Exhibit 4.1 

 

**SECURITIES PURCHASE AGREEMENT**

 

This Securities Purchase Agreement (this “Agreement”) is dated as of March 8, 2004, among Large Scale Biology Corporation, a Delawarecorporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”); and

 

WHEREAS, subject to the terms and conditions set forth in thisAgreement and pursuant to Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase fromthe Company in the aggregate, up to $10,000,000 of shares of Common Stock and Warrants on the Closing Date. 

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt andadequacy of which are hereby acknowledged, the Company and each Purchaser agrees as follows: 

 

ARTICLE I. 

DEFINITIONS 

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, thefollowing terms have the meanings indicated in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j). 

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlledby or is under common control with a Person as such terms are used in and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as suchPurchaser will be deemed to be an Affiliate of such Purchaser. 

 

“Closing” means the closing of the purchase and sale of the Common Stock and the Warrants pursuant to Section 2.1. 

 

“Closing Date” means the Trading Day when all of the Transaction Documents have beenexecuted and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied orwaived. 

 

“Commission” meansthe Securities and Exchange Commission. 

 

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“Common Stock” means the common stock of the Company, $0.001 par valueper share, and any securities into which such common stock may hereafter be reclassified. 

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereofto acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof toreceive, Common Stock. 

 

“CompanyCounsel” means Fenwick & West LLP with offices located at 275 Battery Street, Suite 1500, San Francisco, CA 94111. 

 

“Disclosure Schedules” means the disclosure schedules of the Company delivered concurrently herewith as provided inSection 3.1. 

 

“EffectiveDate” means the date that the Registration Statement is first declared effective by the Commission. 

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

 

“Exempt Issuance” means the issuance of (a)shares of Common Stock or options to employees, officers or directors of the Company pursuant to the Company’s 2000 Stock Incentive Plan, the Company’s 2000 Employee Stock Purchase Plan and any other stock or option plan duly adopted by amajority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (b) securities issuable or issued upon the exercise of or conversion ofany convertible securities, options or warrants issued and outstanding on the date of this Agreement, provided that such securities have not been amended in any material respect since the date of this Agreement; or (c) shares of Common Stock orCommon Stock Equivalents equal to up to not more than 10% of Common Stock and Common Stock Equivalents outstanding on the date hereof: (i) to parties that are (A) strategic partners investing in connection with a commercial relationship with theCorporation or (B) providing the Corporation with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar transactions; or (ii) pursuant to the acquisition of an equity or otherinterest in another corporation or entity by consolidation, merger, purchase of assets, or other reorganization or in connection with a joint venture or other strategic arrangement or other commercial relationship. With respect to clause (c) above,the primary purpose of the issuance of Common Stock or Common Stock Equivalents may not be to raise capital for the Company. 

 

“FW” means Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

 

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“Intellectual Property Rights” shall have the meaning ascribed to suchterm in Section 3.1(o). 

 

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other transfer or ownership restriction. 

 

“Material Adverse Effect” shall have the meaning ascribed to such term in Section 3.1(b).

 

“Material Permits” shallhave the meaning ascribed to such term in Section 3.1(m). 

 

“Per Share Purchase Price” equals **$1.58**1, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement. 

 

“Person” means an individual orcorporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 

 

“Principal Market” initially means theNasdaq National Market and shall also include the New York Stock Exchange, the NASDAQ Small-Cap Market or the American Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock, based upon share volume.

 

“Proceeding” means anaction, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or, to the Company’s knowledge, threatened in writing. 

 

“Registration Rights Agreement” means theRegistration Rights Agreement, dated as of the date of this Agreement, among the Company and each Purchaser, in the form of Exhibit A hereto. 

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration RightsAgreement and covering the resale by the Purchasers of the Shares and the Warrant Shares. 

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e). 

 

“Rule 144” means Rule 144 promulgated bythe Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. 

1 80% of the average of the 5 consecutive arithmetic averages immediately prior to the date of hereof. 

