PURCHASE AGREEMENT
THIS
PURCHASE AGREEMENT,
dated
as of November 28, 2007, is entered into by and between Neah Power
Systems,
Inc.,
a
Nevada corporation (the “Company”), and CAMHZN MASTER LDC and any additional
purchasers whose signatures appear at the conclusion of this agreement
(collectively, the “Purchaser”).
WITNESSETH:
WHEREAS,
the
Company and the Purchaser are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
for offers and sales to accredited investors afforded, inter alia,
by Rule
506 under Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act;
and
WHEREAS,
the
Purchaser wishes to purchase a 12% Secured Promissory Note of the Company (the
“Note”), subject to and upon the terms and conditions of this Agreement and
acceptance of this Agreement by the Company, on the terms and conditions
referred to herein; and
WHEREAS,
the
Company’s obligations to repay the Note will be secured by certain stock (the
“Pledged Shares”) of the Company pledged by the Company ( the “Pledgors”)
pursuant to separate Security Interest and Pledge Agreements (the “Pledge
Agreements”).
NOW
THEREFORE,
in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties agree as follows:
1. AGREEMENT
TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) Subject
to the terms and conditions of this Agreement and the other Transaction
Agreements, the Purchaser hereby agrees to purchase the Note for the sum of
$500,000.00 (the “Purchase Amount”).
(ii) The
Note
referred to herein shall be in the form of Annex
I annexed
hereto. The Note will be secured by a pledge of the Pledged Shares under the
terms of the Pledge Agreements, which Pledge Agreements shall be substantially
in the form of Annex
VI hereto,
which the Company will acknowledge.
(iii) In
consideration for the Purchaser agreeing to Purchase the Note, the Company
agrees to issue to the Purchaser the Warrant. Additional provisions relating
to
the Warrant are provided below.
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(iv) The
purchase of the Note and the issuance of the Warrant to the Purchaser and the
other transactions contemplated hereby are sometimes referred to herein and
in
the other Transaction Agreements as the purchase and sale of the Securities
(as
defined below), and are referred to collectively as the
“Transactions”.
b. Certain
Definitions. As
used
herein, each of the following terms has the meaning set forth below, unless
the
context otherwise requires:
“Affiliate”
means, with respect to a specific Person referred to in the relevant provision,
another Person who or which controls or is controlled by or is under common
control with such specified Person.
“Certificate”
means the original ink-signed Note duly executed by the Company.
“Closing
Date” means the date of the closing of the Transactions, as provided
herein.
“Common
Stock Equivalents” means
any
securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
“Company
Control Person” means each director, executive officer, promoter, and such other
Persons as may be deemed in control of the Company pursuant to Rule 405 under
the 1933 Act or Section 20 of the 1934 Act (as defined below).
“Disclosure
Annex” means Annex
V to
this
Agreement; provided, however, that the Disclosure Annex shall be arranged in
sections corresponding to the identified Sections of this Agreement, but the
disclosure in any such section of the Disclosure Annex shall qualify other
provisions in this Agreement to the extent that it would be readily apparent
to
an informed reader from a reading of such section of the Disclosure Annex that
it is also relevant to other provisions of this Agreement.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Holder”
means the Person holding the relevant Securities at the relevant
time.
“Last
Audited Date” means December 31, 2006.
“Purchaser
Control Person” means each director, executive officer, promoter, and such other
Persons as may be deemed in control of the Purchaser pursuant to Rule 405 under
the 1933 Act or Section 20 of the 1934 Act.
“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.
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2
“Material
Adverse Effect” means an event or combination of events, which individually or
in the aggregate, would reasonably be expected to (w) adversely affect the
legality, validity or enforceability of the Securities or any of the Transaction
Agreements, (x) have or result in a material adverse effect on the results
of
operations, assets, prospects, or condition (financial or otherwise) of the
Company and its subsidiaries, taken as a whole, (y) adversely impair the
Company's ability to perform fully on a timely basis its obligations under
any
of the Transaction Agreements or the transactions contemplated thereby, or
(z)
materially and adversely affect the value of the rights granted to the Purchaser
in the Transaction Agreements.
“Person”
means any living person or any entity, such as, but not necessarily limited
to,
a corporation, partnership or trust.
“Principal
Trading Market” means the Over the Counter Bulletin Board or such other market
on which the Common Stock is principally traded at the relevant time, but shall
not include the “pink sheets.”
“Registrable
Securities” means all of the following: (i) the Warrant Shares, and (ii) any
shares of the Company’s common stock that are issued to the Purchaser in
connection with any other agreements between the parties hereto, except to
the
extent such shares can then be sold by the Holder without volume or other
restrictions or limits.
“Registration
Rights Provisions” means the piggy-back registration rights contemplated by the
terms of this Agreement, if any, including, but not necessarily limited to,
Section 4(g) hereof, and of the other Transaction Agreements.
“Registration
Statement” means an effective registration statement covering the Registrable
Securities.
“Securities”
means the Note, the Warrant, the shares underlying the Warrant, and any shares
of common stock of the Company that may be issued to the Purchaser in connection
with any other agreements between the parties.
