EXCHANGE AGREEMENT
Exhibit
10.2
This
Exchange Agreement (this “Agreement”) is dated as of September 19, 2007,
by and among Nephros, Inc., a Delaware corporation (the “Company”), and
the holders of the Company’s 6% Secured Convertible Notes due 2012 the (“Old
Notes”) whose signatures appear on the signature page attached hereto (the
“Holders”).
Recitals:
WHEREAS,
each Holder purchased its Old Note from the Company pursuant to a Subscription
Agreement between such Holder and the Company in June 2006 (the “2006
Subscription Agreement”);
WHEREAS,
in connection with the purchase of the Old Notes, the Holders and the Company
entered into a Registration Rights Agreement dated as of June 1, 2006 (the
“2006 Registration Rights Agreement” and together with the 2006
Subscription Agreement and any other documents or agreements referred to therein
or made a part thereof, the “2006 Transaction Documents”);
WHEREAS,
the Holders currently hold the Old Notes in an aggregate principal amount plus
accrued interest of $5,609,892.85 issued to the Holders on the dates and in
the
amounts set forth on Exhibit A attached hereto;
WHEREAS,
subject to the terms and conditions set forth herein, the Company desires to
cancel the Old Notes and the Holders are willing to exchange (the
“Exchange”) the Old Notes, and all accrued but unpaid interest and
obligations thereon, for new Series B 10% Secured Convertible Notes due 2008
in
an aggregate principal amount of $5,300,000 (the “New Notes”), in
substantially the form attached hereto as Exhibit B, issued to the
Holders in the amounts set forth on Exhibit C attached
hereto. The New Notes are convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), at a per
share conversion price of $0.706 per share; and
WHEREAS,
concurrently with the Exchange, the Company is engaging in an offering (the
“Offering”) pursuant to those several Subscription Agreements
(collectively, the “Subscription Agreement”), the form of which is attached
hereto as Exhibit D, of up to fifteen million dollars ($15,000,000)
aggregate principal amount (the “Maximum Amount”) of Series A 10% Secured
Convertible Notes due 2008 (the “Purchased Notes”, a copy of which is
attached to the Subscription Agreement as Exhibit A, and together with the
New
Notes, the “2007 Notes”) convertible into shares of the Company’s Common
Stock, at a per share conversion price of $0.706, and Class D warrants for
the
purchase of shares of Common Stock (the “Warrants”, a copy of which is
attached to the Subscription Agreement as Exhibit B) with certain other
investors. The Company is offering the Purchased Notes until
September 28, 2007, although the Company reserves the right, in its sole
discretion, to extend the Offering period until some later date (such date,
as
the same may be extended, the “Expiration Date”). Pursuant to
the Subscription Agreement, each person purchasing Purchased Notes in the
Offering (collectively, the “Purchasers”, and together with the Holders,
the “2007 Holders”) shall enter into a
registration
rights agreement among the Company and the Holders, in substantially the form
attached hereto as Exhibit E (the “2007 Registration Rights
Agreement”).
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby agreed and acknowledged, the parties hereby agree as
follows:
AGREEMENT:
1. Securities
Exchange.
(a) Subject
to the satisfaction of the conditions and upon the terms set forth in this
Agreement and in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
each Holder agrees to deliver to the Company the Old Notes in exchange for
the
New Notes and the Company agrees to issue and deliver the New Notes to the
Holders in exchange for the Old Notes.
(b) The
closing under this Agreement (the “Closing”) shall take place at the
offices of Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx,
Xxx Xxxx, XX 00000 upon the satisfaction of each of the conditions set forth
herein (the “Closing Date”).
(c) At
the
Closing, the Company shall issue the New Notes in an aggregate principal amount
of $5,300,000 to the Holders in the amounts set forth on Exhibit C
attached hereto and the Holders shall deliver to the Company for cancellation
the Old Notes.
(d) Each
Holder shall enter into the 2007 Registration Rights Agreement.
(e) Each
Holder shall enter into an investor rights agreement among the Company, the
Purchasers and the other parties thereto, in substantially the form attached
hereto as Exhibit F (the “Investor Rights
Agreement”).
(f) It
is
understood and agreed that this Agreement is made subject to the execution
and
delivery of the 2007 Registration Rights Agreement by all parties thereto and
the Company’s acceptance of the Holders as “Holders” thereunder, the execution
and delivery of the Subscription Agreement by all parties thereto resulting
in a
minimum investment made by the holders of the Purchased Notes of $10,000,000,
the satisfaction of all conditions thereunder and the funding of the Purchased
Notes, and the execution and delivery of the Investor Rights Agreement by all
parties thereto.
(g) Upon
the
satisfaction of all conditions to the Exchange, any and all contracts,
agreements, arrangements, and understandings arising under the 2006 Transaction
Documents are hereby terminated and of no further force or effect, and no
rights, duties, obligations, or liabilities arising thereunder or relating
thereto shall survive this termination.
2. Closing
Conditions.
(a) The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being satisfied:
(i) each
of
the representations and warranties of each Holder shall be true and correct
in
all material respects as of the date when made and as of the Closing as though
made at that time, except for representations and warranties that speak as
of a
particular date, which shall be true and correct in all material respects as
of
such date;
(ii) each
Holder shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to
be
performed, satisfied or complied with by each Holder at or prior to the
Closing;
(iii) at
the
Closing, the Company will have received, in the aggregate, not less than ten
million dollars ($10,000,000) pursuant to executed acceptances of subscriptions
from Purchasers in the Offering;
(iv) to
the
extent not already delivered, the tender of delivery at the Closing by each
Holder of the items set forth in Section 2(d) of this
Agreement;
(v) each
Holder shall have executed and delivered this Agreement;
(vi) each
Holder shall have delivered the Old Notes to the Company; and
(vii) no
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated, endorsed or threatened or is pending
by
or before any governmental authority of competent jurisdiction which prohibits
or threatens to prohibit the consummation of any of the transactions
contemplated by the Subscription Agreement or the 2007 Transaction Documents
(as
defined below).
(b) The
obligations of each Holder hereunder in connection with the Closing are subject
to the following conditions being satisfied:
(i) each
of
the representations and warranties of the Company shall be true and correct
in
all material respects as of the date when made and as of the Closing as though
made at that time, except for representations and warranties that speak as
of a
particular date, which shall be true and correct in all material respects as
of
such date;
(ii) the
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to
be
performed, satisfied or complied with by the Company at or prior to the
Closing;
(iii) to
the
extent not already delivered, the tender of delivery at the Closing by the
Company of the items set forth in Section 2(c) of this
Agreement;
(iv) the
Company and all parties to the Subscription Agreement shall have duly executed
and delivered the Subscription Agreement, the Investor Rights Agreement, and
the
2007 Registration Rights Agreement, all in the forms attached hereto, and the
transactions contemplated by the Subscription Agreement shall be consummated
simultaneous
with
the
Closing hereof, resulting in a minimum investment made by the holders of the
Purchased Notes of $10,000,000;
(v) the
holders of a majority of the outstanding Common Stock as of the Closing shall
have executed and delivered to the Company written consents, in a form
reasonably acceptable to each Holder (the “Stockholder
Consents”), consenting to (x) the issuance of the 2007 Notes, the Common
Stock and Warrants issuable upon the conversion of the 2007 Notes and the Common
Stock issuable upon the exercise of the Warrants, and (y) approving an amendment
to the Company’s Certificate of Incorporation to increase the number of shares
of Common Stock that it is authorized to issue to 60,000,000 shares (the
“Certificate of Amendment”);
(vi) (x)
two
individuals designated by Lambda Investors LLC (“Lambda”) (such
individuals hereafter known as the “New Directors”) shall be duly elected
to the board of directors of the Company (the “Board of Directors”)
effective at the Closing; (y) Lambda shall have consented to the election of
any
new members of the Board of Directors of the Company or the Subsidiary elected
in connection with the Closing; and (z) no more than four members of the Board
of Directors of the Company that Lambda has requested to resign shall have
submitted resignations to the Company (which resignations shall include releases
in a form reasonably satisfactory to Lambda) with such resignations to become
effective at the Closing;
(vii) at
the
Closing, the Company shall have received an extension, until October 4, 2007,
to
serve its opposition to the motion of the Receiver for Lancer Offshore, Inc.
to
enforce the Company’s settlement agreement with the Receiver and for entry of
final default judgment; and
(viii) no
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated, endorsed or threatened or is pending
by
or before any governmental authority of competent jurisdiction which prohibits
or threatens to prohibit the consummation of any of the transactions
contemplated by the 2007 Transaction Documents or the Subscription
Agreement.
(c) At
the
Closing, the Company shall deliver or cause to be delivered to each Holder
the
following (to the extent not previously delivered):
(i) an
executed signature page to this Agreement;
(ii) New
Notes
in the aggregate principal amount of $5,300,000, registered in the name of
each
Holder;
(iii) the
2007
Registration Rights Agreement duly executed by the Company and all other parties
thereto other than the Holders, and the Investor Rights Agreement duly executed
by the Company and all other parties thereto other than the
Holders;
(iv) a
certificate, duly executed by the Chief Executive Officer of the Company, to
the
effect that the conditions set forth in clauses (i), (ii), (iv), (v), (vi),
(vii) and (viii) of Section 2(b) have been satisfied;
(v) copies
of
the duly executed Subscription Agreement, Stockholder Consents and resignations
of directors; and
(vi) waivers
from Xxxx X. Xxxx, M.D., Xxxxxx X. Xxxxx, Xxxxxxx X. Xxx and Xxxxxxxx Xxxxxxxx
waiving any right held by such persons pursuant to agreements entered into
prior
to the date hereof to have securities of the Company registered under the 2007
Registration Rights Agreement.
(d) At
the
Closing, each Holder shall deliver or cause to be delivered to the
Company the following (to the extent not previously delivered):
(i) an
executed copy of the signature page of and Exhibit G to this Agreement,
the Investor Rights Agreement and the 2007 Registration Rights
Agreement;
(ii) the
original of the Old Note held by such Holder; and
(iii) a
certificate, duly executed by a duly authorized officer, manager or member
of
each Holder , to the effect that the conditions set forth in clauses (i) and
(ii) of Section 2(b) have been satisfied.