 

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“SEC Reports” shall have the meaning ascribed to such term in Section3.1(h). 

 

“Securities” meansthe Shares, the Warrants and the Warrant Shares. 

 

“Securities Act” means the Securities Act of 1933, as amended. 

 

“Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement. 

 

“Subscription Amount” means, as to eachPurchaser, the amounts set forth below such Purchaser’s signature block on the signature page hereto, in United States dollars and in immediately available funds. 

 

“Subsidiary” shall mean the subsidiaries of the Company, if any, set forth on Schedule3.1(a). 

 

“Trading Day”means a day on which the Common Stock is traded on a Principal Market. 

 

“Transaction Documents” means this Agreement, the Warrants and the Registration Rights Agreement and any other documents or agreements executed as provided in this Agreement. 

 

“VWAP” means, for any date, the pricedetermined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Principal Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on thePrincipal Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on aPrincipal Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock isnot then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to itsfunctions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by thePurchasers and reasonably acceptable to the Company. 

 

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“Warrants” means the Common Stock Purchase Warrants, in the form ofExhibit B, issuable to the Purchasers at the Closing, which warrants shall have an exercise price equal to **$2.38**2 per share and be exercisable for a period of 5 years beginning 6 months from the date hereof. 

 

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

 

ARTICLE II. 

PURCHASE AND SALE 

 

2.1 Closing. On the Closing Date, each Purchaser shall purchase from the Company, severally and not jointly with the other Purchasers, and the Company shall issue and sell to each Purchaser, (a) a number of Shares equal to suchPurchaser’s Subscription Amount divided by the Per Share Purchase Price and (b) the Warrants as determined pursuant to Section 2.2(a)(iii). The aggregate Subscription Amounts for Shares sold hereunder shall be up to $10,000,000, and theaggregate number of Shares sold hereunder shall not exceed 19.9% of the Company’s issued and outstanding stock, including options, warrants and other rights to acquire securities that are exercisable within 60 days following the date of thisAgreement. Upon satisfaction of the conditions set forth in Section 2.2, the Closing shall occur at the offices of FW or such other location as the parties shall mutually agree. 

 

2.2 Closing Conditions; Deliveries. 

 

(a) On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i) this Agreement duly executed by theCompany; 

 

(ii) a copy of the irrevocableinstructions to the Company’s transfer agent instructing the transfer agent to deliver, on an expedited basis, a certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount divided by the Per Share PurchasePrice, registered in the name of such Purchaser; 

 

(iii) within 3 Trading Days of the Closing Date, a Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire up to the number of shares of Common Stock equal to 25% of the Shares tobe issued to such Purchaser at the Closing; 

 

(iv) the Registration Rights Agreement duly executed by the Company; and 

 

(v) a legal opinion of Company Counsel, in the form of Exhibit C attached hereto. 

2 -120% of the average of the 5 consecutive arithmetic averages immediately prior to the date of hereof. 

 

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(b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to theCompany the following: 

 

(i) this Agreementduly executed by such Purchaser; 

 

(ii) suchPurchaser’s Subscription Amount by wire transfer to the account as specified in writing by the Company; and 

 

(iii) the Registration Rights Agreement duly executed by such Purchaser. 

 

(c) With respect to Peter Sugarman (“Sugarman”), upon full payment of the promissory note,in the form of Exhibit D attached hereto, which shall be paid in full no later than March 25, 2004 (the “Payment Date”), the Company shall deliver or cause to be delivered the following on the Payment Date: 

 

(i) a copy of the irrevocable instructions to theCompany’s transfer agent instructing the transfer agent to deliver, on an expedited basis, a certificate evidencing a number of Shares equal to Sugarman’s Subscription Amount divided by the Per Share Purchase Price, registered in the nameof Sugarman; and 

 

(ii) a Warrant registered inthe name of Sugarman, pursuant to which Sugarman shall have the right to acquire up to the number of shares of Common Stock equal to 25% of the Shares to be issued to Sugarman at the Payment Date. 