“Shares”
means the shares of representing any or all of the Warrant Shares and, where
relevant, the Pledged Shares.
“State
of
Incorporation” means Nevada.
“Subsidiary”
means any subsidiary of the Company as set forth on the Disclosure
Annex.
“Trading
Day” means any day during which the Principal Trading Market shall be open for
business.
“Transaction
Fees” means legal and due diligence fees incurred by the Purchaser.
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“Transfer
Agent” means, at any time, the transfer agent for the Company’s Common
Stock.
“Transaction
Agreements” means this Purchase Agreement, the Note, the Pledge Agreement, the
Warrant and includes all ancillary documents referred to in those
agreements.
“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the primary Trading Market on which
the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using
the
VAP function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by the Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price
per
share of the Common Stock so reported; or (c) in all other cases, the fair
market value of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Holders holding
a
majority of the principal amount of Notes then outstanding.
“Warrant
Shares” means shares of Common Stock underlying the Warrant.
c. Form
of Payment; Delivery of Certificates.
(i) The
Purchaser shall pay the Purchase Amount by delivering immediately available
good
funds in United States Dollars to the Company on the Closing Date.
(ii) On
the
Closing Date, the Company shall deliver the Certificate, duly executed on behalf
of the Company to the Purchaser.
(iii) By
signing this Agreement, each of the Purchaser and the Company agrees to all
of
the terms and conditions of the Transaction Documents, all of the provisions
of
which are incorporated herein by this reference as if set forth in
full.
d. Method
of Payment.
Payment
of the Purchase Amount shall be made by wire transfer of funds to:
|
Pay
to:
|
Silicon
Valley Bank
|
|
|
0000
Xxxxxx Xxxxx
|
||
|
Xxxxx
Xxxxx, XX 00000
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||
|
Routing
No.:
|
000000000
|
|
|
For
Credit of:
|
||
|
00000
00xx Xxx XX, Xxxxx 000
|
||
|
Xxxxxxx
XX 00000
|
||
| Account No.: | 3300156900 |
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2.
PURCHASER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The
Purchaser represents and warrants to, and covenants and agrees with, the Company
as follows:
a. Without
limiting Purchaser's right to sell the Securities pursuant to an effective
registration statement or otherwise in compliance with the 1933 Act, the
Purchaser is purchasing the Securities for its own account for investment only
and not with a view towards the public sale or distribution thereof and not
with
a view to or for sale in connection with any distribution thereof.
b. The
Purchaser is (i) an “accredited investor” as that term is defined in Rule 501 of
the General Rules and Regulations under the 1933 Act by reason of Rule
501(a)(3), (ii) experienced in making investments of the kind described in
this
Agreement and the related documents, (iii) able, by reason of the business
and
financial experience of its officers (if an entity) and professional advisors
(who are not affiliated with or compensated in any way by the Company or any
of
its Affiliates or selling agents), to protect its own interests in connection
with the transactions described in this Agreement, and the related documents,
and to evaluate the merits and risks of an investment in the Securities, and
(iv) able to afford the entire loss of its investment in the
Securities.
c. All
subsequent offers and sales of the Securities by the Purchaser shall be made
pursuant to registration of the relevant Securities under the 1933 Act or
pursuant to an exemption from registration.
d. The
Purchaser understands that the Securities are being offered and sold to it
in
reliance on specific exemptions from the registration requirements of the 1933
Act and state securities laws and that the Company is relying upon the truth
and
accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser
set
forth herein in order to determine the availability of such exemptions and
the
eligibility of the Purchaser to acquire the Securities.
e. The
Purchaser and its advisors, if any, have been furnished with or have been given
access to all materials relating to the business, finances and operations of
the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Purchaser, including those set forth on in any annex
attached hereto. The Purchaser and its advisors, if any, have been afforded
the
opportunity to ask questions of the Company and its management and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Purchaser has also had the opportunity to
obtain and to review all the Company's filings with the SEC (collectively,
the
“Company's SEC Documents”).
f. The
Purchaser understands that its investment in the Securities involves a high
degree of risk.
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5
g. The
Purchaser hereby represents that, in connection with its purchase of the
Securities, it has not relied on any statement or representation by the Company
or any of its officers, directors and employees or any of their respective
attorneys or agents, except as specifically set forth herein.
h. The
Purchaser understands that no United States federal or state agency or any
other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities.
i. This
Agreement and the other Transaction Agreements to which the Purchaser is a
party, and the transactions contemplated thereby, have been duly and validly
authorized, executed and delivered on behalf of the Purchaser and are valid
and
binding agreements of the Purchaser enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium and other similar laws affecting
the
enforcement of creditors' rights generally.
3. COMPANY
REPRESENTATIONS, ETC. The
Company represents and warrants to the Purchaser as of the date hereof and
as of
the Closing Date that, except as otherwise provided in the Disclosure Annex
or
in the SEC Documents:
a. Rights
of Others Affecting the Transactions. There
are
no preemptive rights of any shareholder of the Company, as such, to acquire
the
Note, or any shares of the Company’s common stock that may be issued in
connection with this Agreement or any other agreement entered into by the
parties hereto, in the event such shares are issued. No party other than a
Purchaser has a currently exercisable right of first refusal which would be
applicable to any or all of the transactions contemplated by the Transaction
Agreements.
b. Status.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Incorporation and has the requisite corporate
power to own its properties and to carry on its business as now being conducted.
