UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 16)*
AEOLUS PHARMACEUTICALS, INC.
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(Name of Issuer)
Common Stock, par value $0.01 per share
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(Title of Class of Securities)
00765G109
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(CUSIP Number)
Mary L. King
Xmark Opportunity Partners, LLC
90 Grove Street, Suite 201
Ridgefield, CT 06877
(203) 588-2808
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 30, 2009
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule l3G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box. [ ]
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Cusip No. 00765G109
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1. Names of Reporting Persons. I.R.S. Identification Nos. of above persons
(entities only):
Xmark Opportunity Partners, LLC
20-2052197
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2. Check the Appropriate Box if a Member of a Group (See Instructions):
(a) Not
(b) Applicable
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3. SEC Use Only
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4. Source of Funds (See Instructions): AF, WC
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5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d)
or 2(e): Not Applicable
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6. Citizenship or Place of Organization: United States
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Number of 7. Sole Voting Power: 22,996,154*
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Shares Beneficially 8. Shared Voting Power:
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Owned by
Each Reporting 9. Sole Dispositive Power: 21,996,154*
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Person With 10. Shared Dispositive Power:
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11. Aggregate Amount Beneficially Owned by Each Reporting Person: 22,996,154*
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12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions): [ x ]*
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13. Percent of Class Represented by Amount in Row (11): 58.1%*
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14. Type of Reporting Person (See Instructions): IA
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* Xmark Opportunity Partners, LLC ("Opportunity Partners") is the sole member of
the investment manager of Xmark Opportunity Fund, L.P., a Delaware limited
partnership ("Opportunity LP"), and Xmark Opportunity Fund, Ltd., a Cayman
Islands exempted company ("Opportunity Ltd"), and, as such, possesses sole power
to vote and direct the disposition of all securities of Aeolus Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), held by Opportunity LP and
Opportunity Ltd. Opportunity Partners is the investment manager of Xmark JV
Investment Partners, LLC, a Delaware limited liability company ("JV Partners",
and together with Opportunity LP and Opportunity Ltd, the "Funds"), and, as
such, possesses sole power to vote and direct the disposition of all securities
of the Company held by JV Partners. Mitchell D. Kaye and David C. Cavalier, the
Co-Managing Members of Xmark Capital Partners, LLC, the Managing Member of
Opportunity Partners, share voting and investment power with respect to all
securities beneficially owned by Opportunity Partners. Opportunity LP and
Opportunity Ltd, together, hold a majority of the membership interests in
Goodnow Capital, L.L.C., a Delaware limited liability company ("Goodnow"), and,
as such, Opportunity Partners possesses sole power to vote and direct the
disposition of all securities of the Company held by Goodnow.
As of March 30, 2009, Opportunity LP held (i) 5,041,469 common shares, $0.01 par
value per share (the "Common Shares"), of the Company, which includes 1,276,435
Common Shares of the Company owned by Goodnow, (ii) warrants to purchase up to
660,000 Common Shares of the Company at an exercise price of $0.28 per share
subject to certain adjustments, (iii) 7% senior convertible notes (collectively,
"Note 1"), in the aggregate principal amount of $300,000, which are convertible
into 857,141 Common Shares of the Company at a conversion price of $0.35 per
share subject to certain adjustments, (iv) warrants ("Warrant 1") to purchase up
to 600,000 Common Shares of the Company at an exercise price of $0.50 per share
subject to certain adjustments, and (v) warrants ("Warrant 2") to purchase up to
4,687,500 Common Shares of the Company at an exercise price of $0.35 per share
subject to certain adjustments. As of March 30, 2009, Opportunity Ltd held (a)
10,251,003 Common Shares of the Company, which includes 3,300,653 Common Shares
of the Company owned by Goodnow, (b) warrants to purchase up to 990,000 Common
Shares of the Company at an exercise price of $0.28 per share subject to certain
adjustments, (c) 7% senior convertible notes (together with Note 1, the
"Notes"), in the aggregate principal amount of $700,000, which are convertible
into 1,999,998 Common Shares of the Company at a conversion price of $0.35 per
share subject to certain adjustments, (d) warrants ("Warrant 3") to purchase up
to 1,400,000 Common Shares of the Company at an exercise price of $0.50 per
share subject to certain adjustments, and (e) warrants ("Warrant 4", and
together with Warrant 1, Warrant 2 and Warrant 3, the "Warrants") to purchase up
to 8,705,357 Common Shares of the Company at an exercise price of $0.35 per
share subject to certain adjustments. As of March 30, 2009, JV Partners held (1)
1,023,731 Common Shares of the Company and (2) warrants to purchase up to
500,000 Common Shares of the Company at an exercise price of $0.28 per share
subject to certain adjustments.
All of the Notes and the Warrants contain an issuance limitation prohibiting the
holder from converting or exercising, as the case may be, those securities to
the extent that after giving effect to such conversion or exercise, the holder
would beneficially own more than 9.99% of the Common Shares of the Company then
issued and outstanding, which prohibition cannot be modified by the holder
before the 61st day after such holder's notice to the Company of its election to
modify such prohibition.
As of March 30, 2009, Goodnow held 3,529,951 Common Shares of the Company in
addition to the Common Shares of the Company held by Goodnow referenced above.
As of March 30, 2009, Opportunity Partners had the right to vote 1,000,000
Common Shares of the Company pursuant to a voting trust agreement between
Opportunity Partners and the holders of record of those shares. As of March 30,
2009, Mr. Cavalier held options to purchase 109,875 Common Shares of the
Company.
Based upon information set forth in the Securities Purchase Agreement by and
between the Company and the investors listed on the Schedule of Buyers attached
thereto, included as Exhibit 10.1 to the Current Report on Form 8-K, dated March
30, 2009, filed by the Company with the Securities and Exchange Commission on
March 31, 2009, there were 37,467,855 Common Shares of the Company issued and
outstanding as of March 30, 2009. As a result of the foregoing, for purposes of
Reg. Section 240.13d-3, Opportunity Partners is deemed to beneficially own
22,996,154 Common Shares of the Company, or 58.1% of the Common Shares of the
Company deemed issued and outstanding as of March 30, 2009.
Item 3. Source and Amount of Funds or Other Consideration.
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This Item 3 is hereby amended by adding the following at the end
thereof:
All funds used to purchase the securities of the Company held by the
Funds described in this Schedule 13D, as amended, have come directly from the
assets of the Funds. See Item 5, as amended, for further information.
Item 5. Interest in Securities of the Issuer.
------------------------------------
This Item 5 is hereby amended and restated to read in its entirety as
follows:
Based upon information set forth in the Securities Purchase Agreement
(the "SPA") by and between the Company and the investors listed on the Schedule
of Buyers attached thereto, included as Exhibit 10.1 to the Current Report on
Form 8-K, dated March 30, 2009, filed by the Company with the Securities and
Exchange Commission on March 31, 2009, there were 37,467,855 Common Shares of
the Company issued and outstanding as of March 30, 2009.
As of March 30, 2009, Opportunity LP held (i) 5,041,469 Common Shares
of the Company, which includes 1,276,435 Common Shares of the Company owned by
Goodnow, (ii) warrants to purchase up to 660,000 Common Shares of the Company at
an exercise price of $0.28 per share subject to certain adjustments, (iii) 7%
senior convertible notes (collectively, "Note 1"), in the aggregate principal
amount of $300,000, which are convertible into 857,141 Common Shares of the
Company at a conversion price of $0.35 per share subject to certain adjustments,
(iv) warrants ("Warrant 1") to purchase up to 600,000 Common Shares of the
Company at an exercise price of $0.50 per share subject to certain adjustments,
and (v) warrants ("Warrant 2") to purchase up to 4,687,500 Common Shares of the
Company at an exercise price of $0.35 per share subject to certain adjustments.
