SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (“Agreement”) is made as of this 26th day of
March, 2008 (the “Signing Date”) by and among Novelos Therapeutics, Inc., a
Delaware corporation (the “Company”), the holders of Series B Preferred Stock
(as defined below), and the investors set forth on Schedule I affixed hereto, as
such Schedule may be amended from time to time in accordance with the terms of
this Agreement (each an “Investor” and collectively the “Investors”).  

Recitals:

A. The Company desires, pursuant to this Agreement, to raise up to the
Investment Amount (as defined below) through the issuance and sale of the
following to the Investors (the “Private Placement”): (i) up to 100 shares of a
newly created series of the Company’s Preferred Stock, designated “Series D
Convertible Preferred Stock”, par value $0.00001 per share (the “Preferred
Stock”), which Preferred Stock shall have the rights, preferences and privileges
set forth in the Certificate of Designations, Preferences and Rights, in the
form of Exhibit A annexed hereto and made a part hereof (the “Certificate of
Designations”), and each share of Preferred Stock shall have a stated value of
$50,000 and shall initially be convertible into shares of the Company's Common
Stock, par value $0.00001 per share (the “Common Stock”), at a price of $0.65
per share (the “Conversion Price”), for an aggregate of 7,692,300 shares of
Common Stock; and (ii) warrants to acquire up to 3,846,151 shares of Common
Stock, equal to 50% of the number of shares of Common Stock underlying the
Preferred Stock on the date of issue, with an exercise price of $0.65 per share,
in the form of Exhibit B annexed hereto and made a part hereof (the “Warrants”);

B. The Investors desire to purchase from the Company, and the Company desires to
issue and sell to the Investors, upon the terms and conditions stated in this
Agreement, such number of shares of Preferred Stock and Warrants to purchase
such number of shares of Common Stock as is set forth next to each such
Investor’s name on Schedule I affixed hereto;

C. Subject to the conditions hereinafter set forth, on the Closing Date, the
Investors will purchase the Preferred Stock and Warrants in the Private
Placement for an aggregate purchase price equal to the Investment Amount;

D. The Company and the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder (the “1933
Act”).
 
E. Contemporaneous with the sale of the Preferred Stock and the Warrants at the
Closing, the parties hereto will enter into a Registration Rights Agreement, in
the form attached hereto as Exhibit D (the “Registration Rights Agreement”),
pursuant to which, among other things, the Company will provide certain
registration rights to the Investors with respect to the shares of Common Stock
issuable upon conversion or exercise, as the case may be, of the Preferred
Stock, Warrants and Series B Warrants; and

 

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NOW, THEREFORE, in consideration of the mutual promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

1. Definitions. In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall have
the meanings set forth in this Section 1:
 
“1933 Act” has the meaning set forth in the Recitals.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.

“10-KSB” has the meaning set forth in Section 5.6.

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly Controls, is Controlled by, or is under common Control with, such
Person.

“Agreement” has the meaning set forth in the Recitals.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

“Buy-In Price” has the meaning set forth in Section 9.15.

“Certificate of Designations” has the meaning set forth in the Recitals.

“Company Counsel Opinion” means a legal opinion from the Company Counsel, dated
as of the applicable Closing Date, in the form attached hereto as Exhibit E.

“Closing” has the meaning set forth in Section 4.1.

“Closing Date” has the meaning set forth in Section 4.2.

“Common Stock” has the meaning set forth in the Recitals, and also includes any
securities into which the Common Stock may be reclassified.

“Company” has the meaning set forth in the Recitals.

“Company Counsel” means Foley Hoag LLP, counsel to the Company.

“Company’s Knowledge” means the actual knowledge of the officers of the Company,
after due inquiry and investigation.

 

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“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

“Control” means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

“Conversion Price” has the meaning set forth in the Recitals.

“Conversion Shares” means the shares of Common Stock issuable upon conversion of
the Preferred Stock.

“Covenant Expiration Event” has the meaning set forth in Section 9.8.

“Deadline Date” has the meaning set forth in Section 9.15.

“Disclosure Schedules” has the meaning set forth in Section 5.

“Eligible Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the Closing Date means
the OTC Bulletin Board (“OTCBB”). 

“Environmental Laws” has the meaning set forth in Section 5.15.

“Escrow Amount” has the meaning set forth in Section 3.1(a).

“Escrow Termination Date” means the 15th calendar day after the Signing Date;
provided, however, the Investors and the Company may jointly agree to extend the
Escrow Termination Date for up to two additional 15-day periods by giving
written notice to the Lead Investor Counsel of their election to so extend the
Escrow Termination Date, in each case for up to an additional 15 calendar days,
and in each such case, the Escrow Termination Date shall be the date specified
in such notice; provided, further, however, the Escrow Termination Date shall
not be later than April 30, 2008, on which date, if the Closing has not
occurred, Lead Investor Counsel shall return the Escrow Amount in accordance
with Section 3.1(b); provided, further, however, the Escrow Termination Date
shall occur upon termination of this Agreement pursuant to Section 9.13.

“Indemnified Person” has the meaning set forth in Section 10.3.

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; (v) trade secrets, Confidential Information
and know-how (including, but not limited to, ideas, formulae, compositions,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information); and (vi) computer
software (including, but not limited to, data, data bases and documentation).

 

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“Investment Amount” means an amount equal to $5,000,000.
   
“Lead Investors” shall mean the Xmark Entities and the Orbimed Entities,
together.

“Lead Investor Counsel” has the meaning set forth in Section 3.1(a).

“Lead Investor Counsel Duties” has the meaning set forth in Section 3.2(a).

“Lead Investor Counsel Fees” has the meaning set forth in Section 11.5.

“Lead Investor Director” has the meaning set forth in Section 9.7(a).

“Lead Investor Observer” has the meaning set forth in Section 9.7(b)

“License Agreements” has the meaning set forth in Section 5.14(b).

“Losses” has the meaning set forth in Section 10.2.

“Material Adverse Effect” means a material adverse effect on (i) the assets and
liabilities, prospects, results of operations, condition (financial or
otherwise) or business of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to issue and sell the Securities and to perform
its obligations under the Transaction Documents; provided, however, that: (A)
any adverse effect that results from general economic, business or industry
conditions, the taking by the Company of any action permitted or required by the
Agreement, or the announcement or pendency of transactions contemplated
hereunder, shall not, in and of itself, constitute a "Material Adverse Effect"
on the Company, and shall not be considered in determining whether there has
been or would be a "Material Adverse Effect" on the Company and (B) a decline in
the Company's stock price shall not, in and of itself, constitute a "Material
Adverse Effect" on the Company and shall not be considered in determining
whether there has been or would be a "Material Adverse Effect" on the Company.

“Material Contract” means any contract of the Company or any Subsidiary (i) that
was required to be filed as an exhibit to the SEC Filings pursuant to Item
601(b)(4) or Item 601(b)(10) of Regulation S-B of the 1933 Act or (ii) the loss
of which could reasonably be expected to have a Material Adverse Effect.

“Orbimed Entities means, collectively, Caduceus Master Fund Limited, a Bermuda
corporation (“Caduceus Master”), Caduceus Capital II, L.P., a Delaware limited
partnership (“Caduceus Capital”), and Summer Street Life Sciences Hedge Fund
Investors LLC, a Delaware limited liability company (“Summer Street”) .

 

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“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Placement Agent” shall mean Rodman and Renshaw.
 
“Placement Agent Agreement” means that certain letter from the Company to the
Placement Agent, dated February 12, 2007, as amended by a letter agreement on
March 25, 2008.

“Placement Agent Fee” has the meaning set forth in Section 5.19.

“Preferred Stock” has the meaning set forth in the Recitals.

“Press Release” has the meaning set forth in Section 9.13.

“Prior Registration Agreement” shall mean the registration rights agreements
dated May 2, 2007 between the Company and the holders of Series B Preferred
Stock.

“Private Placement” has the meaning set forth in the Recitals.

“Registration Rights Agreement” has the meaning set forth in the Recitals.

“Regulation D” has the meaning set forth in the Recitals.
 
“Requisite Holders” shall mean the holders of at least a majority of the then
outstanding shares of Preferred Stock which majority must include (i) the Xmark
Entities, provided such Xmark Entities have purchased an aggregate of $1,300,000
of Preferred Stock pursuant to this Agreement and hold at least one-third of the
Preferred Stock issued to the Xmark Entities at Closing as of the date of
determination and (ii) the OrbiMed Entities, provided such OrbiMed Entities have
purchased an aggregate of $1,600,000 of Preferred Stock pursuant to this
Agreement and hold at least one-third of the Preferred Stock issued to the
OrbiMed Entities at Closing as of the date of determination (appropriately
adjusted for any stock dividend, stock split, reverse stock split,
reclassification, stock combination or other recapitalization occurring after
the date hereof).

“Rule 144” has the meaning set forth in Section 9.14.

“SEC” has the meaning set forth in the Recitals.
 
“SEC Filings” has the meaning set forth in Section 5.6.

“Securities” means the Preferred Stock, the Conversion Shares, the shares of
Common Stock issuable as payment-in-kind dividends on the Preferred Stock in
accordance with the terms thereof, the Warrants and the Warrant Shares.

 

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“Series B Preferred Stock” shall mean the 300 shares of Series B Convertible
Preferred Stock, par value $.00001, issued pursuant to that certain Securities
Purchase Agreement dated as of April 12, 2007, as amended on May 2, 2007.

“Series B Warrants” shall have the meaning set forth in Section 7.3.

“Signing Date” has the meaning set forth in the Recitals.

“Subsidiary” has the meaning set forth in Section 5.1.

“Transaction Documents” means this Agreement, the Warrants and the Registration
Rights Agreement.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

“Warrants” has the meaning set forth in the Recitals.

“Xmark Entities” means, collectively, Xmark Opportunity Fund, L.P., a Delaware
limited partnership (“Xmark LP”) and Xmark Opportunity Fund, Ltd., a Cayman
Islands exempted company (“Xmark Ltd”).
 
2. Purchase and Sale of Securities.
 
Subject to the terms and conditions of this Agreement, including without
limitation, the conditions set forth in Section 8, there shall be a closing at
which the Company shall issue and sell, and each Investor listed on Schedule I
attached hereto, which Schedule I may be amended from time to time, with the
prior written consent of the Investors, to add additional Investors who agree to
purchase Preferred Stock in the Private Placement by executing a counterpart to
this Agreement following the date hereof, shall severally, and not jointly,
purchase, the number of shares of Preferred Stock and the number of Warrants, in
each case, in the respective amounts set forth opposite their names on Schedule
I affixed hereto, in exchange for the cash consideration set forth as the
“Closing Purchase Price” opposite their respective names on Schedule I affixed
hereto.

3. Escrow.
 
3.1. (a) Simultaneously with the execution and delivery of this Agreement by an
Investor, such Investor shall promptly cause a wire transfer of immediately
available funds (U.S. dollars) in an amount representing the “Closing Purchase
Price” on such Investor’s signature page affixed hereto and opposite such
Investor’s name thereon, to be paid to a non-interest bearing escrow account of
Lowenstein Sandler PC, the Lead Investors’ counsel (“Lead Investor Counsel”),
set forth on Schedule II affixed hereto (the aggregate amounts received being
held in escrow by Lead Investor Counsel are referred to herein as the “Escrow
Amount”). Lead Investor Counsel shall hold the Escrow Amount in escrow in
accordance with Section 3.1(b).
 