3. Representations
and Warranties of the Company.The Company
represents and warrants to each Holder as follows, in each case as of the date
hereof and in all material respects as of the date of the Closing, except for
any changes resulting from the Exchange or the Offering:
(a) The
Company is duly organized, validly existing and in good standing under the
laws
of the jurisdiction of its organization with full power and authority to own,
lease, license and use its properties and assets and to carry out the business
in which it proposes to engage. Nephros International
Limited (the “Subsidiary”) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization with full
power and authority to own, lease, license and use its properties and assets
and
to carry out the business in which it proposes to engage. Each of the
Company and the Subsidiary is duly qualified to conduct business and is in
good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good
standing, as the case may be, could not have or reasonably be expected to result
in a (x) material adverse effect on the legality, validity or
enforceability of any 2007 Transaction Document (as defined below),
(y) material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiary, taken as a whole, or (z) material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any 2007 Transaction Document (as defined below) (any of
(x),
(y) or (z), a “Material Adverse Effect”). The Company
owns all of the capital stock or other equity interests of the Subsidiary free
and clear of any liens or encumbrances, other than Permitted Liens, and all
of
the issued and outstanding shares of capital stock of the Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities. The Company does not
own, and never has owned, any capital stock of or equity interest in any entity
other than the Subsidiary. Neither the Company nor the 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.
(b) The
Company has all requisite corporate power and authority to execute, deliver
and
perform its obligations under this Agreement and to issue the New Notes to
be exchanged hereunder and the shares of Common Stock issuable upon conversion
thereof (collectively, the “Subject Securities”). Subject to
written consents of the stockholders of the Company that the Company has
obtained (the “Stockholder Consents”) becoming effective, all necessary
proceedings of the Company have been duly taken to authorize the execution,
delivery, and performance of this Agreement, the New Notes, the 2007
Registration Rights Agreement and the Investor Rights Agreement (collectively,
the “2007 Transaction Documents”). The 2007 Transaction
Documents have been duly authorized by the Company and, when executed and
delivered by the Company will constitute the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with their terms
except as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally. The Common
Stock issuable upon conversion of the New Notes, when issued in compliance
with
the provisions of the 2007 Transaction Documents, will be validly issued, fully
paid and nonassessable and free of any liens or encumbrances other than any
liens or encumbrances created by the respective Holder thereof. The
New Notes are duly authorized, and when issued pursuant to the 2007 Transaction
Documents, will be validly issued.
(c) No
consent of any party to any contract, agreement, instrument, lease or license
to
which the Company or the Subsidiary is a party or to which any of the Company’s
or the Subsidiary’s properties or assets are subject is required for the
execution, delivery or performance by the Company of its obligations under
any
of the 2007 Transaction Documents or the issuance and sale of the Subject
Securities. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other person or entity in connection with the
execution, delivery and performance by the Company of the 2007 Transaction
Documents, other than (i) the filing with the Securities and Exchange
Commission (the “Commission”) of the registration statement or
registration statements pursuant to the 2007 Registration Rights Agreement,
a
Schedule 14C information statement and a Form 8-K and related press release
announcing the Offering and changes in directors and officers of the Company,
(ii) the notice and/or application(s) to the American Stock Exchange for
the issuance and sale of the Subject Securities and the listing for trading
thereon in the time and manner required thereby, (iii) the filing of Form D
with the Commission and such filings as are required to be made under applicable
state securities laws, (iv) the Stockholder Consents, and (v) the filing
with the Delaware Secretary of State of a Certificate of Amendment to increase
the capitalization of the Company.
(d) Except
as
set forth on Schedule 3(d), the execution, delivery and performance of 2007
Transaction Documents and the issuance of the Subject Securities will not (i)
violate or result in a breach of, or entitle any party (with or without the
giving of notice or the passage of time or both) to terminate, amend,
accelerate, cancel or call a default under any contract or agreement to which
the Company or the Subsidiary is a party or result in the creation
of
any
lien, charge or encumbrance upon any of the properties or assets of the Company
or the Subsidiary, other than the liens, charges or encumbrances created by
the
applicable Holder, (ii) conflict with, violate or result in a breach of any
term
of the certificate of incorporation or by-laws of the Company or the Subsidiary,
or (iii) violate any law, rule, regulation, order, judgment or decree binding
upon the Company or the Subsidiary or to which any of their respective
operations, businesses, properties or assets are subject, except, in the case
of
a breach, termination, violation or default referenced in clauses (i) or (iii),
would not reasonably be expected to have a Material Adverse Effect.
(e) The
capitalization of the Company is as set forth on Schedule 3(e), which
Schedule 3(e) shall also include the number of shares of Common Stock
owned beneficially, and of record, by officers or directors of the Company
or
holders of 5% or more of the outstanding Common Stock, in each case as of the
date hereof. The Company has not issued any capital stock since its
most recently filed periodic report under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), other than shares of Common Stock issued
pursuant to the exercise of employee stock options under the Company’s stock
option plans. No person or entity has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in
the transactions contemplated by the 2007 Transaction
Documents. Except as a result of the purchase and sale of the Subject
Securities or as set forth on Schedule 3(e), there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock or other capital
stock or securities of the Company, or contracts, commitments, understandings
or
arrangements by which the Company is or may become bound to issue additional
shares of Common Stock or other capital stock or securities of the
Company. The issuance and sale of the Subject Securities will not
obligate the Company to issue shares of Common Stock or other capital stock
or
securities of the Company to any person or entity (other than the Holders)
and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such
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 was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. There are no
stockholders agreements or voting agreements with respect to the Company’s
capital stock to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.
(f) Except
as
set forth on Schedule 3(f), there are no brokerage commissions, finder’s
fees or similar fees or commissions payable by the Company in connection with
the transactions contemplated by the 2007 Transaction Documents or the Offering
based on any agreement, arrangement or understanding with or known to the
Company. The Holders will have no obligation with respect to any
brokerage commissions, finder’s fees or similar fees or commissions described on
Schedule 3(f).
(g) Except
as
disclosed on Schedule 3(g), as disclosed in the reports, schedules,
forms, statements and other documents filed by the Company under the Exchange
Act on or after April 10, 2007 (the “Current SEC Filings”) or as would
not reasonably be expected to
have
a
Material Adverse Effect, neither the Company nor the Subsidiary is in violation
or default of any provisions of any instrument, judgment, order, writ or decree,
or any provision of any contract or agreement, to which it is a party or by
which it is bound or of any provision of statute, rule or regulation of any
country, state, province or other local governmental unit applicable to the
Company, the Subsidiary or their respective businesses.
(h) Except
as
disclosed on Schedule 3(h), neither the Company nor the Subsidiary is a
party to any litigation, action, suit, proceeding or investigation, and, to
the
knowledge of the Company, no litigation, action, suit, proceeding or
investigation has been threatened against the Company or the
Subsidiary. 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 Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
under the Exchange Act or the Securities Act of 1933, as amended (the
“Securities Act”). Except as disclosed on Schedule 3(g)
or in the Current SEC Filings, since January 1, 2007 there has been no material
adverse effect on the products of the Company, the prospects of the products
of
the Company or the status of the regulatory approval of the products of the
Company.
(i) Each
of
the Company and the Subsidiary has good and marketable title to its properties
and assets (including without limitation those assets
pledged as collateral pursuant to this Agreement) held in each case free and
clear of all liens, pledges, security interests, encumbrances, attachments
or
charges of any kind (each a “Lien”), except for (i) Liens for taxes that
are not yet due and payable, (ii) Liens that do not or are not reasonably likely
to result in a Material Adverse Effect, or (iii) Liens disclosed in the Current
SEC Filings or arising under the Offering (Liens described in clauses (i),
(ii)
and (iii) are referred to as “Permitted Liens”). Neither the
Company nor the Subsidiary owns, or has ever owned, any real
property. With respect to the property and assets it leases, except
as would not reasonably be expected to have a Material Adverse Effect or as
disclosed on Schedule 3(i), the Company is in compliance with such leases
and, to the best of the Company’s knowledge, the Company holds valid leasehold
interests in such property and assets free and clear of any Liens of any other
party other than the lessors of such property and assets, except for Permitted
Liens. The properties and assets owned and leased by the Company and
the Subsidiary are sufficient to enable the Company and the Subsidiary to
conduct their respective business as presently conducted.
(j) Neither
the Company nor the Subsidiary has any liability or obligation of any nature
whatsoever (whether absolute, accrued, contingent, or otherwise and whether
due
or to become due) which would be required to be reflected on a balance sheet
or
in the notes thereto prepared in accordance with GAAP, except for (i) those
liabilities that are fully reflected or reserved against on the financial
statements included in the Current SEC Filings, described in the notes to such
financial statements, or expressly described elsewhere in the Current SEC
Filings, including without limitation, under the headings “Management’s
Discussion and Analysis or Plan of Operation” and “Controls and Procedures” in
the applicable Current SEC Filings, (ii) liabilities and obligations which
have
been incurred since June 30, 2007 in the ordinary course of business which
are not material in nature or amount, or (iii) liabilities and obligations
described on Schedule 3(j).
(k) Except
as
disclosed in the Current SEC Filings, each of the Company and the Subsidiary
owns, free and clear of all Liens, other than Permitted Liens, or is licensed
or
otherwise possesses legally enforceable rights to use, all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, know-how, trade secrets, inventions and similar rights necessary
to
permit the Company and the Subsidiary to conduct its respective business as
described in the Current SEC Filings (collectively, “Intellectual
Property”). To the Company’s knowledge, the Intellectual Property
does not violate or infringe upon the rights of any other person or entity,
and
neither the Company nor the Subsidiary has received a notice (written or
otherwise) claiming such infringement. To the knowledge of the
Company, all Intellectual Property is enforceable and there is no existing
infringement by another person or entity of any of the Intellectual
Property. The Company and the Subsidiary have taken reasonable
security measures to protect the secrecy, confidentiality and value of all
of
their intellectual properties, except where failure to do so would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, since September
20, 2004 (the reports, schedules, forms, statements and other documents filed
pursuant to the Securities Act and the Exchange Act on or after September 20,
2004, including the exhibits thereto and documents incorporated by reference
therein, being collectively referred to herein as the “Nephros SEC
Filings”). Except for the Company’s Annual Report on Form 10-KSB
for the year ended December 31, 2005, each Nephros SEC Filing that is an Annual
Report on Form 10-KSB, a Quarterly Report on Form 10-QSB or a Current Report
on
Form 8-K (other than a Current Report on Form 8-K that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of
Form
8-K) was filed on a timely basis or the Company received a valid extension
of
such time of filing and has filed such Nephros SEC Filing prior to the
expiration of such extension. Except as disclosed on Schedule
3(l), as of their respective dates, the Nephros SEC Filings complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the Nephros SEC Filings, 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 the light of the circumstances under which they were made, not
misleading. Except as disclosed on Schedule 3(l), the
financial statements of the Company included in the Nephros SEC Filings complied
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time
of filing. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required
by
GAAP, and fairly present in all material respects the financial position of
the
Company and the Subsidiary 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 year-end audit adjustments.