As of March 30, 2009, Opportunity Ltd held (a) 10,251,003 Common Shares of the
Company, which includes 3,300,653 Common Shares of the Company owned by Goodnow,
(b) warrants to purchase up to 990,000 Common Shares of the Company at an
exercise price of $0.28 per share subject to certain adjustments, (c) 7% senior
convertible notes (together with Note 1, the "Notes"), in the aggregate
principal amount of $700,000, which are convertible into 1,999,998 Common Shares
of the Company at a conversion price of $0.35 per share subject to certain
adjustments, (d) warrants ("Warrant 3") to purchase up to 1,400,000 Common
Shares of the Company at an exercise price of $0.50 per share subject to certain
adjustments, and (e) warrants ("Warrant 4", and together with Warrant 1, Warrant
2 and Warrant 3, the "Warrants") to purchase up to 8,705,357 Common Shares of
the Company at an exercise price of $0.35 per share subject to certain
adjustments. As of March 30, 2009, JV Partners held (1) 1,023,731 Common Shares
of the Company and (2) warrants to purchase up to 500,000 Common Shares of the
Company at an exercise price of $0.28 per share subject to certain adjustments.
On March 30, 2009, the Company entered into the SPA with Opportunity
LP and Opportunity Ltd, pursuant to which the Company sold and issued to
Opportunity LP and Opportunity Ltd, for an aggregate purchase price of
$1,500,000: (i) 5,357,143 Common Shares of the Company and (ii) Warrant 2 and
Warrant 4, respectively, which entitle the holders of such warrants to purchase
in the aggregate 13,392,857 Common Shares of the Company at an exercise price of
$0.35 per share subject to certain adjustments.
All of the Notes and the Warrants contain an issuance limitation
prohibiting the holder from converting or exercising, as the case may be, those
securities to the extent that after giving effect to such conversion or
exercise, the holder would beneficially own more than 9.99% of the Common Shares
of the Company then issued and outstanding, which prohibition cannot be modified
by the holder before the 61st day after such holder's notice to the Company of
its election to modify such prohibition.
As of March 30, 2009, Goodnow held 3,529,951 Common Shares of the
Company in addition to the Common Shares of the Company held by Goodnow
referenced above. As of March 30, 2009, Opportunity Partners had the right to
vote 1,000,000 Common Shares of the Company pursuant to a voting trust agreement
between Opportunity Partners and the holders of record of those shares. As of
March 30, 2009, Mr. Cavalier held options to purchase 109,875 Common Shares of
the Company.
Opportunity Partners is the sole member of the investment manager of
Opportunity LP and Opportunity Ltd and, as such, possesses sole power to vote
and direct the disposition of all securities of the Company held by Opportunity
LP and Opportunity Ltd. Opportunity Partners is the investment manager of JV
Partners and, as such, possesses sole power to vote and direct the disposition
of all securities of the Company held by JV Partners. Mitchell D. Kaye and David
C. Cavalier, the Co-Managing Members of Xmark Capital Partners, LLC, the
Managing Member of Opportunity Partners, share voting and investment power with
respect to all securities beneficially owned by Opportunity Partners.
Opportunity LP and Opportunity Ltd, together, hold a majority of the membership
interests in Goodnow and, as such, Opportunity Partners possesses sole power to
vote and direct the disposition of all securities of the Company held by
Goodnow.
As a result of the foregoing, for purposes of Reg. Section 240.13d-3,
Opportunity Partners is deemed to beneficially own 22,996,154 Common Shares of
the Company, or 58.1% of the Common Shares of the Company deemed issued and
outstanding as of March 30, 2009.
Except for the transaction described above, there were no transactions
in Common Shares, or securities convertible into, exercisable for or
exchangeable for Common Shares by the persons referenced in Item 2, since the
transactions set forth and described in Opportunity Partners' most recent
Schedule 13D, having a Date of Event of February 24, 2009.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
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Item 6 is hereby amended by adding the following at the end thereof:
On March 30, 2009, the Company entered into the SPA with Opportunity
LP and Opportunity Ltd, pursuant to which the Company sold and issued to
Opportunity LP and Opportunity Ltd, for an aggregate purchase price of
$1,500,000: (i) 5,357,143 Common Shares of the Company and (ii) Warrant 2 and
Warrant 4, respectively, which entitle the holders of such warrants to purchase
in the aggregate 13,392,857 Common Shares of the Company at an exercise price of
$0.35 per share subject to certain adjustments. The description of the SPA in
this Item 6 is subject to, and qualified in its entirety by, the full text of
the SPA, a copy of which is incorporated by reference to this Schedule 13D
Amendment No. 16 as an exhibit pursuant to Item 7 hereof.
Item 7. Material to be Filed as Exhibits.
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Item 7 is hereby amended by adding the following at the end thereof:
1. Securities Purchase Agreement, dated as of March 30, 2009, by and
among the Company, Opportunity LP and Opportunity Ltd., incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K, dated March 30,
2009, filed by the Company with the Securities and Exchange Commission on March
31, 2009.
Signature
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
April 29, 2009 XMARK OPPORTUNITY PARTNERS, LLC
By: XMARK CAPITAL PARTNERS, LLC
its Managing Member
By: /s/ Mitchell D. Kaye
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Name: Mitchell D. Kaye
Title: Co-Managing Member
Attention: Intentional misstatements or omissions of fact constitute Federal
criminal violations (See 18 U.S.C. 1001).
EXHIBIT 1
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March
30, 2009, by and among Aeolus Pharmaceuticals, Inc., a Delaware corporation with
its headquarters located at 26361 Crown Valley Parkway, Suite 150, Mission
Viejo, California 92691 (the "Company"), and the investors listed on the
Schedule of Buyers attached hereto (individually, a "Buyer" and collectively,
the "Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and
Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.
B. Each Buyer, severally and not jointly, wishes to purchase, and the
Company wishes to sell, upon the terms and conditions stated in this Agreement,
(i) that aggregate number of shares (collectively, the "Shares") of the Common
Stock, par value $0.01 per share, of the Company (the "Common Stock") set forth
opposite such Buyer's name in column (3) on the Schedule of Buyers attached
hereto (the "Schedule of Buyers") and (ii) warrants, in substantially the form
attached hereto as Exhibit A (the "Warrants"), to acquire up to that number of
additional shares of Common Stock set forth opposite such Buyer's name in column
(4) of the Schedule of Buyers attached hereto (collectively, the "Warrant
Shares").
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit B (as may be
amended or restated from time to time, the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Shares and the Warrant Shares under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.
D. The Shares, the Warrants and the Warrant Shares collectively are
referred to herein as the "Securities."
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF SHARES AND WARRANTS.
(a) Purchase and Sale of Shares and Warrants.
(i) Shares and Warrants. Subject to the
satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7(i) below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly,
shall purchase from the Company, (x) the number of Shares
set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers and (y) Warrants to acquire up to that
number of Warrant Shares set forth opposite such Buyer's
name in column (4) on the Schedule of Buyers.