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(b) The Lead Lead Investor Counsel shall continue to hold the Escrow Amount in
escrow in accordance with and subject to this Agreement, from the date of its
receipt of the funds constituting the Escrow Amount until the soonest of:

(i) the Escrow Termination Date, in which case, if Lead Investor Counsel then
holds any portion of the Escrow Amount, then: (A) Lead Investor Counsel shall
return the portion of the Escrow Amount received from each Investor which it
then holds, to each such Investor, in accordance with written wire transfer
instructions received from such Investor; and (B) if Lead Investor Counsel has
not received written wire transfer instructions from any Investor before the
30th day after the Escrow Termination Date, then Lead Investor Counsel may, in
its sole and absolute discretion, either (x) deposit that portion of the Escrow
Amount to be returned to such Investor in a court of competent jurisdiction on
written notice to such Investor, and Lead Investor Counsel shall thereafter have
no further liability with respect to such deposited funds, or (y) continue to
hold such portion of the Escrow Amount pending receipt of written wire transfer
instructions from such Investor or an order from a court of competent
jurisdiction; OR

(ii) in the case of the Closing, receipt of written instructions from the Lead
Investors that the Closing shall have been consummated, in which case, Lead
Investor Counsel shall release the Escrow Amount constituting the aggregate of
all the “Closing Purchase Price” for each of the Investors (the “Aggregate
Purchase Price”) as follows: (A) the Placement Agent Fee to the Placement Agent,
(B) the Lead Investor Counsel Fees to the Lead Investor Counsel and (B) the
balance of the aggregate “Closing Purchase Price” to the Company.

3.2. The Company and the Investors acknowledge and agree for the benefit of Lead
Investor Counsel (which shall be deemed to be a third party beneficiary of this
Section 3 and of Section 11) as follows:

(a) Investor Counsel: (i) is not responsible for the performance by the Company,
the Investors or Placement Agent of this Agreement or any of the Transaction
Documents or for determining or compelling compliance therewith; (ii) is only
responsible for (A) holding the Escrow Amount in escrow pending receipt of
written instructions from the Investors directing the release of the Escrow
Amount, and (B) disbursing the Escrow Amount in accordance with the written
instructions from the Investors, each of the responsibilities of Lead Investor
Counsel in clause (A) and (B) is ministerial in nature, and no implied duties or
obligations of any kind shall be read into this Agreement against or on the part
of Lead Investor Counsel (collectively, the “Lead Investor Counsel Duties”);
(iii) shall not be obligated to take any legal or other action hereunder which
might in its judgment involve or cause it to incur any expense or liability
unless it shall have been furnished with indemnification acceptable to it, in
its sole discretion; (iv) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction (including, without
limitation, wire transfer instructions, whether incorporated herein or provided
in a separate written instruction), instrument, statement, certificate, request
or other document furnished to it hereunder and believed by it to be genuine and
to have been signed or presented by the proper Person, and shall have no
responsibility for making inquiry as to, or for determining, the genuineness,
accuracy or validity thereof, or of the authority of the Person signing or
presenting the same; (v) may consult counsel satisfactory to it, and the opinion
or advice of such counsel in any instance shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the opinion or advice of
such counsel; and (vi) shall be authorized to receive from the Escrow Amount, on
the applicable Closing Date, the Lead Investor Counsel Fees. Documents and
written materials referred to in this Section 3.2(a) include, without
limitation, e-mail and other electronic transmissions capable of being printed,
whether or not they are in fact printed; and any such e-mail or other electronic
transmission may be deemed and treated by Lead Investor Counsel as having been
signed or presented by a Person if it bears, as sender, the Person’s e-mail
address. 

 

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(b) Lead Investor Counsel shall not be liable to anyone for any action taken or
omitted to be taken by it hereunder, except in the case of Investor Counsel’s
gross negligence or willful misconduct in breach of the Lead Investor Counsel
Duties. IN NO EVENT SHALL LEAD INVESTOR COUNSEL BE LIABLE FOR INDIRECT,
PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGE OR LOSS (INCLUDING BUT NOT LIMITED TO
LOST PROFITS) WHATSOEVER, EVEN IF LEAD INVESTOR COUNSEL HAS BEEN INFORMED OF THE
LIKELIHOOD OF SUCH LOSS OR DAMAGE AND REGARDLESS OF THE FORM OF ACTION.

(c) The Company and the Investors hereby indemnify and hold harmless Lead
Investor Counsel from and against any and all loss, liability, cost, damage and
expense, including, without limitation, reasonable counsel fees and expenses,
which Lead Investor Counsel may suffer or incur by reason of any action, claim
or proceeding brought against Lead Investor Counsel arising out of or relating
to the performance of the Lead Investor Counsel Duties, unless such action,
claim or proceeding is exclusively the result of the willful misconduct, bad
faith or gross negligence of Investor Counsel.

(d) Lead Investor Counsel has acted as legal counsel to one or more of the
Investors in connection with this Agreement and the other Transaction Documents,
is merely acting as a stakeholder under this Agreement and is, therefore, hereby
authorized to continue acting as legal counsel to such Lead Investors including,
without limitation, with regard to any dispute arising out of this Agreement,
the other Transaction Documents, the Escrow Amount or any other matter. Each of
the Company and the Investors hereby expressly consents to permit Lead Investor
Counsel to represent such Investors in connection with all matters relating to
this Agreement, including, without limitation, with regard to any dispute
arising out of this Agreement, the other Transaction Documents, the Escrow
Amount or any other matter, and hereby waives any conflict of interest or
appearance of conflict or impropriety with respect to such representation. Each
of the Company and the Investors has consulted with its own counsel specifically
about this Section 3 to the extent they deemed necessary, and has entered into
this Agreement after being satisfied with such advice.

(e) Lead Investor Counsel shall have the right at any time to resign for any
reason and be discharged of its duties as escrow agent hereunder (including
without limitation the Lead Investor Counsel Duties) by giving written notice of
its resignation to the Company and the Lead Investors at least ten (10) calendar
days prior to the specified effective date of such resignation. All obligations
of the Lead Investor Counsel hereunder shall cease and terminate on the
effective date of its resignation and its sole responsibility thereafter shall
be to hold the Escrow Amount, for a period of ten (10) calendar days following
the effective date of resignation, at which time,

 

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(i) Lead Investor Counsel shall be entitled to receive from the Escrow Amount
the Lead Investor Counsel Fees through and including the effective date of
resignation; and

(ii) if a successor escrow agent shall have been appointed and have accepted
such appointment in a writing to both the Company and the Lead Investors, then
upon written notice thereof given to each of the Investors, the Lead Investor
Counsel shall deliver the Escrow Amount to the successor escrow agent, and upon
such delivery, Lead Investor Counsel shall have no further liability or
obligation; or

(iii) if a successor escrow agent shall not have been appointed, for any reason
whatsoever, Lead Investor Counsel shall at its option in its sole discretion,
either (A) deliver the Escrow Amount to a court of competent jurisdiction
selected by Lead Investor Counsel and give written notice thereof to the Company
and the Investors, or (B) continue to hold Escrow Amount in escrow pending
written direction from the Company and the Lead Investors in form and formality
satisfactory to Investor Counsel.
 
(f) In the event that the Lead Investor Counsel shall be uncertain as to its
duties or rights hereunder or shall receive instructions with respect to the
Escrow Amount or any portion thereunder which, in its sole discretion, are in
conflict either with other instructions received by it or with any provision of
this Agreement, Lead Investor Counsel shall have the absolute right to suspend
all further performance under this Agreement (except for the safekeeping of such
Escrow Amount) until such uncertainty or conflicting instructions have been
resolved to the Investor Counsel’s sole satisfaction by final judgment of a
court of competent jurisdiction, joint written instructions from the Company and
all of the Investors, or otherwise. In the event that any controversy arises
between the Company and one or more of the Investors or any other party with
respect to this Agreement or the Escrow Amount, the Lead Investor Counsel shall
not be required to determine the proper resolution of such controversy or the
proper disposition of the Escrow Amount, and shall have the absolute right, in
its sole discretion, to deposit the Escrow Amount with the clerk of a court
selected by the Lead Investor Counsel and file a suit in interpleader in that
court and obtain an order from that court requiring all parties involved to
litigate in that court their respective claims arising out of or in connection
with the Escrow Amount. Upon the deposit by the Lead Investor Counsel of the
Escrow Amount with the clerk of such court in accordance with this provision,
the Lead Investor Counsel shall thereupon be relieved of all further obligations
and released from all liability hereunder.

(g) The provisions of this Section 3 shall survive any termination of this
Agreement.

 

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4. Closing.
 
4.1  Place. The closings of the transactions contemplated by this Agreement (the
“Closing”) shall take place at the offices of Investor Counsel, 1251 Avenue of
the Americas, New York, New York, or at such other location and on such other
date as the Company and the Investors shall mutually agree (or remotely via the
exchange of documents and signatures), on the Closing Date.

4.2 Closing. Upon satisfaction of the conditions to Closing set forth in Section
8 hereof, the Lead Investors shall instruct Lead Investor Counsel to immediately
release, and upon receipt of such instructions, Lead Investor Counsel shall
release, that portion of the Escrow Amount constituting the Aggregate Purchase
Price as follows: (A) the Lead Investor Counsel Fees to the Lead Investor
Counsel and (B) the balance of the Aggregate Purchase Price to the Company (the
date of receipt of such balance by the Company is hereinafter referred to as the
“Closing Date”). On the Closing Date, the Company shall issue or cause to be
issued to each Investor a certificate or certificates, registered in such name
or names as each such Investor may designate, representing the number of shares
of Preferred Stock as is set forth opposite such Investor’s name on Schedule I
affixed hereto and shall also issue to each such Investor, or such Investor’s
respective designees, the number of Warrants as is set forth opposite such
Investor’s name on Schedule I affixed hereto.

5. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors on and as of the Signing Date and on the Closing
Date, knowing and intending their reliance hereon, that, except as set forth in
the schedules delivered on the Signing Date (collectively, the “Disclosure
Schedules”):
 
5.1. Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries, a complete list of which is set forth in Schedule 5.1 hereto
(“Subsidiaries”), is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
its leasing of property makes such qualification or licensing necessary, unless
the failure to so qualify would not have a Material Adverse Effect.
 
5.2. Authorization. The Company has full power and authority and has taken all
requisite action on the part of the Company, its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of the
Transaction Documents and the Certificate of Designations, (ii) authorization of
the performance of all obligations of the Company hereunder or thereunder, and
(iii) the authorization, issuance (or reservation for issuance) and delivery of
the Securities. The Transaction Documents constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability, relating to or affecting creditors’ rights generally.
 

 

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5.3. Capitalization.
 