(m) The
Company is in material compliance with all provisions of the Xxxxxxxx-Xxxxx
Act
of 2002 which are applicable to it as of the Closing. Except as
disclosed in
the
Current SEC Filings, the Company and the Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to
any differences. Except as disclosed in the Current SEC Filings, the
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
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 the Exchange 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 changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(n) No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect. None of the
Company’s or the Subsidiary’s employees is a member of a union that relates to
such employee’s relationship with the Company, and neither the Company nor the
Subsidiary is a party to a collective bargaining agreement, and the Company
and
the Subsidiaries believe that their relationships with their employees are
good. No executive officer, to the knowledge of the Company, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement
or
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does
not
subject the Company or any of its Subsidiaries to any liability with respect
to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(o) The
Company and the Subsidiary possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the
Current SEC Filings, except where the failure to possess such permits could
not
have or reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor the Subsidiary has
received any notice of proceedings relating to the revocation or modification
of
any Material Permit.
(p) The
Company and the Subsidiary 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 Subsidiary are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to $7,000,000. Neither the Company nor the
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
(q) Except
as
set forth in the Current SEC Filings, none of the officers or directors of
the
Company 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 the
Subsidiary, including any contract, agreement or other arrangement providing
for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, 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 $120,000
other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company
and (iii) other employee benefits, including stock option agreements under
any stock option plan of the Company.
(r) Neither
the Company nor any person or entity acting on its behalf has offered or sold
any of the Subject Securities by any form of general solicitation or general
advertising. The Company has offered the Subject Securities only to
the Holders. Assuming the accuracy of each Holder’s representations
and warranties set forth in Section 4, no registration under the Securities
Act is required for the issuance of the Subject Securities by the Company to
the
Holders pursuant to this Agreement. Neither the Company, nor any of
its affiliates, nor any person or entity acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause the
issuance of the Subject Securities to be integrated with prior offerings by
the
Company for purposes of the Securities Act or any applicable shareholder
approval provision of the American Stock Exchange. Subject to the
Stockholder Consents becoming effective and the filing of an additional shares
listing application with the American Stock Exchange, the issuance of the
Subject Securities does not contravene the rules and regulations of the American
Stock Exchange.
(s) The
Company is not, and is not an affiliate of, and immediately after receipt of
payment for the Notes, 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 its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
(t) Except
as
disclosed on Schedule 3(t), as of the Closing, no Person will have any
right to cause the Company to effect the registration under the Securities
Act
of any securities of the Company except pursuant to the 2007 Registration Rights
Agreement.
(u) The
Company’s Common Stock is registered pursuant to Section 12(b) of the
Exchange Act, and the Company has taken no action designed to, or which to
its
knowledge is 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’s outstanding Common Stock is listed for
trading on the American Stock Exchange and, since January 1, 2007, the trading
of the Company’s Common Stock on the American Stock Exchange has not been
de-listed or suspended. The Company has taken no action for the
purpose of de-listing the Common Stock from the American Stock Exchange or
suspending the trading of the Common Stock on the American Stock
Exchange. Except as described in the Current SEC Filings, the Company
has not, in the 12 months preceding the date hereof, received written notice
from the American Stock Exchange to the effect that the Company is not in
compliance with the listing or maintenance requirements of the American Stock
Exchange or that the American Stock Exchange is considering suspending the
trading of or de-listing the Company’s Common Stock from the American Stock
Exchange.
(v) The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, shareholder rights plan (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of
its
state of incorporation (including without limitation Section 203 of the Delaware
General Corporation Law) that is or could become applicable to the Holders
as a
result of the Holders and the Company fulfilling their obligations or exercising
their rights under the 2007 Transaction Documents, including without limitation
as a result of the Company’s issuance of the Subject Securities and the Holders’
ownership of the Subject Securities.
(w) All
disclosure furnished by or on behalf of the Company in writing to the Holders
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, with respect to the representations
and warranties contained herein is true and correct in all material respects
with respect to such representations and warranties and does not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The press releases
disseminated by the Company during the twelve months preceding the date of
this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made and when made, not misleading.
(x) Based
on
the financial condition of the Company as of the Closing, after giving effect
to
the receipt by the Company of not less than ten million dollars ($10,000,000)
from the Offering, and assuming (counterfactually) that all of the 2007 Notes
issued as of the Closing were converted as of such date, (i) the fair
saleable value of the Company’s assets exceeds the amount that will be required
to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature;
(ii) the Company’s assets do not constitute unreasonably small capital to
carry on its business as now conducted and as proposed to be conducted including
its capital needs taking into account the
particular
capital requirements of the business conducted by the Company, and 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 liabilities when such amounts are required to be
paid. The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one
year
from the Closing. Schedule 3(x) sets forth as of the date
hereof all outstanding secured and unsecured Indebtedness of the Company or
the
Subsidiary, or for which the Company or the Subsidiary has
commitments. For the purposes of this Agreement,
“Indebtedness” means (a) any liabilities for borrowed money (other
than trade accounts payable incurred in the ordinary course of business), (b)
every obligation of the Company evidenced by bonds, debentures, notes or other
similar instruments, (c) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are
or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(d) the present value of any lease payments due under leases required to be
capitalized in accordance with GAAP. Except as set forth on
Schedule 3(x), neither the Company nor the Subsidiary is in default with
respect to any Indebtedness.
(y) Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and the
Subsidiary have filed all necessary federal, state, local and foreign income,
franchise, employment and other tax returns and have paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency
which
has been asserted or threatened against the Company or the
Subsidiary.
(z) Neither
the Company nor the Subsidiary, nor to the knowledge of the Company, any agent
or other person or entity acting on behalf of the Company or the Subsidiary,
has
(i) directly or indirectly, used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company or the Subsidiary (or made by any person
or
entity acting on behalf of the Company or the Subsidiary) 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.
(aa) The
Company’s accounting firm is Xxxxxxxxx Xxxx & Company, P.C. To
the knowledge of the Company, (i) such accounting firm is a registered public
accounting firm as required by the Exchange Act, and (ii) has been engaged
by the Company’s Audit Committee to conduct procedures to provide its opinion
with respect to the financial statements to be included in the Company’s Annual
Report on Form 10-KSB for the year ending December 31, 2007.
(bb) Immediately
following the Closing, no Indebtedness or other claim against the Company is
senior to the New Notes in right of payment, whether with respect to interest
or
upon liquidation or dissolution, or otherwise, other than indebtedness secured
by purchase
money
security interests (which is senior only as to underlying assets covered
thereby) and capital lease obligations (which is senior only as to the property
covered thereby).
(cc) There
are
no disagreements of any kind presently existing, or reasonably anticipated
by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, and except as set forth on
Schedule 3(cc) the Company is current with respect to any fees owed to
its accountants and lawyers.
(dd) The
Company acknowledges and agrees that each of the Holders is acting solely in
the
capacity of an arm’s length counterparty with respect to the 2007 Transaction
Documents and the transactions contemplated thereby. The Company
further acknowledges that no Holder is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the 2007
Transaction Documents and the transactions contemplated thereby and any advice
given by any Holder or any of their respective representatives or agents in
connection with the 2007 Transaction Documents and the transactions contemplated
thereby is merely incidental to the Holders’ acquisition of the Subject
Securities. The Company further represents to each Holder that the
Company’s decision to enter into this Agreement and the other 2007 Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its
representatives.
(ee) The
Company has not, and to its knowledge no one acting on its behalf has,
(i) taken, directly or indirectly, any action designed to cause or to
result in the stabilization or manipulation of the price of any security of
the
Company to facilitate the sale or resale of any of the Subject Securities,
(ii) sold, bid for, purchased, or paid any compensation for soliciting
purchases of, any of the securities of the Company, or (iii) paid or agreed
to pay to any person or entity any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company’s placement agent in
connection with the Offering.
(ff) The
Company (i) is in compliance with any and all Environmental Laws (as
hereinafter defined), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply would be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws” means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating
to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively,
“Hazardous Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(gg) In
entering into this Agreement, the Company is not relying on any representations
and warranties of the Holders other than those in this Agreement.
(hh) The
Company acknowledges that the representations, warranties and agreements made
by
the Company herein shall survive the execution and delivery of this Agreement,
the Closing and the issuance and conversion of the New Notes.
(ii) The
Company has received the written consent from at least 50.1% of the outstanding
Common Stock as of the date hereof approving the Offering in accordance with
Rule 713 of the American Stock Exchange Company Guide.
4. Representations,
Warranties and Covenants of the
Holders. Each of the Holders hereby
makes the following representations and warranties to the Company, and covenants
for the benefit of the Company, with respect solely to itself and not with
respect to any other Holder:
(a) Each
Holder is an Accredited Investor, as specifically indicated in Exhibit F
to this Agreement, which is being delivered to the Company
herewith.
(b) If
a
natural person, such Holder is: a bona fide resident of the state or non-United
States jurisdiction contained in the address set forth on the signature page
of
this Agreement as such Holder’s home address; at least twenty-one (21) years of
age; and legally competent to execute the 2007 Transaction
Documents. If an entity, such Holder has its principal offices or
principal place of business in the state or non-United States jurisdiction
contained in the address set forth on the signature page of this Agreement,
the
individual signing on behalf of such Holder is duly authorized to execute the
2007 Transaction Documents.
(c) When
executed and delivered by each Holder, each of the 2007 Transaction Documents
to
which the Holders are parties will constitute the legal, valid and binding
obligation of the Holders, enforceable against the Holders in accordance with
its terms except as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally.
(d) Neither
the execution, delivery nor performance of the 2007 Transaction Documents by
each Holder violates or conflicts with, creates (with or without the giving
of
notice or the lapse of time, or both) a default under or a lien or encumbrance
upon any of such Holder’s assets or properties pursuant to, or requires the
consent, approval or order of any government or governmental agency or other
person or entity under (i) any note, indenture, lease, license or other
agreement to which such Holder is a party or by which it or any of its assets
or
properties is bound or (ii) any statute, law, rule, regulation or court decree
binding upon or applicable to such Holder or its assets or
properties. If such Holder is not a natural person, the execution,
delivery and performance by such Holder of the 2007 Transaction Documents,
have
been duly authorized by all necessary corporate or other action on behalf of
such Holder and such execution, delivery and performance does not and will
not
constitute a breach or violation of, or default under, the charter or by-laws
or
equivalent governing documents of such Holder.
(e) Each
Holder has received from the Company, or has been directed to, all materials
which have been requested by such Holder and the Nephros SEC
Filings. Each Holder has had a reasonable opportunity to ask
questions of the Company and its representatives, and
the
Company has answered to the satisfaction of such Holder all inquiries that
such
Holder or such Holder’s representatives have put to it.
(f) Each
Holder or such Holder’s purchaser representative has such knowledge and
experience in finance, securities, taxation, investments and other business
matters so as to be capable of evaluating the merits and risks of an investment
in the Subject Securities. Each Holder can afford to bear such risks,
including, without limitation, the risk of losing its entire
investment.
(g) Each
Holder acknowledges that no liquid market for the New Notes presently exists
and
none may develop in the future and that such Holder may find it impossible
to
liquidate the investment at a time when it may be desirable to do so, or at
any
other time.