(ii) Closing. The closing of the purchase and sale
of the Shares and Warrants (the "Closing") shall occur at
10:00 a.m., New York City time, on the date hereof (or such
later date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7(i)
below at the offices of Lowenstein Sandler PC, 1251 Avenue
of the Americas, 18th Floor, New York, New York 10020. The
date on which the Closing occurs is referred to herein as
the "Closing Date."
(iii) Purchase Price. The purchase price to be
paid by each Buyer for the Shares and the Warrants to be
purchased by such Buyer at the Closing shall be the amount
set forth opposite such Buyer's name in column (5) of the
Schedule of Buyers (the "Purchase Price").
(b) Form of Payment. On Closing Date, (i) each Buyer shall
pay its respective Purchase Price to the Company by wire transfer of
immediately available funds in accordance with the Company's written
wire instructions and (ii) the Company shall deliver to each Buyer (A)
one or more stock certificates, evidencing the number of Shares being
purchased by such Buyer as set forth opposite such Buyer's name in
column (3) of the Schedule of Buyers, and (B) one or more Warrants
exercisable for the number of Warrant Shares set forth opposite such
Buyer's name in column (4) of the Schedule of Buyers in all cases duly
executed on behalf of the Company and registered in the name of such
Buyer, or such Buyer's nominee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and
not jointly, represents and warrants to the Company that:
(a) No Sale or Distribution. Such Buyer is acquiring the
Shares and the Warrants, and upon exercise of the Warrants will
acquire the Warrant Shares issuable upon exercise of the Warrants, for
its own account, not as nominee or agent, and not with a view towards
distribution thereof, and such Buyer has no present intention of
selling, granting any participation in, or otherwise distributing the
same in violation of the 1933 Act or any state securities laws;
provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and pursuant
to the applicable terms of the Transaction Documents (as defined in
Section 3(b)). Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer does not presently have
any agreement or understanding, directly or indirectly, with any
Person (as defined in Section 3(r) below) to distribute any of the
Securities.
(b) Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to determine
the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer has been furnished with all
materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of and
receive answers from the Company regarding the Company, its business
and the terms and conditions of the offering of the Securities. Such
Buyer acknowledges that it has had access to the SEC Documents (as
defined in Section 3(j) below) via the SEC's Electronic Data Gathering
and Retrieval System or any successor database ("EDGAR"). Neither such
inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify,
amend or affect such Buyer's right to rely on the Company's
representations and warranties contained herein. Such Buyer
understands and acknowledges that (i) its investment in the Securities
involves a high degree of risk, (ii) it is able to afford a complete
loss of such investment in the Securities, and (iii) it has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment
contemplated hereby. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.
(f) Transfer or Resale. Such Buyer understands that except
as provided in the Registration Rights Agreement: (i) the Securities
have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned
or transferred unless (A) subsequently registered thereunder, (B) such
Buyer shall have delivered to the Company an opinion of counsel, in a
form reasonably acceptable to the Company, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C)
such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A promulgated under the 1933 Act, as amended (or a
successor rule thereto) (collectively, "Rule 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which
the seller (or the Person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other Person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
Notwithstanding the foregoing, the Securities may be pledged in
connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities and such pledge of Securities,
by itself, shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document (as defined in Section
3(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or
other instruments representing the Shares and the Warrants and, until
such time as the resale of the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights
Agreement or eligible to be sold under Rule 144 of the 1933 Act
without regard to the availability of current financial information,
the stock certificates representing the Warrant Shares, except as set
forth below, shall bear any legend as required by the "blue sky" laws
of any state and a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF
(A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of the
Securities upon which it is stamped, if, unless otherwise required by
state securities laws, (i) such Securities are registered for resale
under the 1933 Act, (ii) in connection with a sale, assignment or
other transfer, such holder provides the Company with an opinion of a
law firm reasonably acceptable to the Company, in a form reasonably
acceptable to the Company, to the effect that such sale, assignment or
transfer of the Securities may be made without registration under the
applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A. If an
opinion is required, the Company shall be obligated to retain counsel
in order to cause such counsel to deliver the legal opinion referred
to in clause (I)(B) of the legend set forth above and to pay any
related fees and expenses of said counsel.
(h) Validity; Enforcement. The execution, delivery and
performance by such Buyer of each of the Transaction Documents (as
defined below) to which such Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with their
respective terms, except (i) as may be limited by general principles
of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights
generally, (ii) as limited by laws relating to specific performance,
injunctive relief of other equitable remedies, and (iii) to the extent
the indemnification provisions contained in this Agreement may be
limited by applicable laws.
(i) No Conflicts. The execution, delivery and performance by
such Buyer of each of the Transaction Documents to which such Buyer is
a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of
the organizational documents of such Buyer or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Buyer is a party, or
(iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws)
applicable to such Buyer, except in the case of clauses (ii) and (iii)
above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on the ability of such Buyer to perform its
obligations hereunder or under any other Transaction Document to which
such Buyer is a party.
(j) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.
(k) Certain Trading Activities. Other than with respect to
the transactions contemplated herein, since the time that such Buyer
was first contacted by the Company or any other Person regarding this
investment in the Company neither the Buyer nor any "affiliate" of
such Buyer (as defined in Rule 144 of the 1933 Act) which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares
discretion relating to such Buyer's investments or trading or
information concerning such Buyer's investments and (z) is subject to
such Buyer's review or input concerning such affiliate's investments
or trading (collectively, "Trading Affiliates") has directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer or Trading Affiliate, effected or agreed
to effect any transactions in the securities of the Company. Such
Buyer hereby covenants and agrees not to, and shall cause its Trading
Affiliates not to, engage, directly or indirectly, in any transactions
in the securities of the Company or involving the Company's securities
during the period from the date hereof until such time as (i) the
transactions contemplated by this Agreement are first publicly
announced as described in Section 4(h) hereof or (ii) this Agreement
is terminated in full pursuant to Section 8 hereof. Notwithstanding
the foregoing, for avoidance of doubt, nothing contained herein shall
constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of,
available shares to borrow in order to effect short sales or similar
transactions in the future.
(l) Legal Investment. Such Buyer acknowledges that the
Company has not provided any advice as to whether the Securities are a
suitable investment or whether the Securities constitute a legal
investment for such Buyer.
(m) Compliance with SEC Telephone Interpretation. Such Buyer
acknowledges the SEC's position set forth in Compliance & Disclosure
Interpretation 239.10 issued by the SEC's Division of Corporation
Finance on November 26, 2008, and such Buyer will adhere to such
position.
(n) General Solicitation. Such Buyer is not purchasing the
Shares and the Warrants as a result of any advertisement, article,
notice or other communication regarding any of the Securities
published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar.
(o) Organization. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate, limited
liability company or partnership power and authority to enter into and
to consummate the transactions contemplated by this Agreement and the
other applicable Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder.