The Company is duly qualified as a foreign corporation to do business and is
in
good standing in each jurisdiction where the nature of the business conducted
or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have or result in
a
Material Adverse Effect. The Company has registered its stock and is obligated
to file reports pursuant to Section 12 or Section 15(d) of the Securities and
Exchange Act of 1934, as amended (the “1934 Act”). The Common Stock is, or
immediately following the Closing Date will be, quoted on the Principal Trading
Market. The Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such quotation on the
Principal Trading Market, and the Company has maintained all requirements on
its
part for the continuation of such quotation.
c. Authorized
Shares.
(i) The
authorized capital stock of the Company consists of 500,000,000 shares
of
Common Stock, $0.001 par value, 116,151,700
of
which
are outstanding as of July 31, 2007 and 25,000,000 shares of Preferred Stock,
$0.001 par value, none of which are outstanding as of the date
hereof.
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6
(ii) All
issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to affect
the
issuance of the Shares on the Closing Date.
(iii) As
of the
Closing Date, the Shares shall have been duly authorized by all necessary
corporate action on the part of the Company, and, when issued on the Closing
Date or pursuant to other relevant provisions of the Transaction Agreements,
in
each case in accordance with their respective terms, will be duly and validly
issued, fully paid and non-assessable and will not subject the Holder thereof
to
personal liability by reason of being such Holder.
d. Transaction
Agreements and Stock.
This
Agreement and each of the other Transaction Agreements, and the transactions
contemplated thereby, have been duly and validly authorized by the Company,
this
Agreement has been duly executed and delivered by the Company and this Agreement
is, and the Note and each of the other Transaction Agreements, when executed
and
delivered by the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
e. Non-contravention.
The
execution and delivery of this Agreement and each of the other Transaction
Agreements by the Company, the issuance of the Securities, and the consummation
by the Company of the other transactions contemplated by this Agreement, each
of
the Notes and the other Transaction Agreements do not and will not conflict
with
or result in a breach by the Company of any of the terms or provisions of,
or
constitute a default under (i) the certificate of incorporation or by-laws
of
the Company, each as currently in effect, (ii) any indenture, mortgage, deed
of
trust, or other material agreement or instrument to which the Company is a
party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock except as herein set forth, or (iii)
to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have or result in a Material Adverse
Effect.
f. Approvals.
No
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market or the
shareholders of the Company is required to be obtained by the Company for the
issuance and sale of the Securities to the Purchaser as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained.
g. Filings.
None of
the Company’s SEC Documents contained, at the time they were filed, any untrue
statement of a material fact or omitted to state any material fact required
to
be stated therein or necessary to make the statements made therein in light
of
the circumstances under which they were made, not misleading. Since December
31,
2006, the Company has timely filed all requisite forms, reports and exhibits
thereto, if any, required to be filed by the Company with the
SEC.
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h. Absence
of Certain Changes.
Since
the Last Audited Date, there has been no material adverse change and no Material
Adverse Effect, except as disclosed in the Company’s SEC Documents. Since the
Last Audited Date, except as provided in the Company’s SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course
of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to shareholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts owed to the Company
by any third party or claims of the Company against any third party, except
in
the ordinary course of business consistent with past practices; (v) waived
any
rights of material value, whether or not in the ordinary course of business,
or
suffered the loss of any material amount of existing business; (vi) made any
increases in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems
with
labor or management in connection with the terms and conditions of their
employment.
i. Full
Disclosure.
To the
best of the Company’s knowledge, there is no fact known to the Company (other
than general economic conditions known to the public generally or as disclosed
in the Company’s SEC Documents) that has not been disclosed in writing to the
Purchaser that would reasonably be expected to have or result in a Material
Adverse Effect.
j. Absence
of Litigation.
There is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company, threatened
against or affecting the Company before or by any governmental authority or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other person, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect or which would adversely affect the validity
or
enforceability of, or the authority or ability of the Company to perform its
obligations under, any of the Transaction Agreements. The Company is not aware
of any valid basis for any such claim that (either individually or in the
aggregate with all other such events and circumstances) could reasonably be
expected to have a Material Adverse Effect. There are no outstanding or
unsatisfied judgments, orders, decrees, writs, injunctions or stipulations
to
which the Company is a party or by which it or any of its properties is bound,
that involve the transaction contemplated herein or that, alone or in the
aggregate, could reasonably be expect to have a Material Adverse
Effect.
k. Absence
of Events of Default.
Except
as set forth in Section 3(e) and 3(g) hereof, (i) neither the Company nor any
of
its subsidiaries is in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust or other material agreement to which it
is a
party or by which its property is bound, and (ii) no Event of Default (or its
equivalent term), as defined in the respective agreement to which the Company
or
its subsidiary is a party, and no event which, with the giving of notice or
the
passage of time or both, would become an Event of Default (or its equivalent
term) (as so defined in such agreement), has occurred and is continuing, which
would have a Material Adverse Effect.