(h) Each
Holder has been advised by the Company and understands that none of the Subject
Securities have been registered under the Securities Act, that the Subject
Securities are being offered and issued on the basis of the statutory exemption
provided by Section 4(2) of the Securities Act, Regulation D promulgated
thereunder or both, relating to transactions by an issuer not involving any
public offering and under similar exemptions under certain state securities
laws; that this transaction has not been reviewed by, passed on or submitted
to
any United States Federal or state agency or self-regulatory organization where
an exemption is being relied upon; and that the Company’s reliance thereon is
based in part upon the representations made by such Holder in this
Agreement.
(i) Each
Holder will acquire the Subject Securities for such Holder’s own account (or, if
such individual is married, for the joint account of such Holder and such
Holder’s spouse either in joint tenancy, tenancy by the entirety or tenancy in
common) for investment and not with a view to the sale or distribution thereof
or the granting of any participation therein, in each case in violation of
applicable securities laws, and has no present intention of distributing or
selling to others any of such Subject Securities or granting any participation
therein, in each case in violation of applicable securities laws.
(j) In
entering into this Agreement and acquiring the New Notes, such Holder is not
relying on any representations and warranties of the Company other than those
in
this Agreement.
(k) Each
Holder acknowledges that the representations, warranties and agreements made
by
such Holder herein shall survive the execution and delivery of this Agreement,
the Closing and the purchase and conversion of the New Notes.
(l) Except
as
set forth on the signature page hereto, such Holder has not engaged any broker
or other person or entity that is entitled to a commission, fee or other
remuneration as a result of the execution, delivery or performance of this
Agreement.
(m) Such
Holder is not entering into this Agreement or acquiring New Notes as a result
of
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
or
presented at any
seminar
or meeting, or any solicitation by a person other than a representative of
the
Company with whom such Holder had a pre-existing relationship.
(n) Each
Holder is not with respect to such Holder’s acquisition of New Notes a person or
entity (a “Person”) with whom a United States citizen, entity organized
under the laws of the United States or its territories or entity having its
principal place of business within the United States or any of its territories
(collectively, a “U.S. Person”), is prohibited from transacting business
of the type contemplated by this Agreement, whether such prohibition arises
under United States law, regulation or executive orders and lists published
by
the Office of Foreign Assets Control, Department of the Treasury (“OFAC”)
(including those executive orders and lists published by OFAC with respect
to
Persons that have been designated by executive order or by the sanction
regulations of OFAC as Persons with whom U.S. Persons may not transact business
or must limit their interactions to types approved by OFAC “Specially
Designated Nationals and Blocked Persons”). Neither such Holder
nor any Person who owns an interest in such Holder (collectively, a “Holder
Party”) is a Person with whom a U.S. Person, including a United States
Financial Institution as defined in 31 U.S.C. Section 5312, as amended
(“Financial Institution”), is prohibited from transacting business of the
type contemplated by this Agreement, whether such prohibition arises under
United States law, regulation or executive orders and lists published by the
OFAC (including those executive orders and lists published by OFAC with respect
to Specially Designated Nationals and Blocked Persons).
(o) To
the
actual knowledge of each Holder, neither such Holder nor any Holder Party,
nor
any Person providing funds to such Holder: (i) is under investigation by any
governmental authority for, or has been charged with, or convicted of, money
laundering, drug trafficking, terrorist related activities, any crimes which
in
the United States would be predicate crimes to money laundering, or any
violation of any Anti-Money Laundering Laws (as hereinafter defined in this
Section 4(p)); (ii) has been assessed civil or criminal penalties under
any Anti-Money Laundering Laws; or (iii) has had any of its funds seized or
forfeited in any action under any Anti-Money Laundering Laws. For
purposes of this Section 4(p), the term “Anti-Money Laundering
Laws” shall mean laws, regulations and sanctions, state and federal,
criminal and civil, that: (i) limit the use of and/or seek the
forfeiture of proceeds from illegal transactions; (ii) limit commercial
transactions with designated countries or individuals believed to be terrorists,
narcotics dealers or otherwise engaged in activities contrary to the interests
of the United States; (iii) require identification and documentation of the
parties with whom a Financial Institution conducts business; or (iv) are
designed to disrupt the flow of funds to terrorist
organizations. Such laws, regulations and sanctions shall be deemed
to include the USA PATRIOT Act of 2001, Pub. L. No. 107-56 (the “Patriot
Act”), the Bank Secrecy Act, 31 U.S.C. Section 5311 et. seq. (the “Bank
Secrecy Act”), the Trading with the Enemy Act, 50 U.S.C. Appendix, the
International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et. seq.,
and the sanction regulations promulgated pursuant thereto by the OFAC, as well
as laws relating to prevention and detection of money laundering in 18 U.S.C.
Sections 1956 and 1957.
(p) Each
Holder is in compliance in all material respects with any and all applicable
provisions of the Patriot Act, including, without limitation, amendments to
the
Bank Secrecy Act. If a Holder is a Financial Institution, it has
established and is in compliance in all
material
respects with all procedures, if any, required by the Patriot Act and the Bank
Secrecy Act.
(q) Each
Holder represents and warrants that, since July 15, 2007, such Holder has not
engaged in any short sale of any equity security of the Company.
5. Covenants
of the Company.
(a) Except
for the 2007 Notes, without the prior written consent of the Secured Party
(as
defined in Section 8 herein), the Company shall not create, issue, incur (by
conversion, exchange or otherwise), assume, guarantee or otherwise become or
remain directly or indirectly liable for any Indebtedness while the 2007 Notes
are outstanding. In addition, so long as the 2007 Notes are
outstanding, without the prior written consent of the 2007 Notes Majority
Holders (as defined in section 7(b) hereof) the Company shall not and shall
not
permit the Subsidiary to:
(i) sell,
assign (by operation of law or otherwise), lease, license, exchange or otherwise
transfer or dispose of any Collateral (as defined in the Form of Note) other
than the sale of inventory in the ordinary course of business and the sale
or
other disposition of worn out or obsolete assets not necessary for the conduct
of its business;
(ii) grant
any
Lien upon or with respect to any Collateral (as defined in the Form of Note)
or
create or suffer to exist any Lien upon or with respect to any Collateral (as
defined in the Form of Note) other than a Permitted Lien;
(iii) declare,
set aside, or pay any dividends on, make any other distributions in respect
of,
redeem or otherwise repurchase any of its capital stock or other securities,
other than dividends and distributions by the Subsidiary to the Company, or
redeem or repurchase any of its capital stock or other securities;
(iv) split,
combine or reclassify any of its capital stock;
(v) adopt
or
amend any employee benefit plan;
(vi) except
with respect to the compensation of Xxxxxx X. Xxxxx, xxxxx, award or enter
into
any compensation (including stock options or other awards under existing benefit
plans) or change of control arrangement with any employee or director of the
Company or the Subsidiary or amend the terms of employment or compensation
of
any employee or director of the Company or the Subsidiary; or
(vii) increase
the size of the Board of Directors of the Company or the Subsidiary or, except
with respect to the New Directors, appoint any new members to the Board of
Directors of the Company or the Subsidiary.
(b) No
later
than fifteen (15) business days from the Closing date, the Company will file
a
preliminary Schedule 14C information statement (the “Preliminary Schedule
14C”) with the Commission. The Company agrees to respond to the
initial and any subsequent
Commission
comments relating to the Preliminary Schedule 14C as soon as practicable after
receipt of such comments and to use commercially reasonable efforts to address
all of such Commission comments. The Company agrees to file a
definitive Schedule 14C information statement with the Commission no later
than
the second business day after receiving confirmation that the Commission has
no
further comments on the Preliminary Schedule 14C.
(c) Upon
the
terms and subject to the conditions hereof, the Company shall use its
commercially reasonable best efforts to take, or cause to be taken, all
appropriate actions and do, or cause to be done, all things necessary, proper
or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement (including, without limitation,
to
cause the conditions in clauses (i), (ii), (iv), (v), (vi), (vii) and (viii)
of
Section 2(b) to be satisfied) and to cooperate with each Holder in
connection with the foregoing.
(d) As
long
as any Holder owns Subject Securities and the Company is required to file
reports pursuant to the Exchange Act, the Company covenants to use commercially
reasonable best efforts 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 Exchange Act. As
long as any Holder owns Subject Securities, if the Company is not required
to
file reports pursuant to the Exchange Act, it will prepare and furnish to the
Holders and make publicly available in accordance with Rule 144(c) such
information as is required for the Holders to sell the Subject Securities under
Rule 144. The Company further covenants that it will take such further action
as
any holder of Subject Securities may reasonably request, to the extent required
from time to time to enable such holder to sell such Subject Securities without
registration under the Securities Act within the requirements of the exemption
provided by Rule 144.
(e) The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the Subject
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of the American Stock Exchange.
(f) Other
than in the case of a Form 8-K and any exhibits thereto, including any press
releases included therein, required to be filed with the Commission by the
Company, neither the Company nor any Holder shall issue any press release or
otherwise make any public statement concerning the transactions contemplated
by
the 2007 Transaction Documents and Subscription Agreement without the prior
consent of the Company, with respect to any press release of any Holder, or
without the prior consent of each Holder, with respect to any press release
of
the Company or otherwise authorized by the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure 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.
(g) No
claim
will be made or enforced by the Company or, with the consent of the Company,
any
other person or entity, that any Holder is an “acquiring person” or “interested
stockholder” under any control share acquisition, business combination,
shareholder
rights
plan (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by or
applicable to the Company (including without limitation Section 203
of the Delaware General Corporation Law), or that any Holder could be deemed
to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Subject Securities under this Agreement, the 2007 Transaction Documents or
under
any other agreement between the Company and the Holders.
(h) Except
as
set forth on Schedule 5(g) to the Subscription Agreement, the Company
shall use the net proceeds from the sale of the Subject Securities for working
capital purposes and shall not use such proceeds for the payment of any
dividends or distributions or the redemption or repurchase of any Common Stock
or other securities of the Company.
(i) Promptly
after the Stockholder Consents become effective, the Company shall file the
Certificate of Amendment with the Secretary of State of the State of
Delaware. Thereafter, the Company shall maintain a reserve from its
duly authorized shares of Common Stock, free of all preemptive or preferential
rights, for issuance pursuant to the 2007 Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
2007
Transaction Documents. Promptly following the conversion of the
Notes, the Company shall: (i) in the time and manner required by the
American Stock Exchange (or any subsequent trading market which is the principal
trading market on which the Common Stock is listed or quoted, as applicable,
the
“Trading Market”), prepare and file with the Trading Market an additional
shares listing application covering a number of shares of Common Stock equal
to
the number of shares of Common Stock issued upon the Conversion of the Notes
and
issuable upon the exercise of the Warrants, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing on such Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on such Trading Market or another Trading Market.