 

(d) All representations and warranties of the other partycontained herein shall remain true and correct as of the Closing Date and all covenants of the other party shall have been performed if due prior to such date. 

 

(e) From the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except forany suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg FinancialMarkets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Principal Market, nor shall a banking moratorium have been declared either by theUnited States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, anyfinancial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Shares at the Closing. 

 

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ARTICLE III. 

REPRESENTATIONS AND WARRANTIES 

 

3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representationsand warranties set forth below to each Purchaser: 

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiaryfree and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. Ifthe Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded. 

 

(b) Organization and Qualification. Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized,validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currentlyconducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and theSubsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, exceptwhere the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) amaterial adverse effect on the results of operations, assets, business or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respecton a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking torevoke, limit or curtail such power and authority or qualification. 

 

(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise tocarry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part ofthe Company and no further action is required by the Company in connection therewith other than in connection with the Required Approvals. Each 

 

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Transaction Document has been (or upon delivery will have been) duly executed by the Company and, whendelivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization,moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 

 

(d) No Conflicts. The execution, delivery andperformance of the Transaction Documents by the Company, the issuance and sale of the Shares and the consummation by the Company of the other transactions contemplated thereby do not (i) conflict with or violate any provision of the Company’sor any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default)under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of,any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or anySubsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority towhich the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii),such as would not have or reasonably be expected to result in a Material Adverse Effect. 

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give anynotice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents,other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration Statement, (iii) application(s) to each applicable Principal Market for the listing of the Shares and Warrant Sharesfor trading thereon in the time and manner required thereby, and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “RequiredApprovals”). 

 

(f) Issuance of theSecurities. The Shares and Warrants are duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Companyother than restrictions on transfer 

 

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provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the termsof the Transaction Documents (and assuming no change in the Company’s certificate of incorporation or bylaws or applicable law), will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. TheCompany has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. 

 

(g) Capitalization. The capitalization of the Company as of the Company’s most recent periodic report filed with theCommission that describes the Company’s capitalization (“Capitalization Report”) is as described in the Capitalization Report. The Company has not issued any capital stock since filing the Capitalization Report other than pursuant tothe exercise of stock options under the Company’s stock option plans, the issuance of shares of Common Stock pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise of other Common StockEquivalents outstanding as of such filing. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as described inthe Capitalization Report, and except for stock options under the Company’s stock option plans, the issuance of shares of Common Stock pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise ofother Common Stock Equivalents outstanding as of the filing of the Capitalization Report, and except a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe to, calls or commitmentsof any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings orarrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. The issue and sale of the Securities will notobligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price undersuch securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares wasissued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale ofthe Shares. Except as disclosed in the SEC Reports, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of theCompany, between or among any of the Company’s stockholders. 

 

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(h) SEC Reports; Financial Statements. The Company has filed all reports requiredto be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (theforegoing materials, including the exhibits thereto, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior tothe expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgatedthereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of thecircumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commissionwith respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved(“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all materialrespects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal,immaterial, year-end audit adjustments. 

 

(i)Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports or in a press release issued by the Company pursuant to Regulation FD promulgatedunder the Securities Act, (i) there has been no event, occurrence or development that has had a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expensesincurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission,(iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem anyshares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any requestfor confidential treatment of information. 

 

(j) Litigation. There is no Proceeding against the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, 

 

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governmental or administrative agency or regulatory authority (federal, state, county, local or foreign)(collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) would, if there were an unfavorable decision, have aMaterial Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breachof fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commissionhas not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. 

 

(k) Labor Relations. No material labor dispute existsor, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which would reasonably be expected to result in a Material Adverse Effect. 

 

(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of(and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in defaultunder or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived),(ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state andlocal laws applicable to its business except in each case as would not have a Material Adverse Effect. 