(a) Schedule 5.3 sets forth (i) the authorized capital stock of the Company on
the date hereof, (ii) the number of shares of capital stock issued and
outstanding, (iii) the number of shares of capital stock issuable pursuant to
the Company’s stock plans, and (iv) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities (other than the
Securities) exercisable for, or convertible into or exchangeable for any shares
of capital stock of the Company. All of the issued and outstanding shares of the
Company’s capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in full
compliance with applicable law and any rights of third parties. All of the
issued and outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in full compliance with applicable law and any
rights of third parties and are owned by the Company, beneficially and of
record, and, except as described on Schedule 5.3, are subject to no lien,
encumbrance or other adverse claim. No Person is entitled to pre-emptive or
similar statutory or contractual rights with respect to any securities of the
Company. Except as described on Schedule 5.3, there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of
any character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and, except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind. Except as
described on Schedule 5.3 and except for the Registration Rights Agreement,
there are no voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among the Company and any of
its security holders relating to the securities of the Company. Except as
described on Schedule 5.3, the Company has not granted any Person the right to
require the Company to register any of its securities under the 1933 Act,
whether on a demand basis or in connection with the registration of securities
of the Company for its own account or for the account of any other Person.
 
(b)  Schedule 5.3 sets forth a true and complete table setting forth the pro
forma capitalization of the Company on a fully diluted basis giving effect to
(i) the issuance of the Preferred Stock and the Warrants at the time of the
Closing, (ii) any adjustments in other securities resulting from the issuance of
the Preferred Stock and the Warrants at the time of the Closing, and (iii) the
exercise or conversion of all outstanding securities. Except as described on
Schedule 5.3, the issuance and sale of the Securities hereunder will not
obligate the Company to issue shares of Common Stock or other securities to any
other Person (other than the Investors) and will not result in the adjustment of
the exercise, conversion, exchange or reset price of any outstanding security.
 
(c) Except as set forth on Schedule 5.3, the Company does not have outstanding
stockholder purchase rights or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Company upon the
occurrence of certain events.
 
5.4. Valid Issuance. The Preferred Stock has been duly and validly authorized
and when issued to the Investors in accordance with the terms of this Agreement
will be validly issued, fully paid and nonassessable, shall have the rights,
preferences and limitations set forth in the Certificate of Designations and
shall be free and clear of all liens, claims, encumbrances and restrictions,
except for restrictions on transfer set forth in the Transaction Documents and
the Certificate of Designations or imposed by applicable securities laws. Upon
the due conversion of the Preferred Stock, the Conversion Shares will be validly
issued, fully paid and nonassessable, and shall be free and clear of all liens,
claims, encumbrances and restrictions, except for restrictions on transfer set
forth in the Transaction Documents and the Certificate of Designations or
imposed by applicable securities laws. The Warrants have been duly and validly
authorized and, upon the due exercise of the Warrants, the Warrant Shares will
be validly issued, fully paid and non-assessable, and shall be free and clear of
all liens, claims, encumbrances and restrictions, except for restrictions on
transfer set forth in the Transaction Documents and the Certificate of
Designations or imposed by applicable securities laws. The Company has reserved
a sufficient number of shares of Common Stock for issuance upon conversion of
the Preferred Stock and exercise of the Warrants.

 

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5.5. Consents. The execution, delivery and performance by the Company of the
Transaction Documents and the Certificate of Designations and the offer,
issuance and sale of the Securities require no consent of, action by or in
respect of, or filing with, any Person, governmental body, agency, or official
other than those consents set forth on Schedule 5.5 and filings that have been
made pursuant to applicable state securities laws and post-sale filings pursuant
to applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods. The Company has taken all action
necessary to exempt (i) the issuance and sale of the Securities, (ii) the
issuance of the Conversion Shares upon due conversion of the Preferred Stock,
(iii) the issuance of the Warrant Shares upon due exercise of the Warrants, and
(iv) the other transactions contemplated by the Transaction Documents from the
provisions of any anti-takeover, business combination or control share law or
statute binding on the Company or to which the Company or any of its assets and
properties may be subject or any provision of the Company’s Certificate of
Incorporation, Bylaws or any stockholder rights agreement that is or could
become applicable to the Investors as a result of the transactions contemplated
hereby, including without limitation, the issuance of the Securities and the
ownership, disposition or voting of the Securities by the Investors or the
exercise of any right granted to the Investors pursuant to this Agreement, the
Certificate of Designations or the other Transaction Documents.
 
5.6. Delivery of SEC Filings; Business. Copies of the Company’s most recent
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 (the
“10-KSB”), and all other reports filed by the Company pursuant to the 1934 Act
since the filing of the 10-KSB and prior to the date hereof (collectively, the
“SEC Filings”) are available on EDGAR. The SEC Filings are the only filings
required of the Company pursuant to the 1934 Act for such period. The Company
and its Subsidiaries are engaged only in the business described in the SEC
Filings and the SEC Filings contain a complete and accurate description in all
material respects of the business of the Company and its Subsidiaries, taken as
a whole.
 
5.7. No Material Adverse Change. Except as contemplated herein, identified and
described in the SEC Filings or as described on Schedule 5.7(a), since January
1, 2008, there has not been:
 
(i) any change in the consolidated assets, liabilities, financial condition or
operating results of the Company from that reflected in the financial statements
included in the SEC Filings, except for changes in the ordinary course of
business which have not and could not reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate;

 

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(ii) any declaration or payment of any dividend, or any authorization or payment
of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;

(iii) any material damage, destruction or loss, whether or not covered by
insurance to any assets or properties of the Company or its Subsidiaries;

(iv) any waiver, not in the ordinary course of business, by the Company or any
Subsidiary of a material right or of a material debt owed to it;

(v) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or a Subsidiary, except in the ordinary course
of business and which is not material to the assets, properties, financial
condition, operating results, prospects or business of the Company and its
Subsidiaries taken as a whole;

(vi) any change or amendment to the Company's Certificate of Incorporation or
Bylaws, or material change to any Material Contract or arrangement by which the
Company or any Subsidiary is bound or to which any of their respective assets or
properties is subject;

(vii) any material labor difficulties or labor union organizing activities with
respect to employees of the Company or any Subsidiary;

(viii) any transaction entered into by the Company or a Subsidiary other than in
the ordinary course of business;

(ix) the loss of the services of any key employee, or material change in the
composition or duties of the senior management of the Company or any Subsidiary;

(x) the loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect; or

(xi) any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.

 

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5.8. SEC Filings. At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The Company is not
(with or without the lapse of time or the giving of notice, or both) in breach
or default of any Material Contract and, to the Company’s Knowledge, no other
party to any Material Contract is (with or without the lapse of time or the
giving of notice, or both) in breach or default of any Material Contract.
Neither the Company nor any Subsidiary has received any notice of the intention
of any party to terminate any Material Contract.

5.9. No Conflict, Breach, Violation or Default. The execution, delivery and
performance of the Transaction Documents and the Certificate of Designations by
the Company and the issuance and sale of the Securities will not conflict with
or result in a breach or violation of any of the terms and provisions of, or
constitute a default under (i) the Company’s Certificate of Incorporation or
Bylaws, both as in effect on the date hereof (true and accurate copies of which
have been provided to the Investors before the date hereof), or (ii)(a) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) except as set forth on
Schedule 5.9, any agreement or instrument to which the Company or any Subsidiary
is a party or by which the Company or a Subsidiary is bound or to which any of
their respective assets or properties is subject.  
 
5.10. Tax Matters. Each of the Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown thereon or otherwise owed by it. The charges, accruals and reserves on the
books of the Company in respect of taxes for all fiscal periods are adequate in
all material respects, and there are no material unpaid assessments against the
Company or any Subsidiary nor, to the Company’s Knowledge, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All taxes and other assessments and levies that the Company or any
Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or properties. Except as described on Schedule 5.10, there are
no outstanding tax sharing agreements or other such arrangements between the
Company and any Subsidiary or other corporation or entity. Neither the Company
nor any Subsidiary is presently undergoing any audit by a taxing authority, or
has waived or extended any statute of limitations at the request of any taxing
authority.
 
5.11. Title to Properties. Except as disclosed in the SEC Filings or as set
forth on Schedule 5.11, the Company and each Subsidiary has good and marketable
title to all real properties and all other properties and assets owned by it, in
each case free from liens, encumbrances and defects that would materially affect
the value thereof or materially interfere with the use made or currently planned
to be made thereof by them; and except as disclosed in the SEC Filings, the
Company and each Subsidiary holds any leased real or personal property under
valid and enforceable leases with no exceptions that would materially interfere
with the use made or currently planned to be made thereof by them.

 

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5.12. Certificates, Authorities and Permits. The Company and each Subsidiary
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
 
5.13. No Labor Disputes. No material labor dispute with the employees of the
Company or any Subsidiary exists or, to the Company’s Knowledge, is imminent.
 
5.14. Intellectual Property.
 
(a) All Intellectual Property of the Company and its Subsidiaries is currently
in compliance with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable. Except as listed on Schedule
5.14(a), no Intellectual Property of the Company or its Subsidiaries which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted has
been or is now involved in any cancellation, dispute or litigation, and, to the
Company’s Knowledge, no such action is threatened. Except as listed on Schedule
5.14(a), no patent of the Company or its Subsidiaries has been or is now
involved in any interference, reissue, re-examination or opposition proceeding.
 
(b) All of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which the Company or any
Subsidiary is a party or by which any of their assets are bound (other than
 generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $25,000 per
license) (collectively, “License Agreements”) are valid and binding obligations
of the Company or its Subsidiaries that are parties thereto and, to the
Company’s Knowledge, the other parties thereto, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.
 
(c) The Company and its Subsidiaries own or have the valid right to use all of
the Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted, free and clear of all liens, encumbrances,
adverse claims or obligations to license all such owned Intellectual Property
and Confidential Information, other than licenses entered into in the ordinary
course of the Company’s and its Subsidiaries’ businesses. The Company and its
Subsidiaries have a valid and enforceable right to use all third party
Intellectual Property and Confidential Information used or held for use in the
respective businesses of the Company and its Subsidiaries as currently conducted
or as currently proposed to be conducted.

 

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(d) To the Company’s Knowledge, the conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted and as currently proposed to be
conducted does not and will not infringe any Intellectual Property rights of any
third party or any confidentiality obligation owed to a third party. To the
Company’s Knowledge, the Intellectual Property and Confidential Information of
the Company and its Subsidiaries which are necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted are not being infringed by
any third party. Except as set forth on Schedule 5.14(d), there is no litigation
or order pending or outstanding or, to the Company’s Knowledge, threatened or
imminent, that seeks to limit or challenge or that concerns the ownership, use,
validity or enforceability of any Intellectual Property or Confidential
Information of the Company and its Subsidiaries and the Company’s and its
Subsidiaries’ use of any Intellectual Property or Confidential Information owned
by a third party, and, to the Company’s Knowledge, there is no valid basis for
the same.
 
(e) The consummation of the transactions contemplated hereby will not result in
the alteration, loss, impairment of or restriction on the Company’s or any of
its Subsidiaries’ ownership or right to use any of the Intellectual Property or
Confidential Information which is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted.
 
