do any and all other acts or things reasonably
necessary to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.
(i) If requested by the Holders, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to the
Registration Statement, which certificates shall be free, to the extent
permitted by the Purchase Agreement, of all restrictive legends, and to enable
such Registrable Securities to be in such denominations and registered in such
names as any such Holders may request.
(j) Upon the occurrence of any event contemplated by Section 3(c)(v),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. If the
Company notifies the Holders in accordance with clauses (ii) through (v) of
Section 3(c) above to suspend the use of any Prospectus until the requisite
changes to such Prospectus have been made, then the Holders shall suspend use of
such Prospectus. The Company will use its best efforts to ensure that the use of
the Prospectus may be resumed as promptly as is practicable. The Company shall
be entitled to exercise its right under this Section 3(i) to suspend the
availability of a Registration Statement and Prospectus, subject to the payment
of partial liquidated damages pursuant to Section 2(b), for a period not to
exceed 60 days (which need not be consecutive days) in any 12 month period.
(k) Comply with all applicable rules and regulations of the Commission.
(l) The Company may require each selling Holder to furnish to the
Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the person
thereof that has voting and dispositive control over the Shares. During any
periods that the Company is unable to meet its obligations hereunder with
respect to the registration of the Registrable Securities solely because any
Holder fails to furnish such information within three Trading Days of the
Company's request, any liquidated damages that are accruing at such time as to
such Holder only shall be tolled and any Event that may otherwise occur solely
because of such delay shall be suspended as to such Holder only, until such
information is delivered to the Company.
4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and
6
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with the Trading Market on which the Common Stock
is then listed for trading, (B) in compliance with applicable state securities
or Blue Sky laws reasonably agreed to by the Company in writing (including,
without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the Registrable Securities
for investment under the laws of such jurisdictions as requested by the Holders)
and (C) if not previously paid by the Company in connection with an Issuer
Filing, with respect to any filing that may be required to be made by any broker
through which a Holder intends to make sales of Registrable Securities with NASD
Regulation, Inc. pursuant to the NASD Rule 2710, so long as the broker is
receiving no more than a customary brokerage commission in connection with such
sale, (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that (i) such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by such Holder
expressly for use therein, or to the extent that such information relates to
such Holder or
7
such Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
of an event of the type specified in Section 3(c)(ii)-(vi), the use by such
Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior to
the receipt by such Holder of the Advice contemplated in Section 6(d). The
Company shall notify the Holders promptly of the institution of any Proceeding
arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, to the extent arising out of or based solely upon: (x) such Holder's
failure to comply with the prospectus delivery requirements of the Securities
Act or (y) any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading (i) to the extent, but only to the extent, that such untrue statement
or omission is contained in any information so furnished in writing by such
Holder to the Company specifically for inclusion in the Registration Statement
or such Prospectus or (ii) to the extent that (1) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement (it being understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated in Section 6(d). In no event shall the liability of
any selling Holder hereunder be greater in amount than the dollar amount of the
net proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall have the right to assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have prejudiced
the Indemnifying Party.
8
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall reasonably believe that a material conflict of interest is likely to exist
if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of one
separate counsel shall be at the expense of the Indemnifying Party, provided,
however, that the Indemnifying Party shall in no event be liable for the
reasonable fees and expenses of more than one legal counsel and, if applicable,
one local counsel in any single action or group of related actions arising out
of the same set of operative facts). The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
Subject to the terms of this Agreement, all reasonable fees and
expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten Trading Days of written notice
thereof to the Indemnifying Party; provided, that the Indemnified Party shall
promptly reimburse the Indemnifying Party for that portion of such fees and
expenses applicable to such actions for which such Indemnified Party is not
entitled to indemnification hereunder, determined based upon the relative faults
of the parties.
(d) Contribution. If the indemnification under Section 5(a) or 5(b) is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless for any Losses, then each Indemnifying Party shall contribute to the
amount paid or payable by such Indemnified Party, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
9
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in this Agreement, any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, except in the case of fraud by
such Holder.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder,
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
seek specific performance of its rights under this Agreement. The Company and
each Holder agree that monetary damages may not provide adequate compensation
for any losses incurred by reason of a breach by it of any of the provisions of
this Agreement.
(b) No Piggyback on Registrations. Except as set forth on Schedule 6(b)
attached hereto, neither the Company nor any of its security holders (other than
the Holders in such capacity pursuant hereto) may include securities of the
Company in a Registration Statement other than the Registrable Securities. No
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company. The Company shall not file any
other registration statements until the Registration Statement required
hereunder is declared effective by the Commission, provided that this Section
6(b) shall not prohibit the Company from filing amendments to registration
statements already filed.