 

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by theappropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not have or reasonably be expected to resultin a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of Proceedings relating to the revocation or modification of any Material Permit. 

 

(n) Title to Assets. The Company and the Subsidiarieshave good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to thebusiness of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially 

 

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interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries,Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties and Liens described in the SEC Reports. Any real property and facilities held under lease by the Company and the Subsidiariesare held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in material compliance. 

 

(o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications,trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to sohave would have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or anySubsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rightsof others. 

 

(p) Insurance. The Companyand the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. To theCompany’s knowledge, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary has received any notice to the effect that it will not be able to renew its existing insurance coverage as and whensuch coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. 

 

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of theCompany and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract,agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge ofthe Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees forservices rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company. 

 

(r) Sarbanes-Oxley; Internal Accounting Controls. TheCompany is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 

 

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which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system ofinternal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation offinancial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets iscompared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) forthe Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its subsidiaries, is made known to the certifying officers by others within those entities, particularly duringthe period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls andprocedures as of the date prior to the filing date of the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under theExchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in theCompany’s internal controls (as such term is defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that would significantly affect the Company’s internal controls.

 

(s) Certain Fees. Except for the feespayable to the Shemano Group, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect tothe transactions provided for in this Agreement. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due inconnection with the transactions contemplated by this Agreement. 

 

(t) Private Placement. Assuming the accuracy of the Purchasers representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of theSecurities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Principal Market. 

 

(u) Investment Company. The Company is not, and isnot an Affiliate of, and immediately after receipt of payment for the Shares, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct itsbusiness in a manner so that it will not become subject to the Investment Company Act. 

 

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(v) Registration Rights. No Person has any right to cause the Company to effectthe registration under the Securities Act of any securities of the Company. 

 

(w) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledgeis likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12months preceding the date hereof, received notice from any Principal Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such PrincipalMarket. The Company is in compliance with all such listing and maintenance requirements. 

 

(x) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in orderto render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similarcharter documents) or the laws of its state of incorporation that is or would become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents,including without limitation the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. 

 

(y) Disclosure. The Company confirms that, neither the Company nor any other Person acting on its behalf has provided any of thePurchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representations and covenants ineffecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of theCompany with respect to the representations and warranties made herein are true and correct in all material respects with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state anymaterial fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warrantieswith respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. 

 

(z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2,neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or 

 

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indirectly, made any offers or sales of any security or solicited any offers to buy any security, undercircumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rulesand regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. 

 

(aa) Solvency. Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by theCompany of the proceeds from the sale of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and otherliabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conductedincluding its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company,together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts arerequired to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). 

 

(bb) Form S-3 Eligibility. The Company is eligible toregister the resale of its Common Stock by the Purchasers under Form S-3 promulgated under the Securities Act and the Company hereby covenants and agrees to use its best efforts to maintain its eligibility to use Form S-3 for resales by thePurchasers until the Registration Statement covering the resale of the Shares shall have been filed with, and declared effective by, the Commission. 

 

(cc) Taxes. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in aMaterial Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiencywhich has been asserted or threatened against the Company or any Subsidiary. 

 

(dd) General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Shares by any form of general solicitation or general advertising. Based in part uponthe representations made by the Purchasers in Section 3.2 below, the Company has offered the Shares for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

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(ee) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of theCompany, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any corrupt funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity,(ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or madeby any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. 

 

(ff) Accountants. The Company’s accountants areDeloitte & Touche LLP. To the Company’s knowledge, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2003, are independent accountants as required by the Securities Act. 

 

(gg) Acknowledgment Regarding Purchasers’ Purchase of Shares. The Company acknowledges and agrees that as to the Company eachof the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financialadvisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection withthis Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Shares. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement has beenbased solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. 

 

3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of thedate hereof and as of the Closing Date to the Company as follows:

 

(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnershippower and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Purchaser of the transactionscontemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered bysuch Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable

 

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bankruptcy, insolvency, reorganization, moratorium and other laws of general application affectingenforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may belimited by applicable law. 