(j) From
the
date hereof until 90 days after the date on which a registration statement
is
declared effective pursuant to the 2007 Registration Rights Agreement (the
“Effective Date”), neither the Company nor the Subsidiary shall issue
shares of Common Stock, any other capital stock or equity securities of the
Company or the Subsidiary, or any securities convertible into or exercisable
for
Common Stock, capital stock or equity securities of the Company or the
Subsidiary (collectively, “Equity Securities”); provided,
however, the 90 day period set forth in this Section 5(j) shall be
extended for the number of days during such period in which (i) trading in
the Common Stock is suspended by the Trading Market, or (ii) following the
Effective Date, the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Holders for the
resale of Common Stock. This Section 5(j) shall not apply to any
“Exempt Issuance” as such term is defined in the Warrant.
(k) From
the
Effective Date until the Cessation Date (as defined below), the Company will
not, directly or indirectly, effect any sale, issuance or exchange of any Equity
Securities (a “Subsequent Placement”) unless the Company shall have first
complied with this Section 5(k).
(i) The
Company shall deliver to each 2007 Holder a written notice (the “Offer”)
of any proposed or intended sale, issuance or exchange of the securities
being
offered
(the “Offered Securities”) in a Subsequent Placement, which Offer shall
(w) identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be sold, issued or exchanged, and the number
or amount of the Offered Securities to be sold, issued or exchanged, (y)
identify the persons or entities to which or with which the Offered Securities
are to be offered, sold, issued or exchanged, and (z) offer to sell and issue
to
or exchange with each 2007 Holder (A) a pro rata portion of the Offered
Securities based on such 2007 Holder’s pro rata portion of the aggregate
principal amount of the 2007 Notes purchased or received by such 2007 Holder
(the “Basic Amount”), and (B) with respect to each 2007 Holder that
elects to purchase its Basic Amount, any additional portion of the Offered
Securities attributable to the Basic Amounts of other 2007 Holders as such
2007
Holder shall indicate it will purchase or acquire should the other 2007 Holders
subscribe for less than their Basic Amounts (the “Undersubscription
Amount”).
(ii) To
accept
an Offer, in whole or in part, a 2007 Holder must deliver a written notice
to
the Company prior to the end of the 10 trading day period following receipt
of
the Offer, setting forth the portion of the 2007 Holder’s Basic Amount that such
2007 Holder elects to purchase and, if such 2007 Holder shall elect to purchase
all of its Basic Amount, the Undersubscription Amount, if any, that such 2007
Holder elects to purchase (in either case, the “Notice of Acceptance”).
If the Basic Amounts subscribed for by all 2007 Holders are less than the total
of all of the Basic Amounts, then each 2007 Holder who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available
Undersubscription Amount”), each 2007 Holder who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of
the
Available Undersubscription Amount as the Basic Amount of such 2007 Holder
bears
to the total Basic Amounts of all 2007 Holders that have subscribed for
Undersubscription Amounts.
(iii) The
Company shall have 10 trading days from the expiration of the period set forth
in Section 5(k)(ii) above to sell, issue or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by
the
2007 Holders (the “Refused Securities”), but only to the offerees
described in the Offer and only upon terms and conditions (including, without
limitation, unit prices and interest rates), taken as a whole, that are not
more
favorable to the acquiring persons or entities or less favorable to the Company
than those set forth in the Offer.
(iv) In
the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
5(j)(iii) above), then each 2007 Holder may, at its sole option and in its
sole
discretion, reduce the number or amount of the Offered Securities specified
in
its Notice of Acceptance to an amount that shall be not less than the number
or
amount of the Offered Securities that the 2007 Holder elected to purchase
pursuant to Section 5(k)(ii) above multiplied by a fraction, (i) the numerator
of which shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered Securities
to be
issued or sold to 2007 Holders pursuant to Section 5(k)(ii) above prior to
such
reduction) and (ii) the denominator of
which
shall be the original amount of the Offered Securities. In the event
that any 2007 Holder so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
2007
Holders in accordance with Section 5(k)(i) above.
(v) Upon
the
closing of the sale, issuance or exchange of all or less than all of the Refused
Securities, the 2007 Holders shall acquire from the Company, and the Company
shall issue to the 2007 Holders, the number or amount of Offered Securities
specified in the Notices of Acceptance, as reduced pursuant to Section 5(k)(iv)
above if the 2007 Holders have so elected, upon the terms and conditions
specified in the Offer. The purchase by the 2007 Holders of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the 2007 Holders of a purchase agreement relating
to
such Offered Securities reasonably satisfactory in form and substance to the
2007 Holders, the Company and their respective
counsel. Notwithstanding anything to the contrary contained in this
Agreement, if the Company does not consummate the closing of the sale, issuance
or exchange of all or less than all of the Refused Securities within 7 trading
days after the expiration of the period set forth in Section 5(k)(ii), the
Company shall issue to the 2007 Holders the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 5(j)(iv) above if the 2007 Holders have so elected (which, in this
case
may be reduced to zero), upon the terms and conditions specified in the
Offer.
(vi) The
Company and the 2007 Holders agree that if any 2007 Holder elects to participate
in the Offer, any registration rights set forth in the agreement regarding
the
Subsequent Placement with respect to such Offer or any other transaction
documents related thereto (collectively, the “Subsequent Placement
Documents”) shall not entitle the purchasers of any Offered Securities
issued in such Subsequent Placement to participate in any registration statement
filed under the Registration Rights Agreement and shall not obligate the Company
to file a registration statement with respect to such Offered Securities unless
one or more registration statements covering all shares of Common Stock issued
or issuable upon the conversion of the 2007 Notes or the exercise of the
Warrants are then effective. The Subsequent Placement Documents shall
not include any term or provision whereby any 2007 Holder shall be required
to
agree to any restrictions in trading as to any securities of the Company owned
by such 2007 Holder prior to such Subsequent Placement if the 2007 Holders
purchase all of the Offered Securities, and, in all other cases, such
restrictions shall apply only to 2007 Holders who participate in the Subsequent
Placement and the period of such restrictions shall not exceed ninety (90)
days
after the closing of the Subsequent Placement.
(vii) Notwithstanding
anything to the contrary in this Section 5(k) and unless otherwise agreed to
by
the 2007 Notes Majority Holders (as defined in section 7(b) hereof), the Company
shall either confirm in writing to the 2007 Holders that the transaction with
respect to the Subsequent Placement has been abandoned or shall publicly
disclose its intention to issue the Offered Securities, in either case in such
a
manner such that the 2007 Holders will not be in possession of material
non-public information as a result of having information concerning the proposed
Subsequent Placement, by the seventeenth (17th) trading day following
delivery
of
the
Offer. If by the seventeenth (17th) trading day following delivery of the Offer
no public disclosure regarding a transaction with respect to the Offered
Securities has been made, and no notice regarding the abandonment of such
transaction has been received by the 2007 Holders, such transaction shall be
deemed to have been abandoned and the 2007 Holders shall not be deemed to be
in
possession of any material, non-public information with respect to the Company
as a result of having information concerning the proposed Subsequent Placement.
Should the Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide each 2007 Holder with another Offer Notice
and each 2007 Holder will again have the right of participation set forth in
this Section 5(k). The Company shall not be permitted to deliver more than
one
such Offer to the 2007 Holders in any 60 day period.
(viii) Any
Offered Securities not acquired by the 2007 Holders or the offerees in
accordance with Section 5(k)(iii) above may not be issued, sold or exchanged
until they are again offered to the 2007 Holders under the procedures specified
in this Agreement.
(ix) This
Section 5(k) shall not apply to any “Exempt Issuance” as such term is defined in
the Form of Warrant.
(x) For
purposes of this Agreement, the term “Cessation Date” shall mean the
first day on which the Purchasers (including transferees treated as Purchasers
pursuant to Section 11(c) of the Subscription Agreement) no longer hold: (x)
prior to the conversion of the Purchased Notes, Notes representing at least
25%
of the aggregate principal amount of all Purchased Notes issued in the Offering,
and (y) after the conversion of the Purchased Notes, (A) if the Per Share
Exercise Price (as such term is defined in the Warrants) is greater than the
closing price of the Common Stock last reported by the Trading Market prior
to
such day, shares of Common Stock representing at least 25% of the aggregate
shares of Common Stock issued upon the conversion of the Purchased Notes or
previously issued upon the exercise of any Warrants, or (B) if the Per Share
Exercise Price is less than the closing price of the Common Stock last reported
by the Trading Market prior to such day, shares of Common Stock representing
at
least 25% of the aggregate shares of Common Stock issued upon the conversion
of
the Purchased Notes, previously issued upon the exercise of any Warrants, or
issuable upon the future exercise of any Warrants (treating the Purchasers
as
holding any shares of Common Stock that would be issuable upon the exercise
of
any Warrants then held by Purchasers).
(l) The
Company acknowledges and agrees that each Holder 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 Subject Securities to a
financial institution that is an “accredited investor” as defined in Rule 501(a)
under the Securities Act and who agrees to be bound by the provisions of this
Agreement and the Registration Rights Agreement and, if required under the
terms
of such arrangement, each Holder may transfer pledged or secured
Subject 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 in connection
therewith. Further, no notice shall be required of such
pledge. At each Holder ’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Subject
Securities may reasonably request in connection with a pledge or transfer of
the
Subject Securities, including, if the Subject Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation
and
filing
of
any required prospectus supplement under Rule 424(b)(3) under the Securities
Act
or other applicable provision of the Securities Act to appropriately amend
the
list of selling stockholders thereunder.
(m) Prior
to
the Automatic Conversion Date (as defined in the Form of New Note), the Company
will not enter into any agreement for additional financing through equity or
equity-linked securities on terms that are materially different or more
beneficial to the purchasers of such equity or equity linked securities than
those contained in the Subscription Agreement and all exhibits thereto without
the prior consent of the 2007 Notes Majority Holders (as defined in section
7(b)
hereof).
(n) From
the
date hereof until such time as no Holder holds any of the Subject Securities,
the Company will, at its own expense, maintain insurance (including, without
limitation, commercial general liability and property insurance, and directors
and officers liability insurance, including such directors and officers
liability insurance in respect of acts or omissions occurring prior to the
Closing covering each such person serving as an officer or director of the
Company immediately prior to the Closing to the extent that such coverage is
in
place as of the Closing) in such amounts, against such risks, in such form
and
with responsible and reputable insurance companies or associations as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event, in amount,
adequacy, scope and with comparable insurance companies as the insurance in
place as of the date of this Agreement; provided, if the Closing shall not
have
occurred prior to September 21, 2007 the directors and officers liability
coverage may be reduced to $7,000,000.