(c) Compliance. Each Holder covenants and agrees that it will comply
with the prospectus delivery requirements of the Securities Act as applicable to
it in connection with sales of Registrable Securities pursuant to the
Registration Statement.
10
(d) Discontinued Disposition. Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Section 3(c), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement, or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company will use its best efforts to ensure that the use of the Prospectus may
be resumed as promptly as it practicable. The Company agrees and acknowledges
that any periods during which the Holder is required to discontinue the
disposition of the Registrable Securities hereunder shall be subject to the
provisions of Section 2(b).
(e) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to each Holder a written notice of
such determination and, if within fifteen days after the date of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights.
(f) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and each
Holder of the then outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(g) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set forth
in the Purchase Agreement.
(h) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
all of the Holders of the then-outstanding Registrable Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.
11
(i) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any of
its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except as set forth on Schedule 6(i),
neither the Company nor any of its subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of its securities
to any Person that have not been satisfied in full.
(j) Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(k) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined with the
provisions of the Purchase Agreement.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(n) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(o) Independent Nature of Holders' Obligations and Rights. The
obligations of each Holder hereunder are several and not joint with the
obligations of any other Holder hereunder, and no Holder shall be responsible in
any way for the performance of the obligations of any other Holder hereunder.
Nothing contained herein or in any other agreement or document delivered at any
closing, and no action taken by any Holder pursuant hereto or thereto, shall be
deemed to constitute the Holders as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Holders
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Holder shall be entitled to
protect and enforce its rights, including without limitation the rights arising
out of this Agreement, and it shall not be necessary for any other Holder to be
joined as an additional party in any proceeding for such purpose.
12
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
COMMON HORIZONS, INC.
By:
---------------------------------------
Name:
Title:
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
13
[SIGNATURE PAGE OF HOLDERS TO NOVELOS RRA]
Name of Holder:
----------------------------------------
Signature of Authorized Signatory of Holder:
-----------
Name of Authorized Signatory:
---------------------------
Title of Authorized Signatory:
--------------------------
[SIGNATURE PAGES CONTINUE]
14
Plan of Distribution
Each Selling Stockholder (the "Selling Stockholders") of the common
stock ("Common Stock") of Common Horizons, Inc., a Nevada corporation (the
"Company") and any of their pledgees, assignees and successors-in-interest may,
from time to time, sell any or all of their shares of Common Stock on the
Trading Market or any other stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. A Selling Stockholder may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
15
In connection with the sale of the Common Stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
Common Stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the Common Stock short and deliver these
securities to close out their short positions, or loan or pledge the Common
Stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each Selling Stockholder has
informed the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the Common
Stock.
The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each Selling Stockholder has advised us that they have not entered into any
written or oral agreements, understandings or arrangements with any underwriter
or broker-dealer regarding the sale of the resale shares. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the Selling Stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(e) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the resale shares may not simultaneously
engage in market making activities with respect to the Common Stock for a period
of two business days prior to the commencement of the distribution. In addition,
the Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of shares of the Common Stock
by the Selling Stockholders or any other person. We will make copies of this
prospectus available to the Selling Stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale.
16
ANNEX B
COMMON HORIZONS, INC.
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial owner of common stock, par value $0.001 per
share (the "Common Stock"), of Common Horizons, Inc., a Nevada corporation (the
"Company"), (the "Registrable Securities") understands that the Company has
filed or intends to file with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement, dated as of May
__, 2005 (the "Registration Rights Agreement"), among the Company and the
Purchasers named therein. A copy of the Registration Rights Agreement is
available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Registration Rights Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby elects to include the Registrable Securities owned
by it and listed below in Item 3 (unless otherwise specified under such Item 3)
in the Registration Statement.
17
The undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full Legal Name of Selling Securityholder
--------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a)
above) through which Registrable Securities Listed in Item 3
below are held:
--------------------------------------------------------------
(c) Full Legal Name of Natural Control Person (which means a
natural person who directly or indirectly alone or with others
has power to vote or dispose of the securities covered by the
questionnaire):
--------------------------------------------------------------
2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Telephone:
----------------------------------------------------------------------
Fax:
---------------------------------------------------------------------------
Contact Person:
----------------------------------------------------------------
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
(a) Type and Number of Registrable Securities beneficially owned:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
18
4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
(b) If "yes" to Section 4(a), did you receive your Registrable
Securities as compensation for investment banking services to
the Company.