(f) To the Company’s Knowledge, all software owned by the Company or any of its
Subsidiaries, and, to the Company’s Knowledge, all software licensed from third
parties by the Company or any of its Subsidiaries, (i) is free from any material
defect, bug, virus, or programming, design or documentation error; (ii) operates
and runs in a reasonable and efficient business manner; and (iii) conforms in
all material respects to the specifications and purposes thereof.
 
(g) The Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information. Each employee, consultant and contractor who has had
access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has executed an agreement to
maintain the confidentiality of such Confidential Information and has executed
appropriate agreements that are substantially consistent with the Company’s
standard forms therefor. To the Company’s Knowledge, there has been no material
disclosure of any of the Company’s or its Subsidiaries’ Confidential Information
to any third party without the Company’s consent.
 
5.15. Environmental Matters. Neither the Company nor any Subsidiary (i) is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), (ii) owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, (iii) is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, and (iv) is subject to any claim relating to
any Environmental Laws; which violation, contamination, liability or claim has
had or could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate; and there is no pending or, to the Company’s
Knowledge, threatened investigation that might lead to such a claim.

 

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5.16. Litigation. Except as disclosed in the SEC Filings, there are no pending
actions, suits or proceedings against or affecting the Company, its Subsidiaries
or any of its or their properties; and to the Company’s Knowledge, no such
actions, suits or proceedings are threatened or contemplated.
 
5.17. Financial Statements. The financial statements included in each SEC Filing
fairly present the consolidated financial position of the Company as of the
dates shown and its consolidated results of operations and cash flows for the
periods shown, and such financial statements have been prepared in conformity
with United States generally accepted accounting principles applied on a
consistent basis. Except as set forth in the financial statements of the Company
included in the SEC Filings filed prior to the date hereof, neither the Company
nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those which, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect.
 
5.18. Insurance Coverage. The Company and each Subsidiary maintains in full
force and effect insurance coverage and the Company reasonably believes such
insurance coverage is adequate.
 
5.19. Brokers and Finders. Except for the cash commission to be paid (the
“Placement Agent Fee”) to the Placement Agent pursuant to the terms of the
Placement Agent Agreement, as disclosed in Schedule 5.19 or as otherwise
disclosed in Schedule 5.19, no Person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company, any Subsidiary or any Investor for any commission, fee or
other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of the Company.

5.20. No Directed Selling Efforts or General Solicitation. Neither the Company
nor any Affiliate, nor any Person acting on its behalf has conducted any
“general solicitation” or “general advertising” (as those terms are used in
Regulation D) in connection with the offer or sale of any of the Securities.
 
5.21. No Integrated Offering. Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) of the 1933 Act for the exemption from the registration
requirements imposed under Section 5 of the 1933 Act for the transactions
contemplated hereby or would require such registration the 1933 Act.

 

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5.22. Private Placement. Subject to the accuracy of the representations and
warranties of the Investors contained in Section 6 hereof, the offer and sale of
the Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.
 
5.23. Questionable Payments. Neither the Company nor any of its Subsidiaries
nor, to the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any Subsidiary, has on behalf of the Company or any
Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
 
5.24. Transactions with Affiliates. Except as disclosed in SEC Filings made on
or prior to the date hereof, none of the officers or directors of the Company or
a Subsidiary and, to the Company’s Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or a Subsidiary
or to a presently contemplated transaction (other than for services as
employees, officers and directors) that would be required to be disclosed
pursuant to Item 404 of Regulation S-B promulgated under the 1933 Act.
 
5.25. Trading Compliance. The Common Stock is traded on the OTCBB and the
Company has taken no action designed to, or which to the Company’s Knowledge is
likely to have the effect of, causing the Common Stock not to continue to be
traded on the OTCBB. No order ceasing or suspending trading in any securities of
the Company or prohibiting the issuance and/or sale of the Securities is in
effect and no proceedings for such purpose are pending or threatened.

6. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company on and as of
the Signing Date and on the applicable Closing Date, knowing and intending that
the Company rely thereon, that:
 
6.1. Authorization. The execution, delivery and performance by the Investor of
the Transaction Documents to which such Investor is a party have been duly
authorized and will each constitute the valid and legally binding obligation of
the Investor, enforceable against the Investor in accordance with their
respective terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally.
 
6.2. Purchase Entirely for Own Account. The Securities to be received by the
Investor hereunder will be acquired for the Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and the Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act. The Investor is not a registered broker dealer or an
entity engaged in the business of being a broker dealer.

 

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6.3. Investment Experience. The Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby. The
Investor has significant experience in making private investments, similar to
the purchase of the Securities hereunder.
 
6.4. Disclosure of Information. The Investor has had an opportunity to receive
all additional information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. The
Investor acknowledges receipt of copies of and its satisfactory review of the
SEC Filings. Neither such inquiries nor any other due diligence investigation
conducted by the Investor shall modify, amend or affect the Investor’s right to
rely on the Company’s representations and warranties contained in this
Agreement.
 
6.5. Restricted Securities. The Investor understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.
 
6.6. Legends.
 
(a) It is understood that, except as provided below, certificates evidencing
such Securities may bear the following or any similar legend:
 
“THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, OR (II) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY
TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.”
 
(b) If required by the authorities of any state in connection with the issuance
of sale of the Securities, the legend required by such state authority.

 

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(c) From and after the first anniversary of the Closing Date in the case of the
Conversion Shares and the first anniversary of the date of exercise of a Warrant
(or, in the case of a “cashless” exercise, the first anniversary of the Closing
Date) in the case of the Warrant Shares, provided, in each case, that the
Investor is not an affiliate of the Company and has not been an affiliate for a
period of ninety days, the Company shall, upon an Investor's written request,
promptly cause certificates evidencing such Securities to be replaced with
certificates which do not bear such restrictive legends. When the Company is
required to cause unlegended certificates to replace previously issued legended
certificates, if unlegended certificates are not delivered to an Investor within
three (3) Business Days of submission by that Investor of legended
certificate(s) to the Company’s transfer agent together with a representation
letter in customary form, the Company shall be liable to the Investor for
liquidated damages equal to 1.5% of the aggregate purchase price of the
Securities evidenced by such certificate(s) for each 30-day period (or portion
thereof) beyond such three (3) Business Day-period that the unlegended
certificates have not been so delivered.
 
(d) Each Investor, severally and not jointly with the other Investors, agrees
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 6.6 is predicated upon the warranty of
the Investors to sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

6.7. Accredited Investor. The Investor is an “accredited investor” as defined in
Rule 501(a) of Regulation D, as amended, under the 1933 Act.
 
6.8. No General Solicitation. The Investor did not learn of the investment in
the Securities as a result of any “general advertising” or “general
solicitation” as those terms are contemplated in Regulation D, as amended, under
the 1933 Act.
 
6.9. Brokers and Finders. No Person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company, any Subsidiary or any other Investor for any commission, fee
or other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of the Investor.
 
6.10  Cooperation. The Company agrees to use commercially reasonable efforts to
cooperate with any Investor selling its Securities pursuant to Rule 144.

7. Exchange of Series B Preferred Stock and Related Matters.
 
7.1 Consent of Series B Investors. By executing this Agreement each of the
holders (the “Series B Investors”) of the Company’s Series B Preferred Stock,
hereby consents to the offer and issuance of the Preferred Stock and Warrants
and the filing of the Certificate of Designations.
 
7.2 Exchange of Series B Stock for Preferred Stock. Each of the Series B
Investors hereby agrees to exchange all of the shares of Series B Preferred
Stock owned by such Series B Investor for the number of shares of Preferred
Stock set forth opposite such Series B Investor’s name on Schedule III hereto
(the “Exchange”). The Exchange shall be effective upon the Closing (with no
further action required by the Company or the Series B Investors) and each share
of Series B Preferred Stock will automatically convert into 1 share of Preferred
Stock. Following the Closing, at the request of any Series B Investor, the
Company will issue new stock certificates for shares of Preferred Stock in
replacement of the existing Series B Preferred Stock certificates. For the
avoidance of doubt, each Series B Investor will be entitled to receive its
accrued but unpaid dividends with respect to such Series B Preferred Stock
through the day immediately preceding the date of the Exchange.

 

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7.3 Waiver of Liquidated Damages. Each of the Series B Investors is a party to a
Registration Rights Agreement dated as of May 2, 2007 (the “Prior Registration
Agreement”) which provided for registration rights with respect to the
22,500,000 shares of Common Stock issuable upon conversion of the Series B
Preferred Stock and 7,500,000 shares of Common Stock issuable upon exercise of
warrants dated May 2, 2007 (the “Series B Warrants”). Pursuant to Section 7(a)
of the Prior Registration Agreement, each of the Series B Investors hereby waive
any and all liquidated damages arising under Section 2 of the Prior Registration
Agreement during the period from September 7, 2007 through the date of this
Agreement as a result of the Company’s failure to register 7,500,000 shares of
common stock issuable upon exercise of the Series B Warrants and 3,000,000
shares of common stock issuable upon conversion of the Series B Preferred Stock.

8. Conditions to Closing.
 
8.1. Conditions to the Investors’ Obligations. The obligation of the Investors
to purchase the Securities at Closing is subject to the fulfillment to the
Investors’ satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived in writing by the Investors:
 
(a) The representations and warranties made by the Company in Section 5 hereof
that are qualified as to materiality shall be true and correct in all respects,
and those not so qualified shall be true and correct in all material respects,
at all times prior to and on the Closing Date. The Company shall have performed
in all material respects all obligations herein required to be performed or
observed by it on or prior to the relevant Closing Date;
 
(b) The Company shall have obtained in a timely fashion any and all consents,
permits, approvals, registrations and waivers necessary or appropriate for
consummation of the purchase and sale of the Securities then being issued and
sold, and all of which shall be and remain so long as necessary in full force
and effect;
 
(c) The Company shall have executed and delivered a counterpart to the
Registration Rights Agreement to the Investors.
 
(d) No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority, or
self-regulatory organization enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents;

 

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(e) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b), (d) and (h) of this Section 8.1;
 
(f) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance and sale of the Securities, certifying the current versions of
the Certificate of Incorporation and Bylaws of the Company and certifying as to
the signatures and authority of persons signing the Transaction Documents and
all related documents on behalf of the Company;
 
(g) [Reserved].

(h) The Company shall have delivered to the Investors a duly executed consent
from the holders of the Company’s Series C Convertible Preferred Stock, dated on
or before the Closing Date, whereby such holders consent to issuance of the
Preferred Stock and the filing of the Certificate of Designations, substantially
in the form attached hereto as Exhibit A.
 
(i)  The Investors shall have received the applicable Company Counsel Opinion;
 
(j) No stop order or suspension of trading shall have been imposed by any Person
with respect to public trading in the Common Stock;
 
(k) The Company shall have delivered evidence satisfactory to the Investors of
the filing of the Certificate of Designations with the Secretary of State of the
State of Delaware; and

(l) The Escrow Amount shall, as of the Closing, equal or exceed the Investment
Amount.

(m) The Company shall have delivered to the Series B Investors a duly executed
amendment to the Series B Warrants, dated on or before the Closing Date,
substantially in the form attached hereto as Exhibit C.
 
(n)  The Company shall have delivered to the Series B Investors a duly executed
amendment to the Prior Registration Agreement, dated on or before the Closing
Date, substantially in the form attached hereto as Exhibit F.