(o) Except
with respect to the material terms and conditions of the transactions
contemplated by the 2007 Transaction Documents and the Subscription Agreement,
the Company covenants and agrees that neither it nor any other person or entity
acting on its behalf will, following the Closing, provide any Holder or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Holder shall have
executed a written agreement (which may be in the form of an e-mail or other
electronic confirmation) regarding the confidentiality and use of such
information. The Company understands and confirms that each Holder
shall be relying on the foregoing representations in effecting transactions
in
securities of the Company.
(p) From
the
date hereof until such time as no Holder holds any of the Subject Securities,
the Company shall not effect or enter into an agreement to effect any financing
involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company issues or sells
(i) any Equity Securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of or quotations for
the shares of Common Stock at any time after the initial issuance of such Equity
Security, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
Equity Security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for
the Common Stock or (ii) enters into any
agreement,
including, but not limited to, an equity line of credit, whereby the Company
may
sell securities at a future determined price.
(q) Notwithstanding
Section 6(b), the Company agrees to issue or reissue certificates of Common
Stock without a legend if at such time, prior to making any transfer of any
Common Stock, each Holder shall give written notice to the Company making such
request and: (i) a registration statement covering the resale of such
Common Stock is effective under the Securities Act, or (ii) each Holder
provides the Company or its counsel with reasonable assurances that such
security can be sold pursuant to Rule 144 promulgated under the Securities
Act
or any successor or replacement rule (as applicable, “Rule 144”) (which
may include an opinion of counsel provided by the Company), or (iii) each
Holder provides the Company or its counsel with reasonable assurances
that such security can be sold pursuant to section (k) of Rule 144 (or a
corresponding successor or replacement section, as applicable, “Rule
144(k)”), or (iv) the Company has received other evidence reasonably
satisfactory to the Company that such legend is not required under applicable
requirements of the Securities Act and state securities laws (including judicial
interpretations and pronouncements issued by the staff of the
Commission). The Company shall cause its counsel to issue a legal
opinion to its transfer agent, after each Holder has provided the Company’s
counsel with all necessary documentation required by such counsel to issue
such
an opinion, if such legal opinion is required by the transfer agent to effect
the removal of the legend hereunder. If all or any portion of a 2007
Note is converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Common Stock issued
upon such conversion or exercise, or if such shares of Common Stock may be
sold
under Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) then certificates
representing such shares of Common Stock shall be issued free of all
legends. The Company agrees that at such time as such legend is no
longer required under this Section 5(q) and each Holder has
complied with this Section 5(q), it will, no later than three trading days
following the delivery by each Holder to the Company or the transfer
agent of a certificate representing shares of Common Stock issued with a
restrictive legend, deliver or cause to be delivered to each Holder a
certificate representing such shares that is free from all restrictive and
other
legends. The Company may not make any notation on its records or give
instructions to the transfer agent that enlarge the restrictions on transfer
set
forth in this Section 5(q). Certificates for shares of Common Stock
subject to legend removal hereunder shall, at the direction of each Holder
, be
transmitted by the transfer agent of the Company to each Holder by
crediting the account of each Holder ’s prime broker with the Depository Trust
Company System.
(r) At
all
times until the Investor Rights Agreement has terminated in accordance with
its
terms (the “Designation Period”), the Company will cause two individuals
designated by Lambda (the individuals whom Lambda has so designated from time
to
time are referred to herein as the “Lambda Designees”) to be members of
the Board of Directors of the Company except to the extent that (i) Lambda
otherwise consents in writing, or (ii) a member of the Board of Directors
originally designated by Lambda resigns and Lambda has not yet designated a
successor. Without limiting the generality of the foregoing, during
the Designation Period the Company will cause the Lambda Designees to be elected
or nominated to the Board of Directors, to promptly remove any Lambda Designee
from the Board of Directors upon the
written
direction of Lambda, and to promptly elect or appoint any successor designated
by Lambda having reasonably appropriate business experience and background
to
fill any vacancy caused by any Lambda Designee ceasing to be a member of the
Board of Directors for any reason.
6. Covenants of
the Holders.
(a) Each
Holder agrees that no sale, assignment or transfer of any of the Subject
Securities acquired by such Holder shall be valid or effective, and the Company
shall not be required to give any effect to such a sale, assignment or transfer,
unless (i) the sale, assignment or transfer of such Subject Securities is
registered under the Securities Act, it being understood that the Subject
Securities are not currently registered for sale and that the Company has no
obligation or intention to so register the Subject Securities, except as
provided by the 2007 Registration Rights Agreement; (ii) the Subject Securities
are sold, assigned or transferred in accordance with all the requirements and
limitations of an exemption from registration under the Securities
Act. Without limiting the generality of the foregoing, each Holder
agrees that following the removal of the restrictive legend from certificates
representing Common Stock, such Holder will sell any such Common Stock pursuant
to either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and
that
if shares of Common Stock are sold pursuant to a Registration Statement, they
will be sold in compliance with the plan of distribution set forth
therein.
(b) Each
Holder agrees to the imprinting, so long as is required by Section 6(b)(i),
of a legend on any of the Securities in the following or a substantially similar
form and such other legends as may be required by state blue sky
laws:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER THE
SECURITIES ACT OR AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF
THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.”
(c) Each
Holder hereby agrees that from the date hereof and continuing until such Holder
no longer owns any Subject Securities, such Holder shall not, without the prior
written consent of the Company, directly or indirectly, through related parties,
affiliates or otherwise, (i) sell “short” or “short against the box” (as those
terms are generally understood) any equity security of the Company or (ii)
otherwise engage in any transaction which involves hedging of such Holder’s
position in any equity security of the Company, provided, however, that it
shall
not be a violation of this Section 6(b)(i), if such Holder places a sell order
for shares of Common Stock underlying the New Notes at or following the time
of
conversion of such New Notes, relies on the Company to deliver such Common
Stock
in accordance with the Form of
New
Note,
and completes the sale of such Common Stock before the Company delivers the
Common Stock to such Holder.
(d) Upon
the
terms and subject to the conditions hereof, each Holder shall use its reasonable
best efforts to take, or cause to be taken, all appropriate actions and do,
or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by
this
Agreement (including, without limitation, to cause the conditions in paragraphs
(a), (b) and (c) of Section 5 to be satisfied) and to cooperate with the Company
in connection with the foregoing.
(e) After
the
Closing, upon the request of the Company each Holder shall provide to the
Company such additional information and documentation concerning such Holder’s
legal or beneficial ownership, policies, procedures and sources of funds as
is
reasonably necessary to enable the Company to comply with Anti-Money Laundering
Laws now in existence or hereafter enacted or amended.
7. Indemnification.
(a) General. The
Company shall indemnify and hold harmless each Holder and each
officer, director, partner, employee, agent and controlling person of each
Holder (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), past, present or future (each, an
“Indemnified Party”), from and against any and all claims, losses,
damages, liabilities, judgments, fines, penalties, charges, costs, and expense,
including reasonable attorneys fees and disbursements including those incurred
in enforcing this Section 7(a) (collectively, “Losses”), due to or
arising out of (i) a breach of any representation, warranty, covenant or
agreement by the Company in this Agreement or any other 2007 Transaction
Document, or (ii) a claim against any Holder by a third party based on the
transactions contemplated by the 2007 Transaction Documents (other than a claim
based on a breach by each Holder of any representation, warranty or covenant
of
each Holder in the 2007 Transaction Documents to which it is a
party). No knowledge by any Holder of any breach or inaccuracy of any
representation, warranty, covenant or agreement by the Company in this Agreement
shall impair, limit, release or otherwise impair any rights of any
Holder pursuant to this Section 7.
(b) Limitation
on Indemnification. The maximum amount payable by the Company to
all Indemnified Parties in respect of claims made for indemnification under
Section 7(a) shall not exceed, in the aggregate, the aggregate amount of the
New
Note(s) received by such Holder in the Exchange plus the Indemnified Parties’
reasonable out-of-pocket expenses incurred in connection with (i) the 2007
Transaction Documents and the transactions contemplated thereby, (ii)
enforcing its rights under Section 7(a) and (iii) defending itself against
any
claim related to the 2007 Transaction Documents or the transactions contemplated
thereby. No Indemnified Party shall be entitled to bring a claim with
respect to Losses due to or arising out of a breach by the Company of any
representation or warranty contained in Sections 3(e) through (ii) (including
a
claim permitted by clause (i) or (ii) of Section 7(c)) unless such claim is
brought by, or the bringing of such claim is consented to in writing by, the
2007 Notes Majority Holders. For purposes of this Section 7(b), the
“2007 Notes Majority Holders” shall be (x) prior to the conversion of the
2007 Notes, holders of 2007 Notes having a principal amount greater than fifty
percent (50%) of the principal amount of all 2007 Notes then outstanding, and
(y) after
the
conversion of the 2007 Notes, the holders of a majority of the shares of Common
Stock that were issued upon the conversion of the 2007 Notes or were issued
or
are issuable upon the exercise of the Warrants (excluding from such analysis
any
shares of Common Stock that have been sold pursuant to an effective registration
statement or Rule 144 and the holders thereof). Once a claim has been
brought or approved by the 2007 Notes Majority Holders, each Indemnified Party
may continue to prosecute such claim even if the persons or entities bringing
or
approving such claim subsequently cease to constitute the 2007 Notes Majority
Holders.
(c) Sole
Remedy. The parties hereto agree and acknowledge that subsequent
to the Closing, the indemnification rights provided in this Section 7
shall be the exclusive remedy of the each party hereto against the Company,
for
breaches of the representations and warranties contained in this Agreement
except with respect to (i) claims involving fraud or a knowing breach of the
representations and warranties or (ii) any equitable relief to which any party
may be entitled, including without limitation, rescission.
(d) Notice. With
respect to any Loss related to a claim by a third party, an Indemnified Party
shall give written notice thereof to the Company (in such capacity, the
“Indemnifying Party”) promptly after receipt of any written claim by such
third party and in any event not later than twenty (20) business days after
receipt of any such written claim (or not later than ten (10) business days
after the receipt of any such written claim in the event such written claim
is
in the form of a formal complaint filed with a court of competent jurisdiction
and served on the Indemnified Party), specifying in reasonable detail the
amount, nature and source of the claim, and including therewith copies of any
notices or other documents received from third parties with respect to such
claim; provided, however, that failure to give such notice
shall not limit the right of an Indemnified Party to recover indemnity or
reimbursement except to the extent that the Indemnifying Party suffers any
prejudice or harm with respect to such claim as a result of such
failure. The Indemnified Party shall also provide the Indemnifying
Party with such further information concerning any such claims as the
Indemnifying Party may reasonably request by written notice.