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l. Absence
of Certain Company Control Person Actions or Events.
To the
Company’s knowledge, none of the following has occurred during the past five (5)
years with respect to a Company Control Person:
(1)
A
petition under the federal bankruptcy laws or any state insolvency law was
filed
by or against, or a receiver, fiscal agent or similar officer was appointed
by a
court for the business or property of such Company Control Person, or any
partnership in which he was a general partner at or within two years before
the
time of such filing, or any corporation or business association of which he
was
an executive officer at or within two years before the time of such
filing;
(2)
Such
Company Control Person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding traffic violations and
other
minor offenses);
(3)
Such
Company Control Person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
(i)
acting, as an investment advisor, underwriter, broker or dealer in securities,
or as an affiliated person, director or employee of any investment company,
bank, savings and loan association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, any other Person regulated by the Commodity Futures
Trading Commission ("CFTC") or engaging in or continuing any conduct or practice
in connection with such activity;
(ii)
engaging in any type of business practice; or
(iii)
engaging in any activity in connection with the purchase or sale of any security
or commodity or in connection with any violation of federal or state securities
laws or federal commodities laws;
(4)
Such
Company Control Person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such Company Control Person to engage in any activity described in paragraph
(3)
of this item, or to be associated with Persons engaged in any such activity;
or
(5)
Such
Company Control Person was found by a court of competent jurisdiction in a
civil
action or by the CFTC or SEC to have violated any federal or state securities
law, and the judgment in such civil action or finding by the CFTC or SEC has
not
been subsequently reversed, suspended, or vacated.
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m. No
Undisclosed Liabilities or Events.
To the
best of the Company’s knowledge, the Company has no liabilities or obligations
other than those disclosed in the Transaction Agreements or the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since the Last Audited Date, or which individually or in the aggregate, do
not
or would not have a Material Adverse Effect. No event or circumstances has
occurred or exists with respect to the Company or its properties, business,
operations, condition (financial or otherwise), or results of operations, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed. There are no proposals currently under
consideration or currently anticipated to be under consideration by the Board
of
Directors or the executive officers of the Company which proposal would (x)
change the articles or certificate of incorporation or other charter document
or
by-laws of the Company, each as currently in effect, with or without shareholder
approval, which change would reduce or otherwise adversely affect the rights
and
powers of the shareholders of the Common Stock or (y) materially or
substantially change the business, assets or capital of the Company, including
its interests in subsidiaries.
n. No
Integrated Offering.
Neither
the Company nor any of its Affiliates nor any Person acting on its or their
behalf has, directly or indirectly, at any time since November 1, 2006, made
any
offer or sales of any security or solicited any offers to buy any security
under
circumstances that would eliminate the availability of the exemption from
registration under Regulation D in connection with the offer and sale of the
Securities as contemplated hereby.
o. Dilution.
Any
shares of the Company’s stock that may be issued in connection with this
Agreement or any other agreement entered into by the parties hereto, in the
event such shares are issued, may have a dilutive effect on the ownership
interests of the other shareholders (and Persons having the right to become
shareholders) of the Company. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have such a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company.
p. Recognition
of Pledge Agreements and Pledged Shares.
The
Company acknowledges that the execution and delivery of the Pledge Agreements,
and the fulfillment o f the terms thereof, is a condition to the closing of
the
Transactions. The Company will recognize the terms of the Pledge Agreements
and,
as provided therein, the transfer of the Pledged Shares to the Purchasers and
will take no position or give the Transfer Agent any instructions which would
be
inconsistent with the rights of the Purchasers to have the Pledged Shares
transferred to the Purchasers in accordance with the terms of the Pledge
Agreements.
q. Fees
to Brokers, Finders and Others.
The
Company has taken no action which would give rise to any claim by any Person
for
brokerage commission, finder's fees or similar payments by Purchaser relating
to
this Agreement or the transactions contemplated hereby. Purchaser shall have
no
obligation with respect to such fees or with respect to any claims made by
or on
behalf of other Persons for fees of a type contemplated in this paragraph that
may be due in connection with the transactions contemplated hereby. The Company
shall indemnify and hold harmless each of Purchaser, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.
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r. Confirmation.
The
Company confirms that all statements of the Company contained herein shall
survive acceptance of this Agreement by the Purchaser. The Company agrees that,
if any events occur or circumstances exist prior to the Closing Date or the
release of the Purchase Amount to the Company which would make any of the
Company’s representations, warranties, agreements or other information set forth
herein materially untrue or materially inaccurate as of such date, the Company
shall immediately notify the Purchaser (directly or through its counsel, if
any)
in writing prior to such date of such fact, specifying which representation,
warranty or covenant is affected and the reasons therefor.
s. Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Agreements
and otherwise to carry out its obligations thereunder. The execution and
delivery of each of the Transaction Agreements by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no further
action is required by the Company in connection therewith other than in
connection with the Required Approvals. Each Transaction Agreement has been
(or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
t.
SEC
Reports; Financial Statements.