(p) Acknowledgement Regarding Insolvency. Notwithstanding
anything in this Agreement to the contrary, each Buyer understands and
acknowledges that the Company and its Subsidiaries, individually and
on a consolidated basis, as of the date hereof, and after giving
effect to the transactions contemplated hereby to occur at the Closing
may be, or may become, Insolvent (as defined below). For purposes of
this Section 2(p), "Insolvent" means, with respect to any Person (as
defined in Section 3(r)), (i) the present fair saleable value of such
Person's assets is less than the amount required to pay such Person's
total Indebtedness (as defined in Section 3(q)), (ii) such Person is
unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured,
(iii) such Person intends to incur or believes that it will incur
debts that would be beyond its ability to pay as such debts mature or
(iv) such Person has unreasonably small capital with which to conduct
the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Buyers that, as of the date hereof and at
all times to and including the Closing Date, except as otherwise described in
the SEC Documents filed with the SEC prior to the date hereof:
(a) Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means
"Significant Subsidiary" as such term is defined in Rule 1-02 of
Regulation S-X of the 1933 Act; which as of the date of this
Agreement, is solely comprised of Aeolus Sciences, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company), are
entities duly organized and validly existing and, to the extent
legally applicable, in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power
and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and
to the extent legally applicable, is in good standing in every
jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing
would not reasonably be expected to have a Material Adverse Effect. As
used in this Agreement, "Material Adverse Effect" means any material
adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby and the other Transaction Documents
or by the agreements and instruments to be entered into in connection
herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents (as defined
below). Notwithstanding the foregoing, the entities in which the
Company, directly or indirectly, owns any of the capital stock or
holds an equity or similar interest which are not Subsidiaries, taken
as whole, do not have income, revenues or assets which are material to
the Company and its Subsidiaries, individually, or taken as a whole.
Except for the capital stock of Aeolus Sciences, Inc. or as set forth
on Schedule 3(a), the Company does not, directly or indirectly, own
any joint venture or similar entity or hold capital stock, equity or
similar interests.
(b) Authorization; Enforcement; Validity. The Company has
the requisite corporate power and authority to enter into, deliver and
perform its obligations under this Agreement, the Warrants, the
Registration Rights Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5(b)) and each of the other
agreements entered into by the Company and any Buyer in connection
with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof. Except as set forth on
Schedule 3(b), the execution and delivery of this Agreement and the
other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Shares and the
Warrants, and the reservation for issuance and issuance of Warrant
Shares issuable upon exercise of the Warrants, have been duly
authorized by the Company's board of directors, and no further filing,
consent, or authorization is required by the Company, its board of
directors or its stockholders. This Agreement and the other
Transaction Documents of even date herewith have been (and, to the
extent the Closing Date is after the date hereof, each Transaction
Document to be entered into as of the Closing Date will have been)
duly executed and delivered by the Company as of the Closing Date, and
constitute (or in the case of Transaction Documents entered on the
Closing Date if such date is after the date hereof, will constitute as
of the Closing Date) the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
respective terms, except (i) as may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights generally,
(ii) as limited by laws relating to specific performance, injunctive
relief of other equitable remedies, and (iii) to the extent the
indemnification provisions contained in this Agreement and the
Registration Rights Agreement may be limited by applicable laws.
(c) Issuance of Securities. The issuance of the Shares and
the Warrants are duly authorized by the Company and upon issuance in
accordance with the terms of this Agreement shall be free from all
taxes, liens and charges with respect to the issue thereof. A
sufficient number of shares of Common Stock shall have been duly
authorized and reserved for issuance for purposes of enabling the
Company to issue that number of shares of Common Stock issuable upon
exercise of the Warrants. Upon exercise in accordance with the
Warrants, the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes,
liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock.
Assuming the accuracy of each of the representations and warranties
set forth in Section 2 of this Agreement, the offer and issuance by
the Company of the Securities is exempt from registration under the
1933 Act.
(d) No Conflicts. Except as set forth on Schedule 3(d), the
execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Shares and
Warrants and reservation for issuance and issuance of the Warrant
Shares) will not (i) result in a violation of any certificate of
incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of
its Subsidiaries, any capital stock of the Company or any of its
Subsidiaries or bylaws of the Company or any of its Subsidiaries or
(ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) in any respect
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party,
or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including foreign, federal and state securities
laws and regulations and the rules and regulations of the OTC Bulletin
Board (the "Principal Market")) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected, except in the case of
clauses (ii) and (iii) above, to the extent that such violation
conflict, default or right would not reasonably be expected to have a
Material Adverse Effect.
(e) Consents and Filings. Except as set forth on Schedule
3(e), neither the Company nor any of its Subsidiaries is required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order to execute,
deliver or perform any of its obligations under or contemplated by the
Transaction Documents to which they are a party, in each case in
accordance with the terms hereof or thereof, other than (i) the filing
with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) the filing
of Form D with the SEC and such filings as are required to be made
under applicable state securities laws, (iii) application(s) to the
Principal Market for the listing of the Securities for trading thereon
in the time and manner required thereby, and (iv) filings required
pursuant to Section 4(h) of this Agreement. The Company and its
Subsidiaries are unaware of any facts or circumstances that might
prevent the Company from obtaining or effecting any of the
registration, application or filings pursuant to the preceding
sentence. The Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts that would
reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
(f) Acknowledgment Regarding Buyer's Purchase of Securities.
The Company acknowledges and agrees that each Buyer is acting solely
in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and
thereby.
(g) No General Solicitation. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Securities.
(h) No Integrated Offering. None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on 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 require registration of the issuance of any
of the Securities under the 1933 Act, whether through integration with
prior offerings or otherwise, or cause this offering of the Securities
to require approval of stockholders of the Company for purposes of any
applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the
Company are listed or designated.
(i) Application of Takeover Protections; Rights Agreement.
The 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 Certificate of Incorporation (as defined in
Section 3(q)) or the laws of the state of its incorporation which is
or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company and its board of directors
have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a
change in control of the Company.
(j) SEC Documents; Financial Statements. During the two (2)
years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of
the foregoing filed during the two (2) years prior to the date hereof
and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC Documents"). The Company has
made available to the Buyers or their respective representatives,
through EDGAR, true, correct and complete copies of the SEC Documents.
As of their respective filing dates, and to the Company's knowledge,
the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. As of their respective filing
dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
No other information provided by or on behalf of any officer or
director of the Company to the Buyers, solely in their capacity as
Buyers, which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement
or in any disclosure schedules, contains any untrue statement of a
material fact or omits to state any material fact necessary in order
to make the statements therein, in the light of the circumstance under
which they are or were made not misleading.
(k) Absence of Certain Changes. Except as set forth on
Schedule 3(k), since September 30, 2008, there has been no material
adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries. Since
September 30, 2008, the Company has not (i) declared or paid any
dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $100,000 outside of the ordinary course of business or (iii)
had capital expenditures, individually or in the aggregate, in excess
of $500,000. Neither the Company nor any of its Subsidiaries has taken
any steps to seek protection pursuant to any bankruptcy law nor does
the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact that would reasonably lead a creditor to do so.
(l) No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has
occurred or exists, or is contemplated to occur with respect to the
Company, its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement on Form S-1 filed with the SEC relating to an
issuance and sale by the Company of its Common Stock and which has not
been publicly announced.
(m) Conduct of Business; Regulatory Permits. Neither the
Company nor any of its Subsidiaries is in violation of any term of or
in default under its Certificate of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the
Company or the Bylaws or their organizational charter or bylaws,
respectively. Neither the Company nor any of its Subsidiaries is in
violation of any judgment, decree or order or any statute, ordinance,
rule or regulation applicable to the Company or its Subsidiaries, and
neither the Company nor any of its Subsidiaries will conduct its
business in violation of any of the foregoing, except for possible
violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances
that would reasonably lead to delisting or suspension of the Common
Stock by the Principal Market in the foreseeable future. During the
two (2) years prior to the date hereof, (i) the Common Stock has been
designated for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC or the Principal Market
and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or
delisting of the Common Stock from the Principal Market. The Company
and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to
conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
(n) Foreign Corrupt Practices. Neither the Company nor any
of its Subsidiaries nor, to the Company's knowledge, any of their
respective current or former directors, officers, agents, employees or
other Persons acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of,
the Company or any of its Subsidiaries (i) used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act
of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign
or domestic government official or employee.