(e) Payment
of Losses. Within thirty (30) calendar days after receiving
notice of a claim for indemnification or reimbursement, the Indemnifying Party
shall, by written notice to the Indemnified Party, either (i) concede or deny
liability for the claim in whole or in part, or (ii) in the case of a claim
asserted by a third party, advise that the matters set forth in the notice
are,
or will be, subject to contest or legal proceedings not yet finally
resolved. If the Indemnifying Party concedes liability in whole or in
part, it shall, within twenty (20) business days of such concession, pay the
amount of the claim to the Indemnified Party to the extent of the liability
conceded. Any such payment shall be made in immediately available
funds equal to the amount of such claim so payable. If the
Indemnifying Party denies liability in whole or in part or advises that the
matters set forth in the notice are, or will be, subject to contest or legal
proceedings not yet finally resolved, then the Indemnifying Party shall make
no
payment (except for the amount of any conceded liability payable as set forth
above) until the matter is resolved in accordance with this
Agreement.
(f) Defense
of Claims. In the case of any third party claim, if within 20
days after receiving the notice described in the preceding Section 7(d), the
Indemnifying Party (i) gives written notice to the Indemnified Party stating
that the Indemnifying Party would be liable
under
the
provisions hereof for indemnity in the amount of such claim if such claim were
valid and that the Indemnifying Party disputes and intends to defend against
such claim, liability or expense at the Indemnifying Party’s own cost and
expense, and (ii) provides assurance reasonably acceptable to such Indemnified
Party that such indemnification will be paid fully and promptly if required
and
such Indemnified Party will not incur cost or expense during the proceeding,
then the Indemnifying Party shall be entitled to assume the defense of such
claim and to choose counsel for the defense (subject to the consent of such
Indemnified Party which consent shall not be unreasonably withheld) and such
Indemnified Party shall not be required to make any payment with respect to
such
claim, liability or expense as long as the Indemnifying Party is conducting
a
good faith and diligent defense at its own expense; provided, however, that
the
assumption of the defense of any such matters by the Indemnifying Party shall
relate solely to the claim, liability or expense that is subject or potentially
subject to indemnification. If the Indemnifying Party assumes such
defense in accordance with the preceding sentence, it shall have the right
to
settle indemnifiable matters related to claims by third parties where (x) the
only obligation of the Indemnified Party and Indemnifying Party in connection
with such settlement is the payment of money damages and such money damages
are
satisfied in full by the Indemnifying Party, and (ii) the settlement includes
a
complete release of the relevant Indemnified Party or Parties. Any
other settlement of a claim for which the Indemnifying Party has assumed the
defense shall require the prior written consent of the relevant Indemnified
Party or Parties, which consent shall not be unreasonably
withheld. No Indemnified Party shall settle any claim with respect to
which the Indemnifying Party has assumed the defense, without the prior written
consent of the Indemnifying Party. The Indemnifying Party shall keep
such Indemnified Party apprised of the status of the claim, liability or expense
and any resulting suit, proceeding or enforcement action, shall furnish such
Indemnified Party with all documents and information that such Indemnified
Party
shall reasonably request and shall consult with such Indemnified Party prior
to
acting on major matters, including settlement
discussions. Notwithstanding anything herein stated, such Indemnified
Party shall at all times have the right to participate in, but not control,
such
defense at its own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include
both
the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate under applicable standards
of
professional conduct, the reasonable expense of separate counsel for such
Indemnified Party shall be paid by the Indemnifying Party provided that such
Indemnifying Party shall be obligated to pay for only one such
counsel. If no such notice of intent to dispute and defend is given
by the Indemnifying Party, or if such diligent good faith defense is not being
or ceases to be conducted, such Indemnified Party may undertake the defense
of
(with counsel selected by such Indemnified Party, which selection shall require
the consent of the Indemnifying Party, which consent shall not be unreasonably
withheld, and paid by the Indemnifying Party), and shall have the right to
compromise or settle, such claim, liability or expense (exercising reasonable
business judgment) with the consent of the Indemnifying Party, which consent
shall not be unreasonably withheld. Such Indemnified Party shall make
available all information and assistance that the Indemnifying Party may
reasonably request and shall cooperate with the Indemnifying Party in such
defense.
8. Creation
of Security Interest.
(a) Grant
of Security Interest. The Company hereby confirms that it has
granted and pledged to Lambda (the “Secured Party”) a continuing security
interest in the Collateral (as defined in the Form of New Note) in order to
secure prompt payment of the principal of, interest on and all other amounts
due
and payable under the 2007 Notes (collectively, the
“Obligations”). Such security interest will automatically
terminate upon the (i) earlier of the payment of principal and interest on
the
2007 Notes; (ii) such time as the Company designates sufficient funds (which
may
be proceeds from the sale of Collateral) for the payment of the 2007 Notes
and
(iii) the Automatic Conversion Date (as defined in the Form of New Note) (the
“Security Interest Termination Date”).
(b) Designation
of Secured Party as Agent. Each Holder hereby irrevocably
designates the Secured Party to act as Secured Party on such Holder’s
behalf. Each Holder hereby irrevocably authorizes, and each holder of
any Subject Securities, by such holder’s acceptance of such Subject Securities,
shall be deemed irrevocably to authorize, the Secured Party to take such action
on its behalf under the provisions of this Agreement and any other instruments
and agreements referred to herein or therein and to exercise such powers and
to
perform such duties hereunder and thereunder as are specifically delegated
to,
or required of, the Secured Party by the terms hereof or thereof and such other
powers as are reasonably incidental thereto. Each Holder, on behalf
of itself and future holders of the Subject Securities issued to such Holder,
hereby authorizes and directs the Secured Party, from time to time in the
Secured Party’s discretion, to take any action and promptly to execute and
deliver on such Holder’s behalf any document or instrument that the Company may
reasonably request to effect, confirm or evidence the provisions of this Section
8, the occurrence of the Security Interest Termination Date, any subordination
agreement, or otherwise. Pursuant to Section 9-509(d) of the Uniform
Commercial Code as in effect on the date hereof in the State of New York, the
Secured Party hereby authorizes the Company to file a termination statement
upon
the occurrence of the Security Interest Termination Date; the Secured Party
agrees to provide any further authorizations of such filing if requested by
the
Company. In no event shall the Secured Party have any liability or
other obligation to the Company or any Holder whatsoever as a result of any
act
or omission taken or failed to be taken in its capacity as the Secured Party,
and the Company and each Holder hereby irrevocably release the Secured Party
from any and all such liabilities or other obligations.
(c) Delivery
of Additional Documentation Required. The Company shall from time
to time execute and deliver to Secured Party, at the request of Secured Party,
all financing statements and other documents that Secured Party may reasonably
request and take any action that Secured Party may reasonably request to perfect
and continue perfected Secured Party’s security interests in the
Collateral. Without limiting the generality of the foregoing, the
Company shall, upon the Secured Party’s written request, duly execute and
deliver any (i) assignment for security with respect to Intellectual
Property in a form reasonably requested by the Secured Party, and (ii) any
account control agreement with respect to any account holding Collateral in
a
form reasonably requested by the Secured Party. Notwithstanding the
foregoing, the Company need not deliver possession or control of any Collateral
to the Secured Party or take any action to perfect the security interest granted
hereby other than the filing of financing
statements
under the Uniform Commercial Code, the delivery and filing of any assignments
for security with respect to Intellectual Property and the entry into account
control agreements with respect to accounts holding Collateral. The
Secured Party may, at any time and from time to time, file financing statements,
continuation statements and amendments thereto that describe the Collateral
as
all assets of the Company or words of similar effect.
(d) Remedies
of Secured Party. If any Event of Default as defined in the New
Notes shall have occurred and be continuing, the Secured Party may exercise
in
respect of the Collateral, in addition to any other rights and remedies provided
for herein or otherwise available to it, all of the rights and remedies of
a
secured party upon default under the Uniform Commercial Code (whether or not
the
Uniform Commercial Code applies to the affected Collateral), and also may
(i) take absolute control of the Collateral, including, without limitation,
transfer into the Secured Party’s name or into the name of its nominee or
nominees (to the extent the Secured Party has not theretofore done so) and
thereafter receive, for the benefit of the holders of the 2007 Notes, all
payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright
owner thereof, (ii) require the Company to, and the Company hereby agrees
that it will at its expense and upon request of the Secured Party forthwith,
assemble all or part of its respective Collateral as directed by the Secured
Party and make it available to the Secured Party at a place or places to be
designated by the Secured Party that is reasonably convenient to both parties,
and the Secured Party may enter into and occupy any premises owned or leased
by
the Company where the Collateral or any part thereof is located or assembled
for
a reasonable period in order to effectuate the Secured Party’s rights and
remedies hereunder or under law, without obligation to the Company in respect
of
such occupation, and (iii) without notice except as specified below and
without any obligation to prepare or process the Collateral for sale,
(A) sell the Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Secured Party’s offices or elsewhere, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Secured Party may deem commercially reasonable and/or
(B) lease, license or dispose of the Collateral or any part thereof upon
such terms as the Secured Party may deem commercially reasonable. The
Company agrees that, to the extent notice of sale or any other disposition
of
its respective Collateral shall be required by law, at least 10 days’
notice to the Company of the time and place of any public sale or the time
after
which any private sale or other disposition of its Collateral is to be made
shall constitute reasonable notification. The Secured Party shall not
be obligated to make any sale or other disposition of any Collateral regardless
of notice of sale having been given. The Secured Party may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at
the
time and place to which it was so adjourned. The Company hereby
waives any claims against the Secured Party and the holders of the 2007 Notes
arising by reason of the fact that the price at which the Collateral may have
been sold at a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Secured Party accepts the first offer received and
does
not offer such Collateral to more than one offeree, and waives all rights that
the Company may have to require that all or any part of such Collateral be
marshaled upon any sale (public or private) thereof. The Company hereby
acknowledges that (x) any such sale of the Collateral by the Secured Party
shall be made without warranty, (y) the Secured Party may specifically
disclaim any warranties of title, possession, quiet enjoyment or the like,
and
(z) such
actions set forth in clauses (x) and (y) above shall not adversely affect
the commercial reasonableness of any such sale of Collateral. In
addition to the foregoing, (A) upon written notice to the Company from the
Secured Party after and during the continuance of an Event of Default, the
Company shall cease any use of the Intellectual Property for any purpose
described in such notice; (B) the Secured Party may, at any time and from
time to time after and during the continuance of an Event of Default, upon
10 days’ prior notice to the Company, license, whether general, special or
otherwise, and whether on an exclusive or non-exclusive basis, any of the
Intellectual Property, throughout the universe for such term or terms, on such
conditions, and in such manner, as the Secured Party shall in its sole
discretion determine; and (C) the Secured Party may, at any time, pursuant
to the authority granted in Section 8 hereof (such authority being
effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of the Company, one or more instruments
of assignment of the Intellectual Property (or any application or registration
thereof), in form suitable for filing, recording or registration in any
country.