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should
be identified as an underwriter in the Registration Statement.
(c) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(d) If you are an affiliate of a broker-dealer, do you certify
that you bought the Registrable Securities in the ordinary
course of business, and at the time of the purchase of the
Registrable Securities to be resold, you had no agreements or
understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be
identified as an underwriter in the Registration Statement.
5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE SELLING
SECURITYHOLDER.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other
than the Registrable Securities listed above in Item 3.
(a) Type and Amount of Other Securities beneficially owned by the
Selling Securityholder:
--------------------------------------------------------------
--------------------------------------------------------------
19
6. RELATIONSHIPS WITH THE COMPANY:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of
5% of more of the equity securities of the undersigned) has held any
position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three
years.
State any exceptions here:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
The undersigned agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein that may occur
subsequent to the date hereof at any time while the Registration Statement
remains effective.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the
inclusion of such information in the Registration Statement and the related
prospectus and any amendments or supplements thereto. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of the Registration Statement and
the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: Beneficial Owner:
-------------------------------- ---------------
By:
----------------------------
Name:
Title:
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND
RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:
20
EXHIBIT B
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
COMMON HORIZONS, INC.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies
that, for value received, (the "Holder"), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of business on the three year anniversary of the
final Closing Date (the "Termination Date") but not thereafter, to subscribe for
and purchase from Common Horizons, Inc., a Nevada corporation (the "Company"),
up to shares (the "Warrant Shares") of Common Stock, par value $0.001 per
share, of the Company (the "Common Stock"). The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the "Purchase Agreement"), dated May ____, 2005, among
Novelos Therapeutics, Inc., the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before
the Termination Date by delivery to the Company of a duly executed
facsimile copy of the Notice of Exercise Form annexed hereto (or such
other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder
appearing on the books of the Company); provided, however, within 5
Trading Days of the date said Notice of Exercise is delivered to the
Company, the Holder shall have surrendered this Warrant to the Company
and the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier's
check drawn on a United States bank.
1
b) Exercise Price. The exercise price of the Common Stock
under this Warrant shall be $2.25, subject to adjustment hereunder (the
"Exercise Price").
c) Cashless Exercise. If at any time after one year from the
date of issuance of this Warrant there is no effective Registration
Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also
be exercised at such time by means of a "cashless exercise" in which
the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)]
by (A), where:
(A) = the Closing Price on the Trading Day immediately
preceding the date of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise
of this Warrant in accordance with the terms of this
Warrant by means of a cash exercise rather than a
cashless exercise.
The Company agrees that it will give the Holder written notice
that the Warrant is about to expire not less than thirty and not more
than sixty days before the Termination Date.
d) Exercise Limitations.
i. Holder's Restrictions. At any time after the
Common Stock is registered under Section 12 of the Exchange
Act, the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 2(c) or
otherwise, to the extent that after giving effect to such
issuance after exercise, the Holder (together with the
Holder's affiliates), as set forth on the applicable Notice of
Exercise, would beneficially own in excess of 4.99% of the
number of shares of the Common Stock outstanding immediately
after giving effect to such issuance. For purposes of the
foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Shares
2
or Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set
forth in the preceding sentence, for purposes of this Section
2(d), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act, it being acknowledged
by Holder that the Company is not representing to Holder that
such calculation is in compliance with Section 13(d) of the
Exchange Act and Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the
extent that the limitation contained in this Section 2(d)
applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the
Holder) and of which a portion of this Warrant is exercisable
shall be in the sole discretion of such Holder, and the
submission of a Notice of Exercise shall be deemed to be such
Holder's determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder) and of
which portion of this Warrant is exercisable, in each case
subject to such aggregate percentage limitation, and the
Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section
2(d), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding
shares of Common Stock as reflected in (x) information
contained in the Company's most recent filings under the
Exchange Act or the Securities Act, (y) a more recent public
announcement by the Company or (z) any other notice by the
Company or the Company's Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written
or oral request of the Holder, the Company shall within two
Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or
exercise of securities of the Company, including this Warrant,
by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was
reported. The provisions of this Section 2(d) may be waived by
the Holder, at the election of the Holder, upon not less than
61 days' prior notice to the Company, and the provisions of
this Section 2(d) shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be
specified in such notice of waiver).
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The Company
covenants that all Warrant Shares which may be issued upon the
exercise of the purchase rights represented by this Warrant
will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of
any transfer occurring contemporaneously with such issue).
3
ii. Delivery of Certificates Upon Exercise.