 

(b) InvestmentIntent. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its ownaccount for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, has no present intention of distributing any of such Securities and has no arrangement or understanding with any otherpersons regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal andstate securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business, and Purchaser has not been formed for the specific purpose of acquiring the Shares. Such Purchaser does not have any agreement orunderstanding, directly or indirectly, with any Person to distribute any of the Securities. 

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each dateon which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined inRule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act or any state law applicable in the context of the transactions provided for under this Agreement.

 

(d) Experience of Such Purchaser. SuchPurchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities,has had an opportunity to ask questions of and receive answers to such questions from the Company, and has evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, atthe present time, is able to afford a complete loss of such investment. 

 

(e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazineor similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. 

 

(f) No Affiliation of Purchaser. Such Purchaser is not Affiliated with any other Person that holds or, in connection with thetransactions provided for in 

 

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this Agreement will acquire, together with the shares of Common Stock held by such Purchaser or to beacquired by such Purchaser in connection with the transactions contemplated by this Agreement, an aggregate of more than 10% of the outstanding common stock of the Company. For purposes of this Section 3.2(f), (i) a Person “Affiliatedwith” a specified Person, directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the person specified; (ii) “control” means the possession, direct or indirect, of thepower to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise; and (iii) a “Person” means any individual, firm, corporation, partnership, limitedpartnership, business trust, unincorporated association or other entity, and shall include any successor (by merger or otherwise) of such entity. 

 

The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactionscontemplated hereby other than those specifically set forth in this Section 3.2. 

 

ARTICLE IV. 

OTHER AGREEMENTS OF THE PARTIES 

 

4.1 Transfer Restrictions. 

 

(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer ofSecurities other than pursuant to an effective registration statement or Rule 144, to the Company or for no consideration to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require thetransferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion and shall be reasonably satisfactory to the Company, to the effect thatsuch transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration RightsAgreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. 

 

(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in thefollowing form: 

 

THESE SECURITIES HAVE NOT BEEN REGISTEREDWITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFEREDOR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT 

 

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UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THECOMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THESECURITIES ACT. 

 

The Company acknowledges andagrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accreditedinvestor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transferpledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required inconnection therewith. Further, no notice shall be required of such pledge; provided, however, that upon any transfer to the pledgees or secured parties, such pledges or secured parties will provide the Company with all documentation reasonablyrequested by the Company in order for the Company to appropriately instruct the Company’s transfer agent with respect to the transfer of such shares. At the appropriate Purchaser’s expense, the Company will execute and deliver suchreasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration RightsAgreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

(c) Certificates evidencing the Shares andWarrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or(ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the SecuritiesAct (including judicial interpretations and pronouncements issued by the Staff of the Commission) or applicable corporate law. The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the

 

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Effective Date if required by the Company’s transfer agent to effect the removal of the legendhereunder. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Warrant Shares, such Warrant Shares shall be issued free of all legends. The Company agrees thatfollowing the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than five (5) Trading Days following the delivery by a Purchaser to the Company or the Company’s transfer agent of acertificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend and in the case of clauses (ii), (iii) or (iv) above all documentation reasonably requested by the Company to substantiate compliance with suchclauses (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notationon its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. 

 

(d) In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidateddamages and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) subject to Section 4.1(c), $5 per Trading Day for eachTrading Day after the Legend Removal Date until such certificate is delivered. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities asrequired by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. 

 

(e) Each Purchaser, severally and not jointly with the otherPurchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to eitherthe registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom. 

 

(f) Until thirty (30) days after the Effective Date, the Company shall not undertake a reverse or forward stock split or reclassificationof the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the Shares. 

 

4.2 Furnishing of Information. As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respectthereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reportspursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. 