Other
than as previously disclosed to the Purchaser, the Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the year preceding
the
date hereof (or such shorter period as the Company was required by law to file
such material) (the foregoing materials, including the exhibits thereto, being
collectively referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any
such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of
the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
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11
u.
Labor Relations.
No
material labor dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
v. Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is
in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
except in each case as could not have a Material Adverse Effect.
w. Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses, except where
the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
x. Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them that is material to the business of the Company
and
the Subsidiaries and good and marketable title in all personal property owned
by
them that is material to the business of the Company and the Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the
use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases of which the Company
and the Subsidiaries are in compliance.
y. Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights necessary or material for use
in
connection with their respective businesses and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary violates
or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of
others.
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12
z. Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, at least equal to the Purchase Amount. To the best of Company’s
knowledge, such insurance contracts and policies are accurate and complete.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.
aa. Transactions
with Affiliates and Employees.
Except
as disclosed in the SEC Reports, 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 any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, 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 $50,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company.
bb. Xxxxxxxx-Xxxxx;
Internal Accounting Controls.
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 Date. The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general
or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. 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 material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company's most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared. The Company's certifying officers have evaluated the effectiveness
of
the Company's controls and procedures as of the date prior to the filing date
of
the most recently filed periodic report under the Exchange Act (such date,
the
“Evaluation
Date”).
The
Company presented in its most recently filed periodic report under 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 significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge,
in other factors that could significantly affect the Company's internal
controls.
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13
cc. Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company and each
Subsidiary has filed all necessary federal,
state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency
which
has been asserted or threatened against the Company or any
Subsidiary.
dd. No
Disagreements with Accountants and Lawyers.
Except
as otherwise disclosed in the Company’s SEC Documents, there are no
disagreements of any kind presently existing, or reasonably anticipated by
the
Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees
owed
to its accountants and lawyers. By making this representation the Company does
not, in any manner, waive the attorney/client privilege or the confidentiality
of the communications between the Company and its lawyers.
ee. Accountants.
The
Company’s accountants are Xxxxxxxx & Xxxxxxxx, PLLC. To the Company’s
knowledge, such accountants, who the Company expects will express their opinion
with respect to the financial statements for the year ended December 31, 2006,
are a registered public accounting firm as required by the Securities
Act.
4. CERTAIN
COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer
Restrictions.
The
Purchaser acknowledges that (1) the Securities have not been and are not being
registered under the provisions of the 1933 Act and, except as provided in
the
Registration Rights Provisions or otherwise included in an effective
registration statement, the Shares have not been and are not being registered
under the 1933 Act, and may not be transferred unless (A) subsequently
registered thereunder or (B) the Purchaser shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance
to
the Company, to the effect that the Securities to be sold or transferred may
be
sold or transferred pursuant to an exemption from such registration; (2) any
sale of the Securities made in reliance on Rule 144 promulgated under the 1933
Act (“Rule 144") may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller, or the Person through whom the sale is made,
may be deemed to be an underwriter, as that term is used in the 1933 Act, may
require compliance with some other exemption under the 1933 Act or the rules
and
regulations of the SEC thereunder; and (3) neither the Company nor any other
Person is under any obligation to register the Securities (other than pursuant
to the Registration Rights Provisions) under the 1933 Act or to comply with
the
terms and conditions of any exemption thereunder.
b. Restrictive
Legend.
The
Purchaser acknowledges and agrees that, until such time as the relevant Shares
have been registered under the 1933 Act, as contemplated by the Registration
Rights Provisions and sold in accordance with an effective Registration
Statement or otherwise in accordance with another effective registration
statement, the certificates and other instruments representing any of the
Securities shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of any such
Securities):
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14
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. Filings.
The
Company undertakes and agrees to make all necessary filings in connection with
the sale of the Securities to the Purchaser under any United States laws and
regulations applicable to the Company, or by any domestic securities exchange
or
trading market, and to provide a copy thereof to the Purchaser promptly after
such filing.
d. Reporting
Status.
So long
as the Purchaser beneficially owns any of the Shares or has a security interest
in the Pledged Shares, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, shall take all
reasonable action under its control to ensure that adequate current public
information with respect to the Company, as required in accordance with Rule
144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the
1934
Act or the rules and regulations thereunder would permit such termination.
The
Company will take all reasonable action under its control to maintain the
continued listing and quotation and trading of its Common Stock (including,
without limitation, all Registrable Securities) on the Principal Trading Market
or a listing on the NASDAQ/Small Cap or National Markets and, to the extent
applicable to it, will comply in all material respects with the Company’s
reporting, filing and other obligations under the by-laws or rules of the
Principal Trading Market and/or the National Association of Securities Dealers,
Inc., as the case may be, applicable to it for so long as the Purchaser
beneficially owns any of the Shares or has a security interest in the Pledged
Shares.
e. Use
of Proceeds.
The
Company will use the proceeds received hereunder shall be used for general
corporate purposes.
f. Warrant.
The
Company agrees to issue a warrant (the “Warrant”) to the Purchaser on the
Closing Date. The terms relating to the Warrant are provided in Annex
VII
annexed
hereto, the terms of which are incorporated herein by reference. All of the
Warrant Shares shall have Registration Rights Provisions.
g. Piggy-Back
Rights; Rule 144.