(o) Sarbanes-Oxley Act. Except as set forth on Schedule
3(o), the Company is in material compliance with any and all
requirements of the Sarbanes-Oxley Act of 2002 that are effective and
applicable to the Company as of the date hereof, and any and all rules
and regulations promulgated by the SEC thereunder that are effective
and applicable to the Company as of the date hereof.
(p) Transactions with Affiliates. Except as discussed on
Schedule 3(p), none of the officers, directors or employees of the
Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for ordinary course services as employees, officers or 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 such officer, director or employee or, to the knowledge of
the Company or any of its Subsidiaries, any corporation, partnership,
trust or other entity in which any such officer, director, or employee
has a substantial interest or is an officer, director, trustee or
partner.
(q) Equity Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 210,000,000
shares, comprised of (x) 200,000,000 shares of Common Stock, of which
as of the date hereof, 32,110,712 shares are issued and outstanding,
and (y) 10,000,000 shares of preferred stock, par value $0.01 per
share, of which 600,000 shares are designated Series B nonredeemable
convertible preferred stock, of which 475,087 shares are issued and
outstanding, and no other shares of the Company's preferred stock are
issued or outstanding. All outstanding shares of the Company's capital
stock have been, or upon issuance will be, validly issued and are, or
upon issuance will be, fully paid and nonassessable. Except as
described on Schedule 3(q), with respect to any debt or equity
instruments of the Company and its Subsidiaries, (i) none of the
Company's capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by
the Company; (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may
become bound to issue additional capital stock of the Company or any
of its Subsidiaries or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable
for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in
connection with the Company or any of its Subsidiaries; (iv) there are
no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their
securities under the 1933 Act (except the Registration Rights
Agreement); (v) there are no outstanding securities or instruments of
the Company or any of its Subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will
be triggered by the issuance of the Securities; (vii) the Company does
not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement; and (vii) the Company and
its Subsidiaries have no liabilities or obligations required to be
disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the
Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material
Adverse Effect. The Company has made available to the Buyers, through
EDGAR, true, correct and complete copies of the Company's certificate
of incorporation, as amended and as in effect on the date hereof (the
"Certificate of Incorporation"), and the Company's bylaws, as amended
and as in effect on the date hereof (the "Bylaws").
(r) Indebtedness and Other Contracts. Except as set forth
under the agreements or other arrangements listed on Schedule 3(r),
neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default
under which, by the other party(ies) to such contract, agreement or
instrument could reasonably be expected to result in a Material
Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not
result, individually or in the aggregate, in a Material Adverse
Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the
judgment of the Company's officers, has or is expected to have a
Material Adverse Effect. For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services, including (without limitation) "capital leases" in
accordance with generally accepted accounting principles (other than
trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of
such indebtedness (even though the rights and remedies of the seller
or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations
in excess of $100,000 under any leasing or similar arrangement which,
in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as
a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (A) through (G) above; (y) "Contingent
Obligation" means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if
the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee
of such liability that such liability will be paid or discharged, or
that any agreements relating thereto will be complied with, or that
the holders of such liability will be protected (in whole or in part)
against loss with respect thereto; and (z) "Person" means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(s) Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by the Principal
Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its
Subsidiaries, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or its Subsidiaries' officers or directors.
(t) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the
Company and its Subsidiaries are engaged. Except as set forth on
Schedule 3(t), neither the Company nor any such 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 at a cost that would not have a Material Adverse Effect.
(u) Employee Relations.
(i) Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and
its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company or
any of its Subsidiaries has notified the Company or any such
Subsidiary that such officer intends to leave the Company or
any such Subsidiary or otherwise terminate such officer's
employment with the Company or any such Subsidiary. No
executive officer of the Company or any of its Subsidiaries,
is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure
or proprietary information agreement, non-competition
agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each
such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of
the foregoing matters.
(ii) Except as set forth on Schedule 3(o), the
Company and its Subsidiaries, to their knowledge, are in
compliance with all federal, state, local and foreign laws
and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment
and wages and hours, except where failure to be in
compliance would not, either individually or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect.
(v) Title. Except as set forth on Schedule 3(v), the Company
and its Subsidiaries have good and marketable title in fee simple to
all real property and good and marketable title to all personal
property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects or such 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
any of its Subsidiaries. Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed
to be made of such property and buildings by the Company and its
Subsidiaries, except (i) as limited by applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting
creditors' rights generally, (ii) as limited by laws relating to
specific performance, injunctive relief or other equitable remedies,
and (iii) to the extent any indemnification provisions contained in
such leases may be limited by applicable laws.
(w) Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all
trademarks, service marks and all applications and registrations
therefor, trade names, patents, patent rights, copyrights, original
works of authorship, inventions, trade secrets and other intellectual
property rights ("Intellectual Property Rights") necessary to conduct
their respective businesses as conducted on the date of this
Agreement. Except as set forth on Schedule 3(w), none of the Company's
registered, or applied for, Intellectual Property Rights have expired
or terminated or have been abandoned, or are expected to expire or
terminate or expected to be abandoned, within three years from the
date of this Agreement, in each case except as have not had and could
not reasonably be expected to have a Material Adverse Effect. To the
knowledge of the Company, no product or service of the Company or its
Subsidiaries infringes the Intellectual Property Rights of others.
There is no claim, action or proceeding being made or brought, or to
the knowledge of the Company or its Subsidiaries, being threatened,
against the Company or its Subsidiaries regarding (i) its Intellectual
Property Rights, or (ii) that the products or services of the Company
or its Subsidiaries infringe the Intellectual Property Rights of
others. Neither the Company nor any of its Subsidiaries is aware of
any facts or circumstances which might give rise to any of the
foregoing infringements or claims, actions or proceedings. The Company
and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their
Intellectual Property Rights, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(x) Environmental Laws. The Company and its Subsidiaries, to
their knowledge, (i) are in compliance with any and all Environmental
Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit,
license or approval where, in each of the foregoing clauses (i), (ii)
and (iii), the failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. The
term "Environmental Laws" means all federal, state, local or foreign
laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or
toxic or hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(y) Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all foreign, federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith and (iii) has set aside on its
books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.
(z) Internal Accounting and Disclosure Controls. The Company
and each of its 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
generally accepted accounting principles and to maintain asset and
liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and
liabilities at reasonable intervals and appropriate action is taken
with respect to any difference. Except as set forth on Schedule 3(z),
the Company maintains disclosure controls and procedures (as such term
is defined in Rule 13a-14 under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in
the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified
in the rules and forms of the SEC, including, without limitation,
controls and procedures designed in to ensure that information
required to be disclosed by the Company in the reports that it files
or submits under the 1934 Act is accumulated and communicated to the
Company's management, including its principal executive officer or
officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required disclosure.
Except as set forth on Schedule 3(z), during the twelve months prior
to the date hereof neither the Company nor any of its Subsidiaries
have received any notice or correspondence from any accountant
relating to any material weakness in any part of the system of
internal accounting controls of the Company or any of its
Subsidiaries.