 

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The Company further covenants that it will take such further action as any holder of Securities may reasonably request,all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 

 

4.3 Integration. The Company shall not sell, offer for sale or solicitoffers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the SecuritiesAct of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Principal Market such that it would require shareholder approval prior to theclosing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 

 

4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern time on the Trading Day following the date hereof, issue a pressrelease or file a Current Report on Form 8-K, in each case reasonably acceptable to Purchasers holding a majority of the Shares acquired hereunder disclosing the material terms of the transactions contemplated hereby. The Company and each Purchasershall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement withoutthe prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld, except if suchdisclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name ofany Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Principal Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connectionwith the registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or Principal Market regulations, in which case the Company shall provide the Purchasers with prior notice ofsuch disclosure permitted under subclause (i) or (ii). 

 

4.5Shareholders Rights Plan. No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that any Purchaser is an “Acquiring Person” under any shareholders rights plan or similar plan orarrangement in effect or hereafter adopted by the Company, or that any Purchaser would be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any otheragreement between the Company and the Purchasers. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act. 

 

4.6 Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on itsbehalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public 

 

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information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentialityand use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 

 

4.7 Use of Proceeds. The Company shall use the net proceeds from thesale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), toredeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. 

 

4.8 Reimbursement. The Company will defend any Purchaser that becomes involved in any capacity in any Proceeding by or against any Person who is astockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any stockholder), solely as a result of such Purchaser’s acquisition of the Securities under this Agreement,provided that such Purchaser provides the Company with prompt written notice of such claim, tenders the sole control of the defense and settlement of the claim to the Company and provides assistance as reasonably requested by the Company. Theobligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers, and partners, directors, agents,employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, who are actually named in such action, proceeding or investigation, and shall be binding upon and inure to the benefit of any successors,assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controllingpersons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement or based upon information provided by such Purchaser to theCompany, a breach of such Purchaser’s representation, warranties or covenants under the Transaction Documents or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, grossnegligence, willful misconduct or malfeasance. 

 

4.9Indemnification of Purchasers. Subject to the provisions of this Section 4.9, the Company will indemnify and hold the Purchasers and their directors, officers, shareholders, partners, employees and agents (each, a “PurchaserParty”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs ofinvestigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other TransactionDocuments or (b) any action instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by theTransaction Documents (unless such action is based upon information provided by such 

 

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Purchaser to the Company, a breach of such Purchaser’s representation, warranties or covenants under the TransactionDocuments or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence,willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Companyshall have the right to assume the defense thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of suchcounsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume suchdefense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party. The Companywill not be liable to any Purchaser Party under this Agreement (i) for any settlement by an Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, butonly to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by the Purchasers in this Agreement or in the other TransactionDocuments. 

 

4.10 Reservation of Common Stock. As of thedate hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Sharespursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants. 

 

4.11 Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing of the Common Stock on a Principal Market, and as soon as reasonably practicable following the Closing (butnot later than the earlier of the Effective Date and the first anniversary of the Closing Date) to list all of the Shares and Warrant Shares on such Principal Market. The Company further agrees, if the Company applies to have the Common Stock tradedon any other Principal Market, it will include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed on such other Principal Market aspromptly as possible. The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Principal Market and will comply in all respects with the Company’s reporting, filing and other obligationsunder the bylaws or rules of the Principal Market. 

 

4.12Equal Treatment of Purchasers. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to allof the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated 

 

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separately by each Purchaser, and is intended to treat for the Company the Purchasers as a class and shall not in any waybe construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 

 

4.13 Prohibition on Future Financing. From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shallissue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.14 shall be extended for the number of Trading Days during such period in which (y) trading in the Common Stock is suspendedby any Principal Market, or (z) following the Effective Date, the Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Shares and Warrant Shares.Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance. 

 

4.14 Deliver of Securities After Closing. The Company shall deliver, or cause to be delivered, the respective Shares and Warrants purchased by eachPurchaser to such Purchaser within 3 Trading Days of the Closing Date. 