(i) The
Purchaser shall have piggy-back registration rights with respect to the
Registrable Securities subject to the conditions set forth below. If the Company
participates (whether voluntarily or by reason of an obligation to a third
party) in the registration of any shares of the Company’s stock, the Company
shall give written notice thereof to the Holder and the Holder shall have the
right, exercisable within ten (10) Trading Days after receipt of such notice,
to
demand inclusion of all or a portion of the Holder’s Registrable Securities in
such registration statement (a “Subsequent Registration Statement”), without any
cutbacks. If
the
Holder exercises such election, the Registrable Securities so designated shall
be included in the registration statement (without any holdbacks) at no cost
or
expense to the Holder (other than any commissions, if any, relating to the
sale
of Holder’s shares). Each Holder’s rights under this Section 4(h)(i) shall
expire at such time as such Holder can sell all of such Holder’s remaining
Registrable Securities under Rule 144 (as defined below) without volume or
other
restrictions or limit. Anything to the contrary notwithstanding, a registration
statement covering the Registrable Securities shall be filed no later than
January 31, 2008.
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15
(ii) The
parties acknowledge that the damages which may be incurred by the Holder if
the
Company does not fulfill its obligations under subparagraph (i) above, which
will affect the Holder’s ability to sell the shares, may be difficult to
ascertain. If either (A) the Company fails to give the Purchaser the notice
referred to in the immediately preceding subparagraph (i) which results in
any
of the Holder’s shares not being included in the Subsequent Registration
Statement or (B) after giving such notice, the Company fails to include all
of
the Holder’s shares (to the extent requested by the Holder) in the Subsequent
Registration Statement or (C) the Company fails to file a registration statement
covering the Registrable Securities on or before January 31, 2008, then the
Company will make payment to the Purchaser, for each Computation Period (as
defined below) an amount equal to 2% of the aggregate principal amount of the
Note then outstanding (the “Periodic Amount”) provided however, that no event
shall the aggregate liquidated damages exceed 18% of the principal amount.
The
term “Computation Period” means each thirty (30) day period commencing on the
effective date of the Subsequent Registration Statement and ending on the date
on which there are one or more effective registration statements covering the
Purchaser’s sale of all of the Holder’s shares. The Periodic Amount shall be due
without further demand or notice from the Purchaser. The parties agree that
the
amounts payable pursuant to the foregoing provisions of this Section 4(g)
represent a reasonable estimate on the part of the parties, as of the date
of
this Agreement, of the amount of such damages.
(iii) With
a
view to making available to the Holder the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that
may
at any time permit Holder to sell securities of the Company to the public
without registration (collectively, “Rule 144”), the Company agrees
to:
(a) make
and
keep public information available, as those terms are understood and defined
in
Rule 144;
(b) file
with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act; and
(c) furnish
to the Holder so long as such party owns Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) if
not
available on the SEC’s XXXXX system, a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by
the Company and (iii) such other information as may be reasonably requested
to
permit the Holder to sell such securities pursuant to Rule 144 without
registration; and
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16
(d) at
the
request of any Holder then holding Registrable Securities, give the Transfer
Agent instructions (supported by an opinion of Company counsel, if required
or
requested by the Transfer Agent) to the effect that, upon the Transfer Agent’s
receipt from such Holder of
(i)
a
certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s holding
period (as determined in accordance with the provisions of Rule 144) for the
Shares which the Holder proposes to sell (the “Securities Being Sold”) is not
less than (1) year and (B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and
(ii)
an
opinion of counsel acceptable to the Company that, based on the Rule 144
Certificate, Securities Being Sold may be sold pursuant to the provisions of
Rule 144, even in the absence of an effective registration statement,
the
Transfer Agent is to effect the transfer of the Securities Being Sold and issue
to the Purchaser(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent’s books and records (except to the extent any such
legend or restriction results from facts other than the identity of the relevant
Holder, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Purchaser). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may
be
necessary to effectuate the issuance of an unlegended certificate.
(iv) Notwithstanding
the foregoing, if at any time or from time to time after the date of
effectiveness of the registration statement, the Company notifies the Holder
in
writing of the existence of a Potential Material Event (as defined below),
the
Holder shall not offer or sell any Registrable Securities, or engage in any
other transaction involving or relating to the Registrable Securities, from
the
time of the giving of notice with respect to a Potential Material Event until
the Holder receives written notice from the Company that such Potential Material
Event either has been disclosed to the public or no longer constitutes a
Potential Material Event; provided, however,
that the
Company may not so suspend such right other than during a Permitted Suspension
Period. The term “Potential Material Event” means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in
a
registration statement, which shall be evidenced by determinations in good
faith
by the Board of Directors of the Company that disclosure of such information
in
the registration statement would be detrimental to the business and affairs
of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
Page
17
h. Publicity,
Filings, Releases, Etc.
Each of
the parties agrees that it will not disseminate any information relating to
the
Transaction Agreements or the transactions contemplated thereby, including
issuing any press releases, holding any press conferences or other forums,
or
filing any reports (collectively, “Publicity”), without giving the other party
reasonable advance notice and an opportunity to comment on the contents thereof.