(aa) Off Balance Sheet Arrangements. There is no
transaction, arrangement, or other relationship between the Company or
any of its Subsidiaries and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its
1934 Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
(bb) Investment Company Status. Neither the Company nor any
of its Subsidiaries is, and upon consummation of the sale of the
Securities neither the Company nor any of its Subsidiaries will be, an
"investment company," a company controlled by an "investment company"
or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(cc) Transfer Taxes. On the Closing Date, all stock
transfer, documentary stamp taxes or other taxes (other than income or
similar taxes) which are required to be paid in connection with the
sale and transfer of the Securities to be sold to each Buyer hereunder
on the Closing Date will be, or will have been, fully paid or provided
for by the Company, and all laws imposing such taxes will be or will
have been complied with.
(dd) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities,
(ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the Securities, or (iii) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company.
(ee) Disclosure. The Company confirms that neither it nor
any other Person acting on its behalf has provided any of the Buyers
or their agents or counsel, solely in their capacity as prospective
Buyers, with any information that constitutes or could reasonably be
expected to constitute material, nonpublic information. The Company
understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Buyers regarding the
Company or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company is true and
correct and does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading. Each press release issued by the
Company or any of its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. No event or circumstance has
occurred or information exists with respect to the Company or any of
its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or disclosed in
accordance with such requirements. The Company acknowledges and agrees
that no Buyer makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 2. Notwithstanding the foregoing,
the Company and each Buyer acknowledge that Buyer has or may have one
or more agents serving as a director on the Board of Directors of the
Company and that the receipt or awareness of any information related
to the Company gained by any such director in his or her capacity as a
director of the Company shall not be deemed a violation of this
paragraph by the Company.
(ff) Acknowledgement Regarding Buyers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding, but subject to compliance by the Buyers with
applicable law and the terms of this Agreement, it is understood and
acknowledged by the Company (i) that none of the Buyers have been
asked by the Company or its Subsidiaries to agree, nor has any Buyer
agreed with the Company or its Subsidiaries, to desist from purchasing
or selling, long and/or short, securities of the Company, or
"derivative" securities based on securities issued by the Company or
to hold the Securities for any specified term; (ii) that past or
future open market or other transactions by any Buyer, including,
without limitation, short sales or "derivative" transactions, before
or after the closing of this or future private placement transactions,
may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Buyer, and counter parties
in "derivative" transactions to which any such Buyer is a party,
directly or indirectly, presently may have a "short" position in the
Common Stock; and (iv) that each Buyer shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and
acknowledges that (a) one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the
Securities are outstanding, including, without limitation, during the
periods that the value of the Warrant Shares deliverable with respect
to Securities are being determined and (b) such hedging and/or trading
activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging and/or trading activities are being conducted.
(gg) Placement Agents. Except as set forth on Schedule
3(gg), neither the Company nor any of its subsidiaries has engaged any
placement agent or other agent in connection with the placement, offer
or sale of the Securities.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts to
timely satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at
the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States (or to obtain an
exemption from such qualification), and shall provide evidence of any
such action so taken to the Buyers on or prior to the Closing Date.
The Company shall make all filings and reports relating to the offer
and sale of the Securities required under applicable securities or
"Blue Sky" laws of the states of the United States following the
Closing Date.
(c) Reporting Status. Until the date on which the Buyers
shall have sold all the Warrant Shares and none of the Warrants is
outstanding (the "Reporting Period"), the Company shall timely file
(or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed with the SEC
pursuant to the 1934 Act. As long as any Buyer owns Securities, if the
Company is not required to file reports pursuant to the 1934 Act, it
will prepare and furnish to the Buyers and make publicly available in
accordance with Rule 144(c) such information as is required for the
Buyers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to
time to enable such Person to sell such Securities without
registration under the Securities Act within the requirements of the
exemption provided by Rule 144, including, without limitation, causing
the transfer agent for the Common Stock to remove legends and stop
transfer instructions with respect to any Warrant Shares which may be
sold under Rule 144 without regard to the availability of current
financial information.
(d) Use of Proceeds. The Company will use the proceeds from
the sale of the Securities for general corporate purposes, and not for
(x) the repayment of any outstanding Indebtedness of the Company or
any of its Subsidiaries at any time prior to the scheduled maturity
date thereof or (y) the redemption or repurchase of any of its or its
Subsidiaries' equity securities other than the repurchase of equity
issued to or held by employees, officers, directors and consultants of
the Company or a Subsidiary upon termination of their employment or
services with the Company or a Subsidiary.
(e) Financial Information. The Company agrees to send the
following to each Buyer (or each transferee thereof as permitted by
Section 2(f)) during the Reporting Period (i) unless the following are
filed with the SEC through EDGAR and are available to the public
through the EDGAR system, within one (1) Business Day after the filing
thereof with the SEC, a copy of its Annual Reports and Quarterly
Reports on Form 10-K, 10-Q, any interim reports or any consolidated
balance sheets, income statements, stockholders' equity statements
and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii)
on the same day as the release thereof, facsimile or e-mailed copies
of all press releases issued by the Company or any of its
Subsidiaries, and (iii) copies of any notices and other information
made available or given to all stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. As used herein, "Business Day" means any day other than
Saturday, Sunday or other day on which commercial banks in The City of
New York are authorized or required by law to remain closed.
(f) Listing. The Company shall promptly secure the listing
of the Shares and the Warrant Shares upon each national securities
exchange and automated quotation system, if any, upon which the Common
Stock is then listed (subject to official notice of issuance) and
shall maintain such listing of all Shares and Warrant Shares from time
to time issuable under the terms of the Transaction Documents. The
Company shall maintain the Common Stock's authorization for quotation
on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected
to result in the delisting or suspension of the Common Stock on the
Principal Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).
(g) Expenses. Subject to Section 8 below, the parties hereto
shall pay their own costs and expenses in connection herewith, except
that, the Company shall pay the documented, reasonable and customary
third party expenses incurred by the Buyers in connection with the
negotiation, preparation and execution of the Transaction Documents,
including the reasonable fees and expenses of one counsel to the
Buyers, which shall be Lowenstein Sandler PC. Such expenses shall be
paid not later than, in the case of fees and expenses associated with
the Closing, five (5) Business Days following the Closing.
(h) Disclosure of Transactions and Other Material
Information. On or before 11:30 a.m., New York City time, on the first
Business Day following the date of this Agreement, the Company shall
issue a press release and file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this
Agreement, the form of Warrant and the Registration Rights Agreement)
as exhibits to such filing (such filing, including all such
attachments, the "8-K Filing"). From and after the filing of the 8-K
Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company or any of its
Subsidiaries or any of their respective officers, directors, employees
or agents, that is not disclosed in the 8-K Filing; provided, however,
that the mere possession of such information by a director of the
Company who is affiliated with a Buyer shall not be required to be
disclosed in the 8-K Filing; and provided further that Buyer may have,
or may be deemed to have, material, non-public information received
from the Company or its officers, directors, employees or agents as a
result of Buyer having one or more agents serving as a director on the
Board of Directors of the Company. The Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer,
solely in Buyer's capacity as a purchaser of Securities hereunder,
with any material, nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing with
the SEC without the express written consent of such Buyer. Subject to
the foregoing, neither the Company, its Subsidiaries nor any Buyer
shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however,
that the Company shall be entitled, without the prior approval of any
Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the
8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with
any such press release or other public disclosure prior to its
release).