(e) Benefits
to Holders of 2007 Notes. The rights of the Secured Party are for
the ratable benefit of the holders of the 2007 Notes (including the Secured
Party). Any proceeds or other Collateral received or recovered by the
Secured Party in its capacity as such shall, in the sole discretion of the
Secured Party, either (i) be held (or sold, liquidated or otherwise converted
into another form of proceeds or other Collateral that is held) by the Secured
Party for the ratable benefit of the holders of the 2007 Notes, as collateral
security for the Obligations (whether matured or unmatured), (ii) after and
during the continuance of an Event of Default, be retained by the Secured Party
to reimburse the Secured Party for its reasonable costs and expenses, including
attorneys fees and disbursements, incurred in serving as the Secured Party,
and/or (iii) after and during the continuance of an Event of Default, be
distributed to the holders of the 2007 Notes on a pro rata basis based on the
respective amounts then due and owing to the respective holders of the 2007
Notes. After and during the continuance of an Event of Default, the
Secured Party shall distribute any cash Collateral then held by the Secured
Party in accordance with clause (iii) of the proceeding sentence to the extent
that such cash Collateral exceeds the costs or expenses described in clause
(ii)
of the preceding sentence that have already been incurred or are reasonably
expected by the Secured Party to be incurred unless the Secured Party has
determined, upon the advice of counsel, that it is not entitled to distribute
such cash Collateral at such time, in which case the Secured Party shall make
such distributions as soon as practicable after the Secured Party determines
that it is entitled to distribute such cash Collateral.
9. Confidentiality. Each
Holder acknowledges and agrees that all information, written and oral,
concerning the Company furnished from time to time to such Holder and identified
as confidential has been and is provided on a confidential basis pursuant to
a
confidentiality agreement between such Holder and the Company.
10. Expenses. The
Company shall pay, in connection with the preparation, execution and delivery
of
this Agreement, the other 2007 Transaction Documents and the consummation of
the
transactions contemplated hereby and thereby, all reasonable fees and out of
pocket expenses incurred by the Holders in connection with the Exchange up
to an
aggregate maximum amount of $10,000, whether or not the transactions
contemplated by the 2007 Transaction Documents are consummated.
11. Miscellaneous.
(a) This
Agreement, including the exhibits hereto, sets forth the entire understanding
of
the parties with respect to each Holder’s Exchange of Old Notes for New Notes
with the Company, supersedes all existing agreements among them concerning
such
subject matter, and, subject to paragraph (h) below, may be modified, and the
provisions hereof may be waived, only by a written instrument duly executed
by
the party to be charged; provided, however, the obligations of the
Company under Sections 5(b), (f), (h), (j), (k), (n) and (p) may be amended
or
waived following the Closing by the 2007 Notes Majority Holders; provided,
further, that any amendment or waiver to any such Sections by the 2007 Notes
Majority Holders must apply to the corresponding Sections of all of the
subscription agreements entered into by the Company in connection with the
Offering.
(b) Except
as
otherwise specifically provided herein, any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
mailed by certified mail, return receipt requested, or by Federal Express,
Express Mail or similar guaranteed overnight delivery or courier service or
delivered in person against receipt to the party to whom it is to be
given,
(i)
if
to the
Company,
Nephros,
Inc.
0000
Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn: President
(ii)
with
a copy to,
Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention: Xxxxxx
X. Xxxxxxxx, Esq.
(ii)
if
to a Holder, at the address set forth on the signature page hereof, with a
copy
to,
Stroock
& Stroock & Xxxxx LLP
000
Xxxxxx Xxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention: Xxxxxxxxxx
X. Xxxxxx, Esq.
or
in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 11(b). Any
notice given by means permitted by this Section 11(b) shall be deemed
given at the time of receipt thereof at the address specified in this Section
11(b).
(c) This
Agreement shall be binding upon and inure 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 Holder or, after the Closing, the 2007 Majority
Holders. Each Holder may assign any or all of its rights under this
Agreement to any person or entity to whom such Holder assigns or transfers
any
Subject Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Subject Securities, by the provisions of the
2007 Transaction Documents that apply to such Subject
Securities. In the event of any assignment pursuant to this Section
11(c), the transferee shall be treated as a Holder to the same extent as if
such
transferee were the original party to this Agreement. Notwithstanding
anything in this Section 11(c) to the contrary, in the event of any assignment
pursuant to this Section 11(c), Holders shall not be entitled to assign any
rights under this Agreement to a purchaser of shares of Common Stock sold by
such Holder pursuant to an effective registration statement or Rule
144.
(d) The
headings in this Agreement are solely for convenience of reference and shall
be
given no effect in the construction or interpretation of this
Agreement.
(e) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
(f) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York, without giving effect to principles governing conflicts
of
law that would defer to the substantive law of another
jurisdiction.
(g) In
the
event that any provision of this Agreement shall be determined to be illegal
or
unenforceable, that provision will be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force
and
effect and enforceable.
(h) This
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any person not a party to this Agreement other than the Secured
Party and each Indemnified Party. The Company and the Holders acknowledge that
the Secured Party’s consent to serve in such capacity is based in part on the
effectiveness of the provisions in Section 8 of this Agreement, and the Company
and the Holders agree that the provisions of Section 8 of this Agreement may
be
enforced by, and may not be modified or waived, without the prior written
consent of the Secured Party.
(i) Each
party hereto consents and submits to the exclusive jurisdiction of any state
court sitting in the County of New York or federal court sitting in the Southern
District of the State of New York in connection with any dispute arising out
of
or relating to this Agreement, and agrees that all suits, actions and
proceedings brought by such party hereunder shall be brought only in such
jurisdictions. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought
in
an inconvenient forum. To the extent permitted by law, any judgment
in respect of a dispute arising out of or relating to this Agreement may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified copy of such judgment being conclusive evidence
of
the fact and amount of such judgment. Each party hereto agrees that
personal service of process
may
be
effected by any of the means specified in Section 12(b), addressed to such
party. The foregoing shall not limit the rights of any party to serve
process in any other manner permitted by law.
(j) In
the
event of any litigation or other proceeding concerning this Agreement or the
transactions contemplated hereby, including any such litigation or proceeding
with respect to the enforcement of this Agreement against any defaulting party,
the prevailing party in such litigation or proceeding shall be entitled to
reimbursement from the party opposing such prevailing party for all attorneys’
fees and costs incurred by such prevailing party in such litigation or
proceeding
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, this Agreement was duly executed on the date first written
above.
|
NEPHROS,
INC.
|
|
By:
/s/ Xxxxxx X.
Xxxxx
Name:
Xxxxxx
X. Xxxxx
Title:
President and Chief Executive
Officer
|
|
HOLDER: Southpaw
Credit Opportunity Master Fund LP
By: Southpaw
GP LLC
|
|
By:
/s/ Xxxxx
Xxxxx
Name:
Xxxxx
Xxxxx
Title:Managing
Member
|
|
HOLDER: 3V
Capital Master Fund Ltd.
By: 3V
Capital Management LLC
|
|
By:
/s/ Xxxxx X. Xxxxx
Name:
Xxxxx
X. Xxxxx
Title: Managing
Member
|
|
HOLDER: Distressed/High
Yield Trading Opportunities, Ltd.
By:
Eliteperformance Fund, Ltd.
|
|
By:
/s/ Xxxxx X. Xxxxx
Name:
Xxxxx
X. Xxxxx
Title: Portfolio Manager
|
|
HOLDER: Kudu
Partners, LP
|
|
By:
/s/ Xxxxx X. Xxxxxx
Name:
Xxxxx
X. Xxxxxx
Title:
Treasurer
|
|
HOLDER: LJHS
Company
|
|
By:
/s/ Xxxx X. XxXxxx
Name:
Xxxx X.
XxXxxx
Title:
Agent
|
EXHIBIT
A
|
Holder
of Old Note
|
Amount
of Old Note
(including
accrued interest)
|
|||
|
Southpaw
Credit Opportunity Master Fund LP
|
$ |
2,157,651.10
|
||
|
3V
Capital Master Fund Ltd.
|
$ |
1,618,238.32
|
||
|
Distressed/High
Yield Trading Opportunities, Ltd.
|
$ |
1,618,238.32
|
||
|
Kudu
Partners
|
$ |
107,865.13
|
||
|
LJHS
Company
|
$ |
107,865.13
|
||
EXHIBIT
B
(Form
of
New Notes)
EXHIBIT
C
|
Holder
of New Note
|
Amount
of New Note
|
|||
|
Southpaw
Credit Opportunity Master Fund LP
|
$ |
2,038,461.54
|
||
|
3V
Capital Master Fund Ltd.
|
$ |
1,528,846.15
|
||
|
Distressed/High
Yield Trading Opportunities, Ltd.
|
$ |
1,528,846.15
|
||
|
Kudu
Partners
|
$ |
101,923.08
|
||
|
LJHS
Company
|
$ |
107,923.08
|
||
EXHIBIT
D
(Form
of
Subscription Agreement)
EXHIBIT
E
(Form
of
Registration Rights Agreement)
EXHIBIT
F
(Form
of
Investor Rights Agreement)
EXHIBIT
G
ACCREDITED
INVESTOR STATUS
The
Holder represents that it is an Accredited Investor on the basis that it is
(check all that apply):
_____(i) A
bank as defined in Section 3(a)(2) of the Act, or a savings and loan association
or other institution as defined in Section 3(a)(5)(A) of the Act, whether acting
in its individual or fiduciary capacity; a broker dealer registered pursuant
to
Section 15 of the Securities Exchange Act of 1934; an insurance company as
defined in Section 2(13) of the Act; an investment company registered under
the
Investment Company Act of 1940 (the “Investment Company Act”) or a
business development company as defined in Section 2(a)(48) of the Investment
Company Act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning
of
the Employee Retirement Income Security Act of 1974 (“ERISA”), if the
investment decision is made by a plan fiduciary, as defined in Section 3(21)
of
ERISA, which is either a bank, savings and loan association, insurance company,
or registered investment advisor, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors.
_____(ii) A
private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
_____(iii) An
organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000.
_____(iv) A
director or executive officer of the Company.
_____(v) A
natural person whose individual net worth, or joint net worth with that person’s
spouse, at the time of his or her purchase exceeds $1,000,000.
_____(vi) A
natural person who had an individual income in excess of $200,000 in each of
the
two most recent years or joint income with that person’s spouse in excess of
$300,000 in each of those years and has a reasonable expectation of reaching
the
same income level in the current year.
_____(vii) A
trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed by
a
sophisticated person as described in Rule 506(b)(2)(ii) (i.e., a person who
has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective
investment).
_____(viii) An
entity in which all of the equity owners are accredited
investors. (If this alternative is checked, each
Holder must identify each equity owner and provide statements signed
by each demonstrating how each is qualified as an accredited
investor. Further, each Holder represents that it has made
such investigation as is reasonably necessary in order to verify the accuracy
of
this alternative.)