Neither party will include in any such Publicity any statement or statements
or
other material to which the other party reasonably objects, unless in the
reasonable opinion of counsel to the party proposing such statement, such
statement is legally required to be included. In furtherance of the foregoing,
the Company will provide to the Purchaser drafts of the applicable text of
the
first filing of a Current Report on Form 8-K or a Quarterly or Annual Report
on
Form 10-Q or 10-K intended to be made with the SEC which refers to the
Transaction Agreements or the transactions contemplated thereby as soon as
practicable (but at least two (2) Trading Days before such filing will be made)
will not include in such filing any statement or statements or other material
to
which the other party reasonably objects, unless in the reasonable opinion
of
counsel to the party proposing such statement, such statement is legally
required to be included. Notwithstanding the foregoing, each of the parties
hereby consents to the inclusion of the text of the Transaction Agreements
in
filings made with the SEC as well as any descriptive text accompanying or part
of such filing which is accurate and reasonably determined by the Company’s
counsel to be legally required. Notwithstanding, but subject to, the foregoing
provisions of this Section 4(i), the Company will, after the Closing Date,
promptly file a Current Report on Form 8-K or, if appropriate, a quarterly
or
annual report on the appropriate form, referring to the transactions
contemplated by the Transaction Agreements.
5. TRANSFER
AGENT INSTRUCTIONS.
a. The
Company warrants that, with respect to the Securities, other than the stop
transfer instructions to give effect to Section 4(a) hereof, it will give its
transfer agent no instructions inconsistent with instructions to issue Common
Stock to the Holder as contemplated in the Transaction Agreements. Except as
so
provided, the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and
the
other Transaction Agreements. Nothing in this Section shall affect in any way
the Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Purchaser provides the
Company with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Purchaser of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under
the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a)
of
this Agreement) permit the transfer or reissue of the Shares represented by
one
or more certificates for Common Stock without legend (or where applicable,
by
electronic registration) in such name and in such denominations as specified
by
the Purchaser.
b. The
Company will authorize the Transfer Agent to give information relating to the
Company directly to the Holder or the Holder’s representatives upon the request
of the Holder or any such representative, to the extent such information relates
to (i) the status of shares of Common Stock issued or claimed to be issued
to
the Holder in connection with a Notice of Exercise or transfer of Pledged Shares
to the Holder, or (ii) the aggregate number of outstanding shares of Common
Stock of all shareholders (as a group, and not individually) as of a current
or
other specified date. At the request of the Holder, the Company will provide
the
Holder with a copy of the authorization so given to the Transfer
Agent.
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18
6. CLOSING
DATE.
a.
The
Closing Date shall occur on the date which is the first Trading Day after each
of the conditions contemplated by Sections 7 and 8 hereof shall have either
been
satisfied or been waived by the party in whose favor such conditions
run.
b. The
closing of the Transactions shall occur on the Closing Date at the offices
of
the Purchaser and shall take place no later than 3:00 P.M., New York time,
on
such day or such other time as is mutually agreed upon by the Company and the
Purchaser.
7. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
The
Purchaser understands that the Company's obligation to sell the Note, or any
shares being issued in connection with this Agreement or any other agreement
entered into by the parties hereto, in the event such shares are issued to
the
Purchaser pursuant to this Agreement on the Closing Date is conditioned
upon:
a. The
execution and delivery of this Agreement by the Purchaser;
b. Delivery
by the Purchaser to the Company of good funds as payment in full of an amount
equal to the Purchase Amount in accordance with this Agreement;
c. The
accuracy on such Closing Date of the representations and warranties of the
Purchaser contained in this Agreement, each as if made on such date, and the
performance by the Purchaser on or before such date of all covenants and
agreements of the Purchaser required to be performed on or before such date;
and
d. There
shall not be in effect any law, rule or regulation prohibiting or restricting
the transactions contemplated hereby, or requiring any consent or approval
which
shall not have been obtained.
8. CONDITIONS
TO THE PURCHASER'S OBLIGATION TO PURCHASE.
The
Company understands that the Purchaser's obligation to purchase the Note and
the
Issued Shares on the Closing Date is conditioned upon:
a. The
execution and delivery of this Agreement and the other Transaction Agreements
by
the Company;
b. Delivery
by the Company to the Purchaser of the Certificate in accordance with this
Agreement or any other agreements between the parties;
c. The
execution and delivery of the Pledge Agreements by the Pledgors;
d. The
execution and delivery of the Warrant;
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19
e. The
reimbursement of the Transaction Fees.
f. Delivery
by the Company up-to-date audited financials.
g. The
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained in this Agreement, each as if made on such
date, and the performance by the Company on or before such date of all covenants
and agreements of the Company required to be performed on or before such date;
h. The
Company’s financial statements and public filings must be
up-to-date.
i. There
shall not be in effect any law, rule or regulation prohibiting or restricting
the transactions contemplated hereby, or requiring any consent or approval
which
shall not have been obtained; and
j. From
and
after the date hereof to and including the Closing Date, each of the following
conditions will remain in effect: (i) the trading of the Common Stock shall
not
have been suspended by the SEC or on the Principal Trading Market; (ii) trading
in securities generally on the Principal Trading Market shall not have been
suspended or limited; (iii) no minimum prices shall been established for
securities traded on the Principal Trading Market; and (iv) there shall not
have
been any material adverse change in any financial market.