8.2. Conditions to Obligations of the Company. The Company's obligation to sell
and issue the Securities at Closing is subject to the fulfillment to the
satisfaction by the Company on or prior to the Closing Date of the following
conditions, any of which may be waived in writing by the Company:

 

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(a) [Reserved].
 
(b) The representations and warranties made by the Investors in Section 6 hereof
that are qualified as to materiality shall be true and correct in all respects,
and those not so qualified shall be true and correct in all material respects,
at all times prior to and on the Closing Date. The Investors shall have
performed in all material respects all obligations herein required to be
performed or observed by it on or prior to the relevant Closing;
 
(c) The Investors shall have executed and delivered the Registration Rights
Agreement to the Company;
 
(d) Each of the Investors shall have delivered to Lead Investor Counsel the
“Closing Purchase Price” set forth opposite such Investor’s name on Schedule I
affixed hereto;
 
(e) No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority, or
self-regulatory organization enjoining or preventing the consummation of the
transactions contemplated hereby or in the other Transaction Documents; and
 
(f) The Series B Investors shall have delivered to the Company a duly executed
amendment to the Series B Warrants, dated on or before the Closing Date,
substantially in the form attached hereto as Exhibit C.

(g)  The Series B Investors shall have delivered to the Company a duly executed
amendment to the Prior Registration Agreement, dated on or before the Closing
Date, substantially in the form attached hereto as Exhibit F.

9. Covenants and Agreements of the Company.
 
9.1. Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of providing for the conversion of the Preferred Stock and the
exercise of the Warrants, such number of shares of Common Stock as shall from
time to time equal 100% of the number of shares sufficient to permit the
conversion of the Preferred Stock and the exercise of the Warrants issued
pursuant to this Agreement in accordance with their respective terms, without
regard to any exercise limitations contained therein.
 
9.2. [Reserved]
 
9.3. No Conflicting Agreements. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.
 
9.4. Insurance. The Company shall not materially reduce the insurance coverages
described in Section 5.18.

 

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9.5. Compliance with Laws. The Company will comply in all material respects with
all applicable laws, rules, regulations, orders and decrees of all governmental
authorities, except to the extent non-compliance would not have a Material
Adverse Effect.
 
9.6. Termination of Certain Covenants. The provisions of Sections 9.2 through
9.5 shall terminate and be of no further force and effect upon the date on which
the Company’s obligations under the Registration Rights Agreement to register
and maintain the effectiveness of any registration statement covering the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) shall terminate. The provisions of Sections 9.7 through 9.16 shall
survive indefinitely.
 
9.7 Board/Observer Rights.

(a) From and after the Closing until such time as the Xmark Entities are no
longer Requisite Holders, the Xmark Entities shall have the right to designate
one (1) member to the Company’s Board of Directors (the “Lead Investor
Director”). The Company shall use its best efforts to cause the Lead Investor
Director to be elected to the Company’s Board of Directors. The Xmark Entities
shall have the right to remove or replace the Lead Investor Director by giving
notice to such Lead Investor Director and the Company, and the Company shall use
its best efforts to effect the removal or replacement of any such Lead Investor
Director. Subject to any limitations imposed by applicable law, the Lead
Investor Director shall be entitled to the same perquisites, including stock
options, reimbursement of expenses and other similar rights in connection with
such person's membership on the Board of Directors of the Company, as every
other non-employee member of the Board of Directors of the Company.

(b) From and after the Closing until such time as the Lead Investors are no
longer Requisite Holders the Lead Investors shall have the right to designate
one (1) observer to attend all meetings of the Company’s Board of Directors,
committees thereof and access to all information made available to members of
the Board (the “Lead Investor Observer”). The Lead Investor Observer shall have
the same rights as those who customarily attend such position. Notwithstanding
the foregoing, the Company reserves the right to exclude the Lead Investor
Observer from access to any material, meeting or portion thereof if the Company
believes, based on an opinion from its counsel, that such exclusion is necessary
to preserve attorney-client, work product or similar privilege. The Lead
Investor Observer shall hold in confidence and trust and not use or disclose any
confidential information provided to or learned by him or her in connection with
the Lead Investor Observer’s rights hereunder for any purpose other than the
monitoring and administration of the transactions contemplated hereby, unless
otherwise required by law, so long as such information is not in the public
domain. If requested by the Company, the Lead Investor Observer shall execute a
standard confidentiality agreement prior to attending any meetings.

   9.8 Affirmative Covenants. From and after the Signing Date until the Escrow
Termination Date (after taking into account any extensions of the Escrow
Termination Date)(the “Covenant Expiration Event”), the Company shall (and shall
cause its Subsidiaries to):

(a) use its best efforts to consummate the Closing on or before the Escrow
Termination Date;

 

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(b) use its best efforts to keep in full force and effect its corporate
existence and all material rights, franchises, intellectual property rights and
goodwill relating or pertaining to its businesses;
 
(c) conduct its operations only in the ordinary course of business consistent
with past practice;
 
(d) maintain its books, accounts and records in accordance with past practice or
as required by generally accepted accounting principles;
 
(e) duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its properties (real and personal), sales and activities, or
any part thereof, or upon the income or profits therefrom, as well as all claims
for labor, materials, or supplies that if unpaid could reasonably be expected to
by law become a lien on any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or any Subsidiary shall have set aside on its books adequate
reserves with respect thereto in accordance with generally accepted accounting
principals, consistently applied; and provided, further that it pay all such
taxes, assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien or other encumbrance that may have attached as
security therefore;
 
(f) use its best efforts to obtain all authorizations, consents, waivers,
approvals or other actions and to make all filings and applications necessary or
desirable to consummate the transactions contemplated hereby and to cause the
conditions to the obligation to close to be satisfied;
 
(g) promptly notify the Investors in writing if, to the Company’s Knowledge, (i)
any of the representations and warranties (together with the Disclosure
Schedules) made by it herein or in any of the other Transaction Document cease
to be accurate and complete in all material respects, or (ii) it fails to comply
with or satisfy any material covenant, condition or agreement to be complied
with or satisfied by it hereunder or under any other Transaction Document;
 
(h)  give notice to the Investors in writing within three (3) days of becoming
aware of any litigation or proceedings threatened in writing against the Company
or any of its Subsidiaries or any of its directors or officers or any pending
litigation and proceedings affecting the Company or any of its Subsidiaries or
any of its directors or officers or to which any of them is or becomes a party
involving a claim against any of them, stating the nature and status of such
litigation or proceedings, provided, however, that the Investors shall not be
provided with material non-public information without their express prior
written consent;
 
(i) promptly notify the Investors in writing of the occurrence of any breach of
any term of this Agreement; and
 
(j) comply in all material respects with (i) the applicable laws and regulations
wherever its business is conducted, (ii) the provisions of its Certificate of
Incorporation and Bylaws, (iii) all material agreements by which the Company,
its Subsidiaries or any of their respective properties may be bound, and (iv)
all applicable decrees, orders, and judgments.

 

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9.9 Negative Covenants. From and after the Signing Date until the occurrence of
the Covenant Expiration Event, without the prior written consent of the
Investors, the Company shall not (and shall cause its respective Subsidiaries
not to):

(a) take any action that would likely result in the representations and
warranties set forth herein (other than representations made as of a particular
date) becoming false or inaccurate in any material respect (or, as to
representations and warranties, which, by their terms, are qualified as to
materiality, becoming false or inaccurate in any respect);

(b) take or omit to be taken any action, or permit any of its Affiliates to take
or to omit to take any action, which would reasonably be expected to result in a
Material Adverse Effect;

(c) directly or indirectly, merge or consolidate with any Person, or sell,
transfer, lease or otherwise dispose of all or any substantial portion of its
assets in one transaction or a series of related transactions,

(d) except for the filing of the Certificate of Designations, amend, alter or
modify, its Certificate of Incorporation or Bylaws, or change its jurisdiction
of organization, structure, status or existence, or liquidate or dissolve
itself;

(e) (i) increase the compensation or benefits payable or to become payable to
its directors, officers or employees other than pursuant to the terms of any
agreement as in effect on the Signing Date, (ii) pay any compensation or
benefits not required by any existing plan or arrangement (including the
granting of stock options, stock appreciation rights, shares of restricted stock
or performance units) or grant any severance or termination pay to (except
pursuant to existing agreements, plans or policies), or enter into any
employment or severance agreement with, any director, officer or other employee,
or (iii) establish, adopt, enter into, amend or take any action to accelerate
rights under any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for the
benefit or welfare of any directors, officers or current or former employees,
except in each case to the extent required by applicable law;

(f) make any loans to its directors, officers or stockholders;
 
(g) waive, release, assign, settle or compromise any material rights, claims or
litigation;

(h) create, incur, assume or suffer to exist, or increase the amount of, any
liability for borrowed money, directly or indirectly other than: (i)
indebtedness existing on the date hereof; and (ii) purchase money indebtedness
of the Company (including, without limitation, capital leases to the extent
secured by purchase money security interests in equipment acquired pursuant
thereto);

 

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(i) assume, endorse, be or become liable for or guaranty the obligations of any
other Person except in the ordinary course of business;

(j) directly or indirectly, pay any dividends (other than quarterly and
semi-annual dividend payments in accordance with Series B and Series C
Certificates of Designations) or distributions on, or purchase, redeem or
retire, any shares of any class of its capital stock or other equity interests
or any securities convertible into capital stock, whether now or hereafter
outstanding, or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its capital stock or other equity interests, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash or property or in obligations of the Company or any of its Subsidiaries;

(k) enter into any transaction with any Affiliates or its or any of its
Affiliate’s equity holders, directors, officers, employees (including
upstreaming and downstreaming of cash and intercompany advances and payments) in
an amount in excess of $25,000 in the aggregate or amend any material provision
of any agreement with any Affiliate, or waive any material right of the Company
or any Subsidiary under any such agreement;

(l) at any time create any direct or indirect Subsidiary, enter into any joint
venture or similar arrangement or become a partner in any general or limited
partnership or enter into any management contract permitting third party
management rights with respect to the business of the Company or any of its
Subsidiaries;

(m)  cancel any liability or debt owed to it, except for consideration equal to
or exceeding the outstanding balance of such liability or debt, and in any
event, in the ordinary course of business;

(n) create, incur, assume or suffer to exist, any lien, charge or other
encumbrance on any of their or its respective properties or assets now owned or
hereafter acquired;

(o)  make any changes in any of its business objectives, purposes, or operations
or engage in any business other than that presently engaged in or presently
proposed to be engaged in by the Company;

(p) issue any capital stock or any security or instrument which, pursuant to its
terms, may be converted, exercised or exchanged for capital stock, other than
upon the conversion or exercise of any presently outstanding options, warrants
or convertible securities; or

(q) enter into an agreement to do any of the foregoing.

9.10. [Reserved]

 

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9.11. Trading. The Company shall promptly following the date hereof secure and
maintain the listing of the Conversion Shares and the Warrant Shares upon each
securities exchange or quotation system upon which the Common Stock is then
traded, so that as of the relevant Closing Date such Conversion Shares and
Warrant Shares shall have been authorized for trading on the relevant securities
exchange or quotation system.