Certificates for shares purchased hereunder shall be
transmitted by the transfer agent of the Company to the Holder
by crediting the account of the Holder's prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent
Commission ("DWAC") system if the Company is a participant in
such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3
Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant and payment of the
aggregate Exercise Price as set forth above ("Warrant Share
Delivery Date"). This Warrant shall be deemed to have been
exercised on the date the Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been
issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(e)(vii) prior to the
issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise. If this
Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased
Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.
iv. Rescission Rights. If the Company fails to cause
its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the
Holder will have the right to rescind such exercise.
v. Compensation for Buy-In on Failure to Timely
Deliver Certificates Upon Exercise. In addition to any other
rights available to the Holder, if the Company fails to cause
its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an
exercise on or before the Warrant Share Delivery Date, and if
after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) shares
of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a "Buy-In"), then the Company
shall (1) pay in cash to the Holder the amount by which (x)
the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue
times (B) the price at which the sell order giving rise to
4
such purchase obligation was executed, and (2) at the option
of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise
was not honored or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such
purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Company.
Nothing herein shall limit a Holder's right to pursue any
other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company's failure to timely deliver certificates representing
shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
vi. No Fractional Shares or Scrip. No fractional
shares or scrip representing fractional shares shall be issued
upon the exercise of this Warrant. As to any fraction of a
share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.
vii. Charges, Taxes and Expenses. Issuance of
certificates for Warrant Shares shall be made without charge
to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the event certificates
for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto
duly executed by the Holder; and the Company may require, as a
condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
viii. Closing of Books. The Company will not close
its stockholder books or records in any manner which prevents
the timely exercise of this Warrant, pursuant to the terms
hereof.
5
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any
time while this Warrant is outstanding: (A) pays a stock
dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock
(which, for avoidance of doubt, shall not include any shares
of Common Stock issued by the Company pursuant to this
Warrant), (B) subdivides outstanding shares of Common Stock
into a larger number of shares, (C) combines (including by way
of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise
Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such
event and the number of shares issuable upon exercise of this
Warrant shall be proportionately adjusted. Any adjustment made
pursuant to this Section 3(a) shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective
date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any
Subsidiary thereof, as applicable, at any time while this
Warrant is outstanding, shall offer, sell, grant any option to
purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any
offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Exercise Price
(such lower price, the "Base Share Price" and such issuances
collectively, a "Dilutive Issuance"), as adjusted hereunder
(if the holder of the Common Stock or Common Stock Equivalents
so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which is issued in connection with
such issuance, be entitled to receive shares of Common Stock
at an effective price per share which is less than the
Exercise Price, such issuance shall be deemed to have occurred
for less than the Exercise Price on such date of the Dilutive
Issuance), then, the Exercise Price shall be reduced and only
reduced to equal the Base Share Price and the number of
Warrant Shares issuable hereunder shall be increased such that
the aggregate Exercise Price payable hereunder, after taking
into account the decrease in the Exercise Price, shall be
equal to the aggregate Exercise Price prior to such
adjustment. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. Notwithstanding
the foregoing, no adjustments shall be made, paid or issued
under this Section 3(b) in respect of an Exempt Issuance. The
Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this section, indicating
therein the applicable issuance price, or of applicable reset
price, exchange price, conversion price and other pricing
terms (such notice the "Dilutive Issuance Notice"). For
purposes of clarification, whether or not the Company provides
a Dilutive Issuance Notice pursuant to this Section 3(b), upon
the occurrence of any Dilutive Issuance, after the date of
such Dilutive Issuance the Holder is entitled to receive a
number of Warrant Shares based upon the Base Share Price
regardless of whether the Holder accurately refers to the Base
Share Price in the Notice of Exercise.
6
c) Pro Rata Distributions. If the Company, at any
time prior to the Termination Date, shall distribute to all
holders of Common Stock (and not to Holders of the Warrants)
evidences of its indebtedness or assets (including cash and
cash dividends) or rights or warrants to subscribe for or
purchase any security other than the Common Stock (which shall
be subject to Section 3(b)), then in each such case the
Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be
the Closing Price determined as of the record date mentioned
above, and of which the numerator shall be such Closing Price
on such record date less the then per share fair market value
at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding
share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall
be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date mentioned above.