 

ARTICLE V. 

MISCELLANEOUS 

 

5.1 Fees and Expenses. Except as otherwise set forth in this Agreement, each party shall pay the fees and expenses of its advisers, counsel,accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. [The Company shall pay all stamp and other taxes and duties leviedin connection with the sale of the Securities. 

 

5.2 EntireAgreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral orwritten, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 

 

5.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shallbe deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 6:30 p.m. (New York Citytime) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Dayor later than 6:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such noticeis required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. 

 

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5.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in awritten instrument signed by the Company and Purchasers holding 66% of the Shares issued pursuant to this Agreement. Any amendment or waiver so made will be binding upon the Company and all Purchasers. No waiver of any default with respect to anyprovision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omissionof either party to exercise any right hereunder in any manner impair the exercise of any such right. 

 

5.5 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit oraffect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 

 

5.6 Successors and Assigns. This Agreement shall be binding upon andinure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser; provided however that the rightsand obligations of the Company hereunder will inure to the benefit of and will be binding upon, without the requirement of consent of any Purchaser, the surviving corporation or entity in a merger or consolidation of the Company with one or moreother corporations or entities in a transaction under which the holders of the Company’s outstanding shares immediately prior to such transaction hold less than a majority of the shares immediately following such transaction; and providedfurther that no change in ownership of the shares of the Company will be considered an assignment hereunder. Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers anySecurities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Purchasers”. 

 

5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and theirrespective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.9. 

 

5.8 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of theTransaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusivejurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (includingwith respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such 

 

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court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party herebyirrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party atthe address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serveprocess in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such actionor proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 

 

5.9 Survival. The representations and warranties herein shall survivethe Closing and delivery of the Shares and Warrant Shares. 

 

5.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each partyand delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of theparty executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 

 

5.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of theremaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shallincorporate such substitute provision in this Agreement. 

 

5.12Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or inlieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants fora new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. 

 

5.13 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, includingrecovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of anybreach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 

 

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5.14 Payment Set Aside. To the extent that the Company makes a payment or payments to anyPurchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to befraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcylaw, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if suchpayment had not been made or such enforcement or setoff had not occurred. 

 

5.15 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and noPurchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto,shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligationsor the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other TransactionDocuments, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of theTransaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FW. FW does not represent all of the Purchasers but only The Shemano Group, who hasacted as placement agent to the transaction. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

 

5.16 Liquidated Damages. The Company’s obligationsto pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paidnotwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled. 

 

*(Signature Page Follows)*

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executedby their respective authorized signatories as of the date first indicated above. 

 
**LARGE SCALE BIOLOGY CORPORATION**   
Address for Notice:

By:
    
       Name:
      
       Title:
      
With a copy to (which shall not constitute notice):
  
 

[REMAINDER OF PAGEINTENTIONALLY LEFT BLANK 

SIGNATURE PAGES FOR PURCHASERS FOLLOW] 

 

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[PURCHASER SIGNATURE PAGES TO LSBC SECURITIES PURCHASE AGREEMENT] 

 

IN WITNESS WHEREOF, the undersigned have caused this Securities PurchaseAgreement to be duly executed by their respective authorized signatories as of the date first indicated above. 

 

Name of Investing Entity:_______________________________________________________________________________

*Signature of Authorized Signatory of Investing Entity*:________________________________________________________

Name of Authorized Signatory:__________________________________________________________________________

Title of Authorized Signatory:____________________________________________________________________________

Email Address of Authorized Entity:______________________________________________________________________

 

Address for Notice of InvestingEntity: 

 

Fax Number of Notice of Investing Entity: 

 

Address for Delivery of Securities for Investing Entity (if not same as above): 

 

Subscription Amount: 

Shares: 

Warrant Shares: 

EINNumber: **[PROVIDE THIS UNDER SEPARATE COVER]**

 

[SIGNATUREPAGES CONTINUE] 

 

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