9.12. Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, and not for (i) the repayment of any
outstanding indebtedness for borrowed money of the Company or any of its
Subsidiaries or (ii) redemption or repurchase of any of its or its Subsidiaries’
equity securities.

9.13. Press Release. On or before 9:00 a.m., New York City time, on the first
Business Day following the date of this Agreement, the Company shall issue a
press release, which shall have been reviewed and approved by the Investors,
announcing the transactions contemplated by the Transaction Documents (the
“Press Release”). In addition, the Company will file a Current Report on Form
8-K with the SEC describing the terms of the Transaction Documents (and
including as exhibits to such Current Report on Form 8-K the material
Transaction Documents (including, without limitation, this Agreement, the form
of Registration Rights Agreement and the form of Warrant)). Without any such
Investor’s prior consent, the Company agrees not to disclose in the Press
Release the names, addresses or any other information about an Investor, except
as required by law and to satisfy its obligations under the Registration Rights
Agreement.

9.14. Furnishing of Information. As long as any Investor owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the 1934 Act. As long as any Investor
owns Preferred Shares, Warrants or the Warrant Shares, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c)
promulgated by the SEC pursuant to the 1933 Act, as such Rule may be amended
from time to time, such information as is required for the Investors to sell the
Preferred Shares and Warrant Shares under Rule 144 promulgated by the SEC
pursuant to the 1933 Act, as such Rule may be amended from time to time (“Rule
144”). The Company further covenants that it will take such further action as
any holder of Preferred Shares, Warrants or the Warrant Shares may reasonably
request, all to the extent required from time to time to enable such Person to
sell the Preferred Shares and Warrant Shares without registration under the 1933
Act within the limitation of the exemptions provided by Rule 144.

9.15. Buy-In. If the Company shall fail for any reason or for no reason to issue
to an Investor unlegended certificates within three (3) Business Days of receipt
of documents necessary for the removal of the legend set forth above (the
“Deadline Date”), then, in addition to all other remedies available to such
Investor, if on or after the Business Day immediately following such three (3)
Business Day period, such Investor or Investor’s broker, acting on behalf of
such Investor, purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the holder of shares of
Common Stock that such Investor anticipated receiving from the Company without
any restrictive legend, then the Company shall, within three (3) Business Days
after such Investor’s request and in such Investor’s sole discretion, either (i)
pay cash to the Investor in an amount equal to such Investor’s total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the “Buy-In Price”), at which point the Company’s obligation to
deliver such certificate (and to issue such shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to such Investor a
certificate or certificates representing such shares of Common Stock and pay
cash to the Investor in an amount equal to the excess (if any) of the Buy-In
Price over the product of (a) such number of shares of Common Stock, times (b)
the closing bid price on the Deadline Date.

 

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9.16 Limited Participation Right. In the event the Requisite Holders approve an
amendment to the Certificate of Designations which materially adversely affects
all of the Investors, and if, during the twelve (12) month period following such
amendment, the Company agrees to sell, offers for sale or solicits offers to buy
its securities in a transaction in which one or more Lead Investors
participates, the Company shall provide notice of such transaction to each
Investor who held shares of Preferred Stock on the date of such amendment and on
the date of such transaction (each, an "Eligible Investor") and shall give each
Eligible Investor the right to participate in such transaction on a pro rata
basis among the participating Lead Investors and the Eligible Investors (based
upon the number of shares of Preferred Stock held by the Investors participating
in the transaction at the time of such transaction).

10. Survival and Indemnification.
 
10.1. Survival. Subject to Section 9.6, all representations, warranties,
covenants and agreements contained in this Agreement shall be deemed to be
representations, warranties, covenants and agreements as of the date hereof and
shall survive the Closing Date until the third anniversary thereof; provided,
however, that the provisions contained in: (a) Sections 3.2, 5.4, 10.1, 10.2 and
10.3 hereof shall survive indefinitely; and (b) Sections 5.10 and 5.15 shall
survive until 90 days after the applicable statute of limitations.
 
10.2. Indemnification. The Company agrees to indemnify and hold harmless, each
Investor and its Affiliates and the directors, officers, employees and agents of
each Investor and its Affiliates, from and against any and all losses, claims,
damages, liabilities and expenses (including without limitation reasonable
attorney fees and disbursements and other expenses incurred in connection with
investigating, preparing or defending any action, claim or proceeding, pending
or threatened and the costs of enforcement hereof) (collectively, “Losses”) to
which such Person may become subject as a result of any breach of
representation, warranty, covenant or agreement made by, or to be performed on
the part of, the Company under the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.
 
10.3. Conduct of Indemnification Proceedings. Promptly after receipt by any
Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 10.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is actually and materially prejudiced by such failure to
notify. In any such proceeding, any Indemnified Person shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless: (i) the Company and the
Indemnified Person shall have mutually agreed to the retention of such counsel;
(ii) in the reasonable judgment of counsel to such Indemnified Person (A)
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, or (B) the Company shall
have failed to promptly assume the defense of such proceeding. The Company shall
not be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned, but if settled with such consent, or if there be a final judgment
for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any Losses by reason of such settlement or
judgment. Without the prior written consent of the Indemnified Person, which
consent shall not be unreasonably withheld, delayed or conditioned, the Company
shall not effect any settlement of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.

 

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11. Miscellaneous.
 
11.1. Successors and Assigns. This Agreement may not be assigned by a party
hereto without the prior written consent of the Company and the Investors;
provided, however, that an Investor may assign its rights and delegate its
duties hereunder in whole or in part to an Affiliate or to a third party
acquiring some or all of its Securities in a private transaction without the
prior written consent of the Company or the other Investors, after notice duly
given by such Investor to the Company; provided, that no such assignment or
obligation shall affect the obligations of such Investor hereunder. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Except for the
Investor Counsel, which is an express intended third party beneficiary of this
Agreement, and except for provisions of this Agreement expressly to the
contrary, nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
 
11.2. Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
 
11.3. Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

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11.4. Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
as hereinafter described (i) if given by personal delivery, then such notice
shall be deemed given upon such delivery, (ii) if given by telex or telecopier,
then such notice shall be deemed given upon receipt of confirmation of complete
transmittal, (iii) if given by mail, then such notice shall be deemed given upon
the earlier of (A) receipt of such notice by the recipient or (B) three (3)
Business Days after such notice is deposited in first class mail, postage
prepaid, and (iv) if given by a nationally recognized overnight air courier,
then such notice shall be deemed given one (1) Business Day after delivery to
such carrier. All notices shall be addressed to the party to be notified at the
address as follows, or at such other address as such party may designate by ten
(10) days’ advance written notice to the other party:
 
If to the Company:

Novelos Therapeutics, Inc.
One Gateway Center, Suite 504
Newton, MA 02458
Attention: Chief Executive Officer
Fax: (617) 964-6331

With a copy to:

Foley Hoag LLP
Seaport World Trade Center West
155 Seaport Boulevard
Boston, MA 02210
Attn: Paul Bork
Fax: (617) 832-7000

If to any of the Investors:

to the addresses set forth on Schedule I affixed hereto.

With a copy to:

Lowenstein Sandler PC
1251 Avenue of the Americas
New York, NY 10020
Attn: Steven E. Siesser, Esq.
Fax: (973) 597-2507

11.5. Expenses. The Company shall pay the Lead Investors for their reasonable
out-of-pocket expenses, including the reasonable fees and expenses of Lead
Investor Counsel in connection with the Private Placement (which Lead Investor
Counsel Fees shall include, without limitation, the fees and expenses associated
with the negotiation, preparation and execution and delivery of this Agreement
and the other Transaction Documents and any amendments, modifications or waivers
thereto)(the “Lead Investor Counsel Fees”), in an amount not to exceed $25,000
through the Closing Date. The Lead Investor Counsel Fees shall be paid to Lead
Investor Counsel on the Closing Date by release to Lead Investor Counsel of the
portion of the Escrow Amount equal to the Lead Investor Counsel Fees applicable
to such Closing Date. Except as set forth above, the Company and the Investors
shall each bear their own expenses in connection with the negotiation,
preparation, execution and delivery of this Agreement. In the event that legal
proceedings are commenced by any party to this Agreement against another party
to this Agreement in connection with this Agreement or the other Transaction
Documents, the party or parties which do not prevail in such proceedings shall
severally, but not jointly, pay their pro rata share of the reasonable
attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred
by the prevailing party in such proceedings.

 

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11.6. Amendments and Waivers. This Agreement shall not be amended and the
observance of any term of this Agreement shall not be waived (either generally
or in a particular instance and either retroactively or prospectively) without
the prior written consent of the Company and the Requisite Holders; provided,
however, that any provision affecting the rights or obligations of Investor
Counsel, shall not be waived or amended without the prior written consent of the
Investor Counsel.  Any amendment or waiver effected in accordance with this
Section 11.6 shall be binding upon each holder of any Securities purchased under
this Agreement at the time outstanding, each future holder of all such
Securities, and the Company.
 
11.7. Publicity. Except as provided in Section 9.13, No public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Lead Investors, as
representative of the Investors (in the case of a release or announcement by the
Company) (which consents shall not be unreasonably withheld), except as such
release or announcement may be required by law or the applicable rules or
regulations of any securities exchange or securities market on which the
Securities are then listed and trading, in which case the Company or the Lead
Investors, as the case may be, shall allow the Investors or the Company, as
applicable, to the extent reasonably practicable in the circumstances,
reasonable time to comment on such release or announcement in advance of such
issuance.
 
11.8. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
 
11.9. Entire Agreement. This Agreement, including the Exhibits and Disclosure
Schedules, and the other Transaction Documents constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof. Prior
drafts or versions of this Agreement shall not be used to interpret this
Agreement.

 

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11.10. Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
 
11.11. Governing Law; Consent to Jurisdiction. This Agreement shall be governed
by, and construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof. Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts of the
State of New York located in New York County and the United States District
Court for the Southern District of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such
suit, action or proceeding may be served on each party hereto anywhere in the
world by the same methods as are specified for the giving of notices under this
Agreement. Each of the parties hereto irrevocably consents to the jurisdiction
of any such court in any such suit, action or proceeding and to the laying of
venue in such court. Each party hereto irrevocably waives any objection to the
laying of venue of any such suit, action or proceeding brought in such courts
and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. THE COMPANY
AND EACH OF THE INVESTORS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED HEREBY.

[signature page follows]

 

--------------------------------------------------------------------------------

Company Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

 
NOVELOS THERAPEUTICS, INC.
     
By:
/s/ Harry S. Palmin
 
Name: Harry S. Palmin
 
Title: President and CEO

 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
     
Xmark Opportunity Fund, Ltd.
 
Name of entity
     
By:
Xmark Opportunity Manager, LLC,
 
its Investment Manager
     
By:
Xmark Opportunity Partners, LLC,
 
its Sole Member
     
By:
Xmark Capital Partners, LLC,
 
its Managing Member
     
By:
/s/ Mitchell D. Kaye
     
Name: Mitchell D. Kaye
 
Title: Chief Executive Officer
     
Cayman Islands
 
Jurisdiction of organization of entity
     
Address:
     
90 Grove Street
 
Ridgefield, CT 06877
 

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
850,000
 

 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

March 26, 2008
     
Xmark Opportunity Fund, L.P.
 