d) Fundamental Transaction. If, at any time while
this Warrant is outstanding, (A) the Company effects any
merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to
which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property,
or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for
other securities, cash or property (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise
of this Warrant, the Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder, (a) upon
exercise of this Warrant, the number of shares of Common Stock
of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and any additional
consideration (the "Alternate Consideration") receivable upon
or as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) if the
Company is acquired in an all cash transaction, cash equal to
the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. For purposes of any such
exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any
different components of the Alternate Consideration. If
holders of Common Stock are
7
given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall
be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such
Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue
to the Holder a new warrant consistent with the foregoing
provisions and evidencing the Holder's right to exercise such
warrant into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section
3(d) and insuring that this Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
e) Calculations. All calculations under this Section
3 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number
of shares of Common Stock (excluding treasury shares, if any)
issued and outstanding.
f) Voluntary Adjustment By Company. The Company may
at any time during the term of this Warrant reduce the then
current Exercise Price to any amount and for any period of
time deemed appropriate by the Board of Directors of the
Company.
g) Notice to Holders.
i. Adjustment to Exercise Price. Whenever
the Exercise Price is adjusted pursuant to this
Section 3, the Company shall promptly mail to each
Holder a notice setting forth the Exercise Price
after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If
the Company issues a variable rate security, despite
the prohibition thereon in the Purchase Agreement,
the Company shall be deemed to have issued Common
Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such
securities may be converted or exercised on the date
of such issuance in the case of a Variable Rate
Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Exercise by Holder. If
(A) the Company shall declare a dividend (or any
other distribution) on the Common Stock; (B) the
Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock; (C)
the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; (D) the approval of
any stockholders of the Company shall be required in
connection with any reclassification of the Common
Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common
Stock is converted into
8
other securities, cash or property; (E) the Company
shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs
of the Company; then, in each case, the Company shall
cause to be mailed to the Holder at its last address
as it shall appear upon the Warrant Register of the
Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such
dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date
as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined
or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share
exchange is expected to become effective or close,
and the date as of which it is expected that holders
of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for
securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, that the
failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity
of the corporate action required to be specified in
such notice. The Holder is entitled to exercise this
Warrant during the 20-day period commencing on the
date of such notice to the effective date of the
event triggering such notice.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any applicable
securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof
and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder or its agent or attorney.
Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
9
c) Warrant Register. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
d) Transfer Restrictions. If, at the time of the surrender of this
Warrant in connection with any transfer of this Warrant, the transfer of this
Warrant shall not be registered pursuant to an effective registration statement
under the Securities Act and under applicable state securities or blue sky laws,
the Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the Company
a written opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the holder
or transferee execute and deliver to the Company an investment letter in form
and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or
(a)(8) promulgated under the Securities Act or a qualified institutional buyer
as defined in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) Title to Warrant. Prior to the Termination Date and subject to
compliance with applicable laws and Section 4 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.
b) No Rights as Shareholder Until Exercise. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.
c) Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
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d) Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
e) Authorized Shares.
The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading
Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the
Holder, the Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth
in this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value of any
Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such
action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant, and (c) use commercially reasonable
efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this
Warrant.
Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable
or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
f) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
11
g) Restrictions. The Holder acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
h) Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any provision
of this Warrant, which results in any material damages to the Holder, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys' fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.
i) Notices. Any notice, request or other document required or permitted
to be given or delivered to the Holder by the Company shall be delivered in
accordance with the notice provisions of the Purchase Agreement.
j) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
k) Remedies. Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to seek
specific performance of its rights under this Warrant. The Company agrees that
monetary damages may not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant.
l) Successors and Assigns. Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.
m) Amendment. This Warrant may be modified or amended or the provisions
hereof waived with the written consent of the Company and the Holder.
n) Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.
12
o) Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
********************
13
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May __, 2005
COMMON HORIZONS, INC.
By:
-----------------------------
Name:
Title:
14
NOTICE OF EXERCISE
To: COMMON HORIZONS, INC.
(1)______The undersigned hereby elects to purchase ________ Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.
(2)______Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in
subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).
(3)______Please issue a certificate or certificates representing said
Warrant Shares in the name of the undersigned or in such other name as is
specified below:
----------------------------------------
The Warrant Shares shall be delivered to the following:
----------------------------------------
----------------------------------------
----------------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
-----------------------------------------------------
Signature of Authorized Signatory of Investing Entity:
------------------------
Name of Authorized Signatory:
-------------------------------------------------
Title of Authorized Signatory:
-------------------------------------------------
Date:
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
whose address is
-----------------------------------------------
---------------------------------------------------------------.
---------------------------------------------------------------
Dated: ,
-------- ---
Holder's Signature:
--------------------------
Holder's Address:
--------------------------
--------------------------
Signature Guaranteed:
-----------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