(i) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock for
the purpose of enabling the Company to issue that number of shares of
Common Stock issuable upon exercise of the Warrants (without taking
into account any limitations on the exercise of the Warrants set forth
in the Warrants).
(j) Fundamental Transactions. So long as any Buyer
beneficially owns any Securities, the Company shall not be party to
any Fundamental Transaction (as defined in the Warrants) unless the
Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Warrants.
(k) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance
or regulation of any governmental entity, except where such violations
would not result, either individually or in the aggregate, in a
Material Adverse Effect.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it
may designate by notice to each holder of Securities), a register for
the Shares and the Warrants in which the Company shall record the name
and address of the Person in whose name the Shares and the Warrants
have been issued (including the name and address of each transferee),
the number of Shares held by such Person, and the number of Warrant
Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during
business hours for inspection of any Buyer or its legal
representatives, upon reasonable advance written notice to the
Company.
(b) Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, American Stock
Transfer and Trust Company, and any subsequent transfer agent, to
issue certificates or credit shares to the applicable balance accounts
at The Depository Trust Company ("DTC"), registered in the name of
each Buyer or its respective nominee(s), for the Shares and the
Warrant Shares issued at the Closing or upon exercise of the Warrants
in such amounts as specified from time to time by each Buyer to the
Company upon exercise of the Warrants in the form of Exhibit C
attached hereto (the "Irrevocable Transfer Agent Instructions"). The
Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5(b), and stop
transfer instructions to give effect to Section 2(g) hereof, will be
given by the Company to its transfer agent, and that the Securities
shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the other
Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the
Company shall permit the transfer and shall promptly instruct its
transfer agent to issue one or more certificates or credit shares to
the applicable balance accounts at DTC in such name and in such
denominations as specified by such Buyer to effect such sale, transfer
or assignment. In the event that such sale, assignment or transfer
involves Shares or Warrant Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer,
assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer.
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate
and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be
entitled, in addition to all other available remedies, to an order
and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Shares
and the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer participating in the Closing with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the
Company.
(ii) Such Buyer and each other Buyer shall have delivered to
the Company the applicable Purchase Price for the Shares and the
related Warrants being purchased by such Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall
be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date, which shall be true and correct as
of such specified date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing
Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Shares and the
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof.
(i) The Company shall have duly executed and delivered to
such Buyer (a) the Shares being purchased by such Buyer at the Closing
pursuant to Section 1(a) of this Agreement, (b) the related Warrants
being purchased by such Buyer at the Closing pursuant to Section 1(a)
of this Agreement, and (c) each of the other Transaction Documents to
which the Company is a party and such other certificates or
instruments required to be delivered by it pursuant to the Transaction
Documents in connection with the Closing.
(ii) The Company shall have delivered to such Buyer a copy
of the Irrevocable Transfer Agent Instructions, in the form of Exhibit
C attached hereto, which instructions shall have been executed by the
Company and delivered to and acknowledged in writing by the Company's
transfer agent.
(iii) Such Buyer shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP, counsel to the Company, dated as of
the Closing Date, in substantially the form of Exhibit D attached
hereto.
(iv) The Company shall have delivered to such Buyer copies
of (a) the Certificate of Incorporation of the Company and (b) the
certificate of incorporation of Aeolus Sciences, Inc., each as
certified by the Secretary of State of the State of Delaware within
ten (10) Business Days of the Closing Date.
(v) The Company shall have delivered to such Buyer copies of
certificates of good standing for each of the Company and Aeolus
Sciences, Inc., each as certified by the Secretary of State of the
State of Delaware within five (5) Business Days of the Closing Date.
(vi) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of
the Closing Date, as to (i) the resolutions consistent with Section
3(b) as adopted by the Company's board of directors in a form
reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation of the Company, (iii) the certificate of incorporation
of Aeolus Sciences, Inc., (iii) the Bylaws of the Company and (iv) the
bylaws of Aeolus Sciences, Inc., each as in effect at the Closing,
which certificate shall be in form and substance acceptable to the
Buyers and shall provide specimen signatures for each of the officers
or directors of the Company who execute and deliver this Agreement or
any other Transaction Document to be delivered at the Closing by or on
behalf of the Company (in each case, pursuant to the authorization of
the Company's board of directors).
(vii) The representations and warranties of the Company
shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and at all times through and
including as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date,
which shall be true and correct as of such specified date) and the
Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by
the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer,
President or Vice President of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer, in form and substance acceptable
to the Buyers.
(viii) The Common Stock (I) shall be designated for
quotation or listed on the Principal Market and (II) shall not have
been suspended, as of the Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by
the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market
or (B) by falling below the minimum listing maintenance requirements
of the Principal Market.
(ix) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary
for the sale of the Securities.
(x) The Company shall have delivered to such Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before five (5) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the non-breaching party's failure to waive such
unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated in its entirety pursuant
to this Section 8 solely as a result of the Company's failure to satisfy the
conditions in Section 7 above, the Company shall remain obligated to reimburse
the non-breaching Buyers for the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State
of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State 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, the borough of
Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or
discussed herein, 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 brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. 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 to such party at the address for such 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. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
(b) Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which 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; provided
that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect
as if the signature were an original, not a facsimile signature.
(c) Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the
other Transaction Documents supersede all other prior oral or written
agreements between the Buyers, the Company, their affiliates and
Persons acting on their behalf with respect to the matters discussed
herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No
provision of this Agreement may be amended other than by an instrument
in writing signed by the Company and the holders of at least
two-thirds of the aggregate number of Shares and Warrant Shares issued
and issuable under the Warrants, and any amendment to this Agreement
made in conformity with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of Securities as applicable. No
provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less
than all of the holders of the applicable Securities then outstanding.
No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration also is offered to
all of the parties to the Transaction Documents, holders of Shares or
holders of the Warrants, as the case may be.
(f) Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been
delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with an
overnight courier service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for
such communications shall be:
If to the Company:
Aeolus Pharmaceuticals, Inc.
26361 Crown Valley Parkway, Suite 150
Mission Viejo, California 92691
Telephone: (949) 481-9825
Facsimile: (949) 481-9829
Attention: John L. McManus, President
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
4747 Executive Drive, 12th Floor
San Diego, California 92121
Telephone: (858) 458-3036
Facsimile: (858) 458-3136
Attention: Leigh P. Ryan
If to the Transfer Agent:
American Stock Transfer and Trust Company
6201 15th Avenue
Brooklyn, New York 11219
Telephone: (718) 921-8247
Facsimile: (718) 921-8323
Attention: Wilbert Myles
If to a Buyer, to its address and facsimile number set forth
on the Schedule of Buyers, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers,
with a copy (for informational purposes only) to:
Xmark Opportunity Partners, LLC
90 Grove Street, Suite 201
Ridgefield, Connecticut 06877
Telephone: (203) 244-9503
Facsimile: (203) 438-9949
Attention: Mitchell D. Kaye
and
Lowenstein Sandler PC
1251 Avenue of the Americas, 18th Floor
New York, New York 10020
Telephone: (212) 204-8688
Facsimile: (973) 597-2507
Attention: Steven E. Siesser
or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or
other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission
or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.