Name of entity
     
By:
Xmark Opportunity GP, LLC
 
its General Partner
     
By:
Xmark Opportunity Partners, LLC,
 
its Sole Member
     
By:
Xmark Capital Partners, LLC,
 
its Managing Member
     
By:
/s/ Mitchell D. Kaye
     
Name: Mitchell D. Kaye
 
Title: Chief Executive Officer
     
Delaware
 
Jurisdiction of organization of entity
     
Address:
     
90 Grove Street
 
Ridgefield, CT 06877
 

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
450,000
 

 

--------------------------------------------------------------------------------

The undersigned is signatory to this Securities Purchase Agreement for purposes
of Section 7 only.

Date: March 26, 2008
     
Xmark JV Investment Partners, LLC
 
Name of entity
     
By:
Xmark Opportunity Partners, LLC
 
its Investment Manager
     
By:
Xmark Capital Partners, LLC,
 
its Managing Member
     
By:
/s/ Mitchell D. Kaye
     
Name: Mitchell D. Kaye
 
Title: Chief Executive Officer
     
Address:
     
90 Grove Street
 
Ridgefield, CT 06877
     

 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
     
Caduceus Capital Master Fund Limited
 
Name of entity
     
By:
/s/ Samuel D. Isaly
     
Name: Samuel D. Isaly
 
Title: Managing Partner, OrbiMed Advisors LLC
     
Print jurisdiction of organization of entity:
     
Address:
 
c/o OrbiMed Advisors LLC
 
767 Third Avenue, 30th Floor
 
New York, NY 10017
 

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
500,000.00
 

 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
 
IF A CORPORATION, PARTNERSHIP,
TRUST, ESTATE OR OTHER ENTITY:
 
Caduceus Capital II, L.P.
Name of entity
 
By:
/s/ Samuel D. Isaly
 
Name: Samuel D. Isaly
Title: Managing Partner, OrbiMed Advisors LLC
 
Print jurisdiction of organization of entity:
 
Address:
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
600,000.00
 

 

--------------------------------------------------------------------------------

 
Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
 
Summer Street Life Sciences Hedge Fund Investors LLC
Name of entity
 
By:
/s/ Samuel D. Isaly
 
Name: Samuel D. Isaly
Title: Managing Partner, OrbiMed Advisors LLC
 
Print jurisdiction of organization of entity:
 
Address:
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
500,000.00
 

 

--------------------------------------------------------------------------------

 
The undersigned are signatories to this Securities Purchase Agreement for
purposes of Section 7 only.

Date: March 26, 2008
 
PW Eucalyptus Fund, Ltd.
UBS Eucalyptus Fund, L.L.C.
 
By:
/s/ Samuel D. Isaly
 
Name: Samuel D. Isaly
Title: Managing Partner, OrbiMed Advisors LLC
 
Address:
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017

 
 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
 
Knoll Capital Fund II Master Fund Ltd.
Name of entity
 
By:
/s/ Fred Knoll
 

Name: Fred Knoll
Title:   KOM Capital Management
        Investment Manager  

Print jurisdiction of organization of entity:
 
Address:
c/o KOM Capital Management
666 Fifth Avenue, Suite 3702,
New York, NY 10103

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
400,000.00
 

 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
 
Europa International, Inc.
Name of entity
 
By:
/s/ Fred Knoll
 
Name: Fred Knoll
Title:   Knoll Capital Management
        Investment Manager for         Europa International, Inc.  
Print jurisdiction of organization of entity
 
Address:
c/o Knoll Capital Management
666 Fifth Avenue, Suite 3702,
New York, NY 10103

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
1,000,000.00
 

 

--------------------------------------------------------------------------------

Investor Signature Page

IN WITNESS WHEREOF, the undersigned has executed this Securities Purchase
Agreement or caused its duly authorized officers to execute this Securities
Purchase Agreement as of the date first above written.

Date: March 26, 2008
 
Hunt BioVenures, L.P.
Name of entity
 
By: HBV GP, L.L.C., its General Partner
 
By:
/s/ J. Fulton Murray, III
 
Name: J. Fulton Murray, III, Manager
 
Jurisdiction of organization of entity: Delaware
 
Address:
Hunt Investments
1900 N. Akard
Dallas, TX 75201
Attn: Michael T. Bierman, J. Fulton Murray, III and Benjamin D. Nelson

Aggregate dollar amount of Securities committed to be purchased pursuant to the
terms of the Agreement:

Closing Price:
 
$
700,000.00
 

 

--------------------------------------------------------------------------------

SCHEDULE I
INVESTORS - CLOSING

Name of Investor
 
 
Closing Purchase
Price
 
Number of
Shares of
Preferred Stock
 
 
Number of
Warrants
 
Xmark Opportunity Fund, Ltd.
90 Grove Street
Ridgefield, CT 06877
Attn: Mitchell D. Kaye
   
850,000.00
   
17
   
653,846
                       
Xmark Opportunity Fund, L.P.
90 Grove Street
Ridgefield, CT 06877
Attn: Mitchell D Kaye
   
450,000.00
   
9
   
346,154
                       
Caduceus Capital Master Fund Limited
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017
Attn: Jeff Comisarow
   
500,000.00
   
10
   
384,615
                       
Caduceus Capital II, L.P.
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017
Attn: Jeff Comisarow
   
600,000.00
   
12
   
461,538
                       
Summer Street Life Sciences Hedge Fund Investors, LLC
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017
Attn: Jeff Comisarow
   

500,000.00
   

10
   

384,615
                       
Knoll Capital Fund II Master Fund, Ltd.
c/o KOM Capital Management
666 Fifth Avenue, Suite 3702,
New York, NY 10103
Attn: Fred Knoll
   
400,000.00
   
8
   
307,692
                       
Europa International, Inc.
c/o KOM Capital Management
666 Fifth Avenue, Suite 3702,
New York, NY 10103
Attn: Fred Knoll
   
1,000,000.00
   
20
   
769,230
                       
Hunt-BioVentures, L.P.
1900 N. Akard
Dallas, TX 75201
Attn: Michael T. Bierman, J. Fulton Murray III, and Benjamin D. Nelson
   
700,000.00
   
14
   
538,461
 

 

--------------------------------------------------------------------------------

SCHEDULE II

Lead Investor Counsel Wire Instructions
For Escrow Amount

Bank:  
PNC Bank New Jersey
 
Caldwell, NJ
ABA No.: 
031207607
Account No.: 
8025720174
For credit to: 
Lowenstein Sandler PC
 
Special Trust Account I

For International wires please use SWIFT Code: PNCCUS33

 

--------------------------------------------------------------------------------

SCHEDULE III
Exchange of Series B Preferred Stock for Series D Preferred Stock

Name of Investor
 
Number of
Shares of Series
B Preferred
Stock
 
Number of Shares
of Series D
Preferred Stock
 
Xmark Opportunity Fund, Ltd.
   
40
   
40
 
Xmark Opportunity Fund, L.P.
   
20
   
20
 
Xmark JV Investment Partners, LLC
   
20
   
20
 
Caduceus Capital Master Fund Limited
   
40
   
40
 
Caduceus Capital II, L.P.
   
26
   
26
 
UBS Eucalyptus Fund, L.L.C.
   
26
   
26
 
PW Eucalyptus Fund, Ltd.
   
3
   
3
 
Knoll Capital Fund II Master Fund, Ltd.
   
40
   
40
 
Europa International, Inc.
   
40
   
40
 
Hunt-BioVentures, L.P.
   
45
   
45
                 

 

--------------------------------------------------------------------------------

Exhibits

Exhibit A
Certificate of Designations
Exhibit B
Form of Warrant
Exhibit C
Form of Amendment to Series B Warrant
Exhibit D
Registration Rights Agreement
Exhibit E
Company Counsel Opinion
Exhibit F
Amendment to Registration Rights Agreement

Schedules

Schedule 5.1
Subsidiaries
Schedule 5.3
Capitalization
Schedule 5.5
Consents
Schedule 5.7(a)
Material Adverse Changes
Schedule 5.8(b)
SEC Filings
Schedule 5.9
Conflicts
Schedule 5.10
Taxes
Schedule 5.11
Title to Properties
Schedule 5.14(a)
Intellectual Property
Schedule 5.14(d)
IP Litigation
Schedule 5.19
Brokers and Finders

 

--------------------------------------------------------------------------------

Exhibit A

Certificate of Designations
 
(See Exhibit 4.1 to this filing)
 

 

--------------------------------------------------------------------------------

Exhibit B

Form of Warrant
 
(See Exhibit 4.3 to this filing)
 

 

--------------------------------------------------------------------------------

Exhibit C

Form of Amendment to Series B Warrant
 
(See Exhibit 10.5 to this filing)
 

 

--------------------------------------------------------------------------------

Exhibit D

Registration Rights Agreement
 
(See Exhibit 10.3 to this filing)
 

 

--------------------------------------------------------------------------------

Exhibit E

Form of Company Counsel Opinion
 
1. The Company is a corporation validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own its
property and assets, to conduct its business as it is currently being conducted
and to enter into and perform its obligations under the Transaction Documents
and the Certificate of Designations. The Company is qualified as a foreign
corporation to do business and is in good standing in the Commonwealth of
Massachusetts.
 
2. The execution, delivery and performance by the Company of the Transaction
Documents, the issuance of the Preferred Stock and the Warrants, the issuance of
the Preferred Shares upon due conversion of the Preferred Stock and the issuance
of the Warrant Shares upon due exercise of the Warrants have been duly
authorized by all requisite corporate action on the part of the Company and do
not require any further approval of its directors or stockholders.
 
3. Each of the Transaction Documents has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
 
4. The Certificate of Designations has been filed with the Secretary of State of
the State of Delaware and has become effective. The Preferred Stock has the
relative rights, preferences and limitations set forth in the Certificate of
Designations.
 
5. The execution and delivery by the Company of each of the Transaction
Documents, the issuance of the Preferred Stock and Warrants, the issuance of the
Preferred Shares upon due conversion of the Preferred Stock and the issuance of
the Warrant Shares upon due exercise of the Warrants and the performance by the
Company of the Transaction Documents will not violate or contravene or be in
conflict with (a) any provision of the [Organizational Documents]; (b) any
provision of the General Corporation Law of the State of Delaware and any
provision of any federal or Massachusetts law, rule or regulation applicable to
the Company in transactions of the nature contemplated by the Transaction
Documents; (c) any order, judgment or decree of any court or other governmental
agency which is known to us and which is binding on the Company or any of its
property; (d) any agreement, indenture or other written agreement or
understanding to which the Company or a Subsidiary is a party which has been
identified as a material agreement in the officer’s certificate attached hereto
(collectively, “Material Agreements”).
 