(g) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Shares or the
Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders
of at least two-thirds of the Shares and Warrant Shares issued and
issuable under the Warrants, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the
Warrants). Except as set forth in Section 2(f) above with respect to
the Warrant Shares, a Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such
assigned rights and shall enter into a joinder to this Agreement and
shall become subject to the terms and conditions of this Agreement
applicable to a Buyer with respect to such rights assigned to it.
(h) No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.
(i) Survival. Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company and the
Buyers contained in Sections 2 and 3, and the agreements and covenants
set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer
shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates,
instruments and documents, as any other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(k) Indemnification.
(i) In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the
Securities thereunder and in addition to all of the
Company's other obligations under the Transaction Documents,
the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities
and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and
any of the foregoing Persons' agents or other
representatives (including, without limitation, those
retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and
against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective
of whether any such Indemnitee is a party to the action for
which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document delivered
hereby or thereby or (b) any breach of any covenant,
agreement or obligation of the Company contained in the
Transaction Documents or any other certificate, instrument
or document delivered hereby or thereby. The amount paid or
payable by an Indemnitee as a result any Indemnified
Liability (or action in respect thereof) shall be deemed to
include, for purposes of this Section 9(k), any reasonable
legal or other expenses reasonably and actually incurred by
such Indemnitee in connection with investigating or
defending or preparing to defend any such action or claim.
(ii) Promptly after receipt by an Indemnitee under
this Section 9(k) of notice of any claim or the commencement
of any action, such Indemnitee shall, if a claim in respect
thereof is to be made against the indemnifying party under
this Section 9(k), notify the Company in writing of the
claim or the commencement of that action; provided, however,
that the failure to notify the Company shall not relieve the
Company from any liability which it may have under this
Section 9(k) except to the extent the Company, in its
capacity as the indemnifying party, has been prejudiced by
such failure. If any such claim or action shall be brought
against an Indemnitee, and it shall notify the Company
thereof, the Company shall be entitled to participate
therein and, to the extent that it wishes, to assume the
defense thereof with counsel satisfactory to such
Indemnitee. After notice from the Company to the applicable
Indemnitee of its election to assume the defense of such
claim or action, the Company shall not be liable to such
Indemnitee under this Section 9(k) for any legal or other
expenses subsequently incurred by such Indemnitee in
connection with the defense thereof other than reasonable
costs of investigation. The Company, in its capacity as
indemnifying party, shall not:
(x) without the prior written consent of
each applicable Indemnitee (which consent shall
not be unreasonably withheld, conditioned or
delayed), settle or compromise or consent to the
entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution
may be sought hereunder (whether or not such
Indemnitees are actual or potential parties to
such claim or action) unless such settlement,
compromise or consent includes an unconditional
release of each such Indemnitee from all liability
arising out of such claim, action, suit or
proceeding, or
(y) be liable for any settlement of any
such action effected without its written consent
(which consent shall not be unreasonably withheld,
conditioned or delayed), but if settled with its
written consent or if there be a final judgment
for the plaintiff in any such action, the Company,
in its capacity as the indemnifying party, agrees
to indemnify and hold harmless each applicable
Indemnitee from and against any loss or liability
by reason of such settlement or judgment.
(iii) If the indemnification provided for in this
Section 9(k) shall for any reason be unavailable or
insufficient to hold harmless an Indemnitee in respect of
any Indemnified Liability (or action in respect thereof),
the Company, in its capacity as the indemnifying party,
shall, in lieu of indemnifying such Indemnitee, contribute
to the amount paid or payable by such Indemnitee as a result
of such Indemnified Liability (or action in respect
thereof), in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and each
applicable Indemnitee on the other.
(l) No Strict Construction. 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.
(m) Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any Person having
any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate
relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages and
without posting a bond or other security.
(n) Rescission and Withdrawal Right. Notwithstanding
anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Buyer
exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election
in whole or in part without prejudice to its future actions and
rights.
(o) Payment Set Aside. To the extent that the Company makes
a payment or payments to the Buyers hereunder or pursuant to any of
the other Transaction Documents or the Buyers enforce or exercise
their rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common
law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as
if such payment had not been made or such enforcement or setoff had
not occurred.
(p) Independent Nature of Buyers' Obligations and Rights.
The obligations of each Buyer under any Transaction Document are
several and not joint with the obligations of any other Buyer, and no
Buyer shall be responsible in any way for the performance of the
obligations of any other Buyer under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action
taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that the Buyers
are in any way acting in concert or as a group, and the Company will
not assert any such claim with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group
with respect to such obligations or the transactions contemplated by
the Transaction Documents. The Company acknowledges and each Buyer
confirms that it has independently participated in the negotiation of
the transaction contemplated hereby with the advice of its own counsel
and advisors. Each Buyer shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
[Signature Pages Follow.]
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
AEOLUS PHARMACEUTICALS, INC.
By:
----------------------------------------------
Name: John L. McManus
Title: President
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYERS:
XMARK OPPORTUNITY FUND, L.P.
By: XMARK OPPORTUNITY GP, LLC, its General Partner
By: XMARK OPPORTUNITY PARTNERS, LLC, its Sole Member
By: XMARK CAPITAL PARTNERS, LLC, its Managing Member
By:
-------------------------------------------------------
Name: Mitchell D. Kaye
Title: Co-Managing Member
XMARK OPPORTUNITY FUND, LTD.
By: XMARK OPPORTUNITY MANAGER, LLC, its Investment Manager
By: XMARK OPPORTUNITY PARTNERS, LLC, its Sole Member
By: XMARK CAPITAL PARTNERS, LLC, its Managing Member
By:
-------------------------------------------------------
Name: Mitchell D. Kaye
Title: Co-Managing Member
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5) (6)
Address and Legal
Facsimile Number Number of Number of Purchase Representative's
Purchaser (Jurisdiction) Shares Warrant Shares Price Address and
Facsimile Number
(if different
than in column
(2))
Xmark Opportunity Fund, L.P. c/o Xmark Opportunity Partners, LLC 1,875,000 4,687,500 $525,000.00
90 Grove Street
Suite 201
Ridgefield, CT 06877
Telephone: (203) 244-9503
Facsimile: (203) 438-9949
Attention: Mitchell D. Kaye
(Delaware)
Xmark Opportunity Fund, Ltd. c/o Xmark Opportunity Partners, LLC 3,482,143 8,705,357 $975,000.00
90 Grove Street
Suite 201
Ridgefield, CT 06877
Telephone: (203) 244-9503
Facsimile: (203) 438-9949
Attention: Mitchell D. Kaye
(Cayman Islands)
Total 5,357,143 13,392,857 $1,500,000.00
EXHIBITS
Exhibit A Form of Warrant
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Irrevocable Transfer Agent Instructions
Exhibit D Form of Opinion of Company's Counsel
SCHEDULES
Schedule 3(a) Organization and Qualification
Schedule 3(b) Authorization; Enforcement; Validity
Schedule 3(d) No Conflicts
Schedule 3(e) Consents and Filings
Schedule 3(k) Absence of Certain Changes
Schedule 3(o) Sarbanes-Oxley Act
Schedule 3(p) Transactions with Affiliates
Schedule 3(q) Equity Capitalization
Schedule 3(r) Indebtedness and Other Contracts
Schedule 3(t) Insurance
Schedule 3(u) Employee Relations
Schedule 3(v) Title
Schedule 3(w) Intellectual Property Rights
Schedule 3(z) Internal Accounting and Disclosure Controls
Schedule 3(gg) Placement Agents