6. No further consents, approvals, authorizations, registrations, declarations
or filings are required to be obtained or made by the Company from or with any
federal or Massachusetts governmental authority or pursuant to the General
Corporation Law of the State of Delaware or from any other Person under any
Material Agreement in order for it to execute and deliver each of the
Transaction Documents, to issue the Preferred Stock and Warrants, to issue the
Preferred Shares upon due conversion of the Preferred Stock, to issue the
Warrant Shares upon due exercise of the Warrants and to perform its obligations
under the Transaction Documents, other than those consents, approvals,
authorizations, registrations, declarations or filings that have already been
obtained and remain in full force and effect and except for (a)  the filing of a
Form D (the “Form D”) with the Securities and Exchange Commission pursuant to
Regulation D promulgated under the Securities Act of 1933, as amended (the
“Securities Act”) and (b) the filing of the Form D with requisite state
jurisdictions.

 

--------------------------------------------------------------------------------

7. The shares of Common Stock issuable upon conversion of the Preferred Stock
and exercise of the Warrants have been duly authorized and, upon issuance and
delivery upon conversion of such Preferred Stock in accordance with the terms of
the Purchase Agreement and exercise of such Warrants in accordance with the
terms of the Warrants, will be validly issued, outstanding, fully paid and
nonassessable. Other than as disclosed in the Purchase Agreement, and the
Disclosure Schedules delivered in connection with the Purchase Agreement, there
are no preemptive rights or, to the best of our knowledge, any options,
warrants, conversion privileges or other rights presently outstanding to
purchase any of the authorized but unissued capital stock of the Company.
 
8. Assuming the accuracy of the representations and warranties of the Purchasers
set forth in Section 6 of the Purchase Agreement, the offer, issuance and sale
to the Purchasers pursuant to the Purchase Agreement of (i) the Preferred Stock
and Warrants, (ii) the Preferred Shares if the Preferred Stock were converted by
the Purchasers on the date hereof and (iii) the Warrant Shares issuable upon
exercise of the Warrants if the Warrants were exercised by the Purchasers on the
date hereof, are exempt from the registration requirements of the Securities
Act.

 

--------------------------------------------------------------------------------

 
Exhibit F

Form of Amendment to Prior Registration Agreement
 
(See Exhibit 10.4 to this filing)
 

 

--------------------------------------------------------------------------------

Schedule 5.1

Subsidiaries

None.

 

--------------------------------------------------------------------------------

Schedule 5.3

Capitalization

5.3(a)(i) At the date hereof authorized capital stock of the Company consists of
150,000,000 shares of $.00001 par value common stock and 7,000 shares of
preferred stock.

5.3(a)(ii) At the date hereof there are 39,360,272 shares of common stock
outstanding and 572 shares of preferred stock outstanding.

5.3(a)(iii) At the date hereof there are 5,082,651 shares of common stock
issuable pursuant to the Company’s stock plans.

5.3(a)(iv) At the date hereof, the following shares are reserved for future
issuance upon exercise of stock options or warrants or conversion of preferred
stock:

2000 Stock Option Plan
   
73,873
 
2006 Stock Incentive Plan
   
2,555,000
 
Options issued outside of formalized plans
   
2,453,778
 
Warrants
   
28,973,047
 
Preferred stock
   
22,014,000
           
Total shares reserved for future issuance
   
56,069,698
 

 

--------------------------------------------------------------------------------

Schedule 5.3 (continued)

5.3(a) Other

The following is a listing of documents available on EDGAR that contain the
rights of Novelos security holders at the date hereof:

Document Description
 
Filed
with
Form
 
Filing Date
 
Exhibit No.
 
Certificate of Incorporation
 
   
8-K

   
June 17, 2005

   
1

 
Certificate of Designations of Series B convertible preferred stock
 
   
10-QSB

   
May 8, 2007

   
3.2

 
Certificate of Designations of Series C cumulative convertible preferred stock
 
   
10-QSB

   
May 8, 2007

   
3.2

 
By-laws
 
   
8-K

   
June 17, 2005

   
2

 
2000 Stock Option and Incentive Plan
 
   
SB-2

   
November 16, 2005

   
10.2

 
Form of 2004 non-plan non-qualified stock option
 
   
SB-2

   
November 16, 2005

   
10.3

 
Form of non-plan non-qualified stock option used from February to May 2005
 
   
SB-2

   
November 16, 2005

   
10.4

 
Form of non-plan non-qualified stock option used after May 2005
 
   
SB-2

   
November 16, 2005

   
10.5

 
Form of common stock purchase warrant issued in March 2005
 
   
SB-2

   
November 16, 2005

   
10.6

 
Form of securities purchase agreement dated May 2005
 
   
8-K

   
June 2, 2005

 
 
99.1

 
Form of subscription agreement dated September 30, 2005
 
   
8-K

   
October 3, 2005

   
99.1

 
Form of Class A common stock purchase warrant dated September 30, 2005
 
   
8-K

   
October 3, 2005

   
99.3

 
Form of share escrow agreement
 
   
8-K

   
November 3, 2005

   
10.3

 
Consideration and new technology agreement dated April 1, 2005 with ZAO BAM
 
   
10-QSB

   
August 15, 2005

   
10.2

 
Letter agreement dated March 31, 2005 with The Oxford Group, Ltd.
 
   
10-QSB

   
August 15, 2005

   
10.3

 
Form of securities purchase agreement dated March 2, 2006
 
   
8-K

   
March 3, 2006

   
99.2

 
Form of common stock purchase warrant dated March 2006
 
   
8-K

   
March 3, 2006

   
99.3

 
2006 Stock Incentive Plan
 
   
10-QSB

   
November 6, 2006

   
10.1

 
Form of Incentive Stock Option under Novelos Therapeutics, Inc.’s 2006 Stock
Incentive Plan
 
   
8-K

   
December 15, 2006

   
10.1

 

 

--------------------------------------------------------------------------------

Form of Non-Statutory Stock Option under Novelos Therapeutics, Inc.’s 2006 Stock
Incentive Plan
 
   
8-K

   
December 15, 2006

   
10.2

 
Form of Non-Statutory Director Stock Option under Novelos Therapeutics, Inc.’s
2006 Stock Incentive Plan
 
   
8-K

   
December 15, 2006

   
10.3

 
Securities Purchase Agreement dated April 12, 2007
 
   
10-QSB

   
May 8, 2007

   
10.1

 
Letter Amendment dated May 2, 2007 to the Securities Purchase Agreement
 
   
10-QSB

   
May 8, 2007

   
10.2

 
Registration Rights Agreement dated May 2, 2007
 
   
10-QSB

   
May 8, 2007

   
10.3

 
Agreement to Exchange and Consent dated May 1, 2007
 
   
10-QSB

   
May 8, 2007

   
10.5

 
Form of Common Stock Purchase Warrant dated May 2, 2007 issued pursuant to the
Securities Purchase Agreement dated April 12, 2007
 
   
10-QSB

   
May 8, 2007

   
4.1

 
Form of Common Stock Purchase Warrant dated May 2, 2007 issued pursuant to the
Agreement to Exchange and Consent dated May 2, 2007
 
   
10-QSB

   
May 8, 2007

   
4.2

 

 

--------------------------------------------------------------------------------

Schedule 5.3 (continued)

5.3(b) The following table sets forth the pro forma capitalization of the
Company on a fully diluted basis giving effect to (i) the issuance of Preferred
Stock and the Warrants at the time of Closing, (ii) any adjustments in other
securities resulting from the issuance of the Preferred Stock and the Warrants
at the time of Closing, and (iii) the exercise or conversion of all outstanding
securities:
 
NVLT - Proforma Capital Structure

Upon Closing of Series D Financing

       
Number
 
Effective
conv.
rate
 
Common stock
equival.
 
Exer.
Price
 
Total cash
                             
Cash, cash equivalents1
                               
$
10,926,220
                                         
Common stock outstanding
   
39,360,272
   
39,360,272
         
39,360,272
                                                     
Preferred stock
                                     
Series C
   
3,264,000
   
272
   
0.65
   
5,021,538
             
Series B (to exchange for D)
   
15,000,000
   
300
   
0.65
   
23,076,923
             
Series D (estimated net proceeds)
         
100
   
0.65
   
7,692,300
       
$
4,800,000
 
Warrants
                                     
2005 Bridge Financing
   
720,000
   
720,000
         
720,000
 
$
0.625
   
cashless
 
2005 PIPE and Series A Preferred4
   
6,149,696
   
8,938,925
         
8,938,925
 
$
0.65
 
$
5,810,301
 
2006 PIPE5
   
10,270,018
   
10,875,979
         
10,875,979
 
$
2.08
 
$
22,622,036
 
Series B & Placement Agent
   
8,400,000
   
8,400,000
         
8,400,000
 
$
0.65
 
$
5,460,000
 
Series A (subordination)
   
1,333,333
   
1,333,333
         
1,333,333
 
$
1.25
   
cashless
 
Series D
   
-
   
3,846,151
         
3,846,151
 
$
0.65
 
$
2,499,998
                                         
Stock options outstanding
   
5,082,651
   
5,082,651
         
5,082,651
 
$
0.6786
 
$
3,449,087
                                   
$
55,567,643
 
Stock options reserved for issuance under 2006 plan
   
2,445,000
               
2,445,000
                                                     
Fully diluted shares
   
92,024,970
               
116,793,072
             

 
Notes:
1 As of Dec 31, 2007
2 Conversion price will be reduced from $1.00 to $0.65 in connection with the
Series D financing
4 Includes 2,789,229 warrants to be issued pursuant to anti-dilution adjustments
in connection with the Series D Financing; price adjustment from $1.00
5 Includes 606,961 warrants to be issued pursuant to anti-dilution adjustments
in connection with the Series B Financing; price adjustment from $2.20
 
 

--------------------------------------------------------------------------------

Schedule 5.5

Consents
 
In connection with the closing of the preferred stock and warrant financing, we
anticipate receiving a consent from the holders of the Company’s Series C
Convertible Preferred Stock.
 

--------------------------------------------------------------------------------

 
Schedule 5.7(a)

Material Adverse Changes
 
None.
 

--------------------------------------------------------------------------------

Schedule 5.8b

SEC Filings
 
None.
 

--------------------------------------------------------------------------------

Schedule 5.9

Conflicts

The Series C Preferred Stock’s Certificate of Designations contains certain
prohibitions on amendments to the Company’s Certificate of Incorporation which
would create a series of capital stock entitled to seniority as to the payment
of dividends or liquidation preference in relation to the Series C Preferred
Stock other than the Series B Preferred Stock.
 
We anticipate obtaining a consent from the holders of the Company’s Series C
Convertible Preferred Stock whereby each holder consents to the issuance of the
Series D Preferred Stock and the filing of the Certificate of Designations
setting forth the relative rights, privileges and preferences of the Series D
Preferred.
 

--------------------------------------------------------------------------------

Schedule 5.10

Taxes
 
None.
 

--------------------------------------------------------------------------------

Schedule 5.11

Title to Properties
 
None.
 

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Schedule 5.14 (a)

Intellectual Property
 
None.
 

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Schedule 5.14 (d)

IP Litigation
 
None.
 

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Schedule 5.19

Brokers and Finders
 
On February 12, 2007 the Company entered into a letter agreement with the
Placement Agent and on March 25, 2008, that letter agreement was amended to
provide that the Company pay the Placement Agent a cash placement fee of 2% of
the aggregate proceeds from the Private Placement.
 

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