9. INDEMNIFICATION
AND REIMBURSEMENT.
a.
(i)
The
Company agrees to indemnify and hold harmless the Purchaser and its officers,
directors, employees, and agents, and each Purchaser Control Person from and
against any losses, claims, damages, liabilities or expenses incurred
(collectively, “Damages”), joint or several, and any action in respect thereof
to which the Purchaser, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Purchaser Control Person
becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement,
as
such Damages are incurred, except to the extent such Damages result primarily
from Purchaser's failure to perform any covenant or agreement contained in
this
Agreement or the Purchaser's or its officer’s, director’s, employee’s, agent’s
or Purchaser Control Person’s gross negligence, recklessness or bad faith in
performing its obligations under this Agreement.
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20
(ii) The
Company hereby agrees that, if the Purchaser, other than by reason of its gross
negligence, illegal or willful misconduct (in each case, as determined by a
non-appealable judgment to such effect), (x) becomes involved in any capacity
in
any action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by this Agreement or the other Transaction Agreements,
or if the Purchaser is impleaded in any such action, proceeding or investigation
by any Person, or (y) becomes involved in any capacity in any action, proceeding
or investigation brought by the SEC, any self-regulatory organization or other
body having jurisdiction, against or involving the Company or in connection
with
or as a result of the consummation of the transactions contemplated by this
Agreement or the other Transaction Agreements, or (z) is impleaded in any such
action, proceeding or investigation by any Person, then in any such case, the
Company shall indemnify, defend and hold harmless the Purchaser from and against
and in respect of all losses, claims, liabilities, damages or expenses resulting
from, imposed upon or incurred by the Purchaser, directly or indirectly, and
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
as such expenses are incurred. The indemnification and reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
Purchaser Control Persons (if any), as the case may be, of the Purchaser and
any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchaser, any such Affiliate and any such Person. The Company also agrees
that
neither the Purchaser nor any such Affiliate, partner, director, agent, employee
or Purchaser Control Person shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of the consummation of this Agreement or the other
Transaction Agreements, except as may be expressly and specifically provided
in
or contemplated by this Agreement.
b. All
claims for indemnification by any Indemnified Party (as defined below) under
this Section shall be asserted and resolved as follows:
(i)
In the
event any claim or demand in respect of which any Person claiming
indemnification under any provision of this Section (an “Indemnified Party”)
might seek indemnity under paragraph (a) of this Section is asserted against
or
sought to be collected from such Indemnified Party by a Person other than a
party hereto or an Affiliate thereof (a “Third Party Claim”), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of this Section against any Person (the
“Indemnifying Party”), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a “Claim Notice”) with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that
the
Indemnifying Party's ability to defend has been prejudiced by such failure
of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified
Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the “Dispute Period”) whether the
Indemnifying Party disputes its liability or the amount of its liability to
the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such
Third
Party Claim. The following provisions shall also apply.
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21
(x)
If
the Indemnifying Party notifies the Indemnified Party within the Dispute Period
that the Indemnifying Party desires to defend the Indemnified Party with respect
to the Third Party Claim pursuant to this paragraph (b) of this Section, then
the Indemnifying Party shall have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings,
which
proceedings shall be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party in the
case of any settlement that provides for any relief other than the payment
of
monetary damages or that provides for the payment of monetary damages as to
which the Indemnified Party shall not be indemnified in full pursuant to
paragraph (a) of this Section). The Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this subparagraph (x), file
any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate protect
its
interests; and provided further, that if requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
subparagraph (x), and except as provided in the preceding sentence, the
Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any
time
if it irrevocably waives its right to indemnity under paragraph (a) of this
Section with respect to such Third Party Claim.
(y)
If
the Indemnifying Party fails to notify the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Third Party Claim
pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle the
Third
Party Claim, or if the Indemnifying Party fails to give any notice whatsoever
within the Dispute Period, then the Indemnified Party shall have the right
to
defend, at the sole cost and expense of the Indemnifying Party, the Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
by
the Indemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation
to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions
of
this subparagraph (y), if the Indemnifying Party has notified the Indemnified
Party within the Dispute Period that the Indemnifying Party disputes its
liability or the amount of its liability
hereunder to the Indemnified Party with respect to such Third Party Claim and
if
such dispute is resolved in favor of the Indemnifying Party in the manner
provided in subparagraph(z) below, the Indemnifying Party will not be required
to bear the costs and expenses of the Indemnified Party's defense pursuant
to
this subparagraph (y) or of the Indemnifying Party's participation therein
at
the Indemnified Party's request, and the Indemnified Party shall reimburse
the
Indemnifying Party in full for all reasonable costs and expenses incurred by
the
Indemnifying Party in connection with such litigation. The Indemnifying Party
may participate in, but not control, any defense or settlement controlled by
the
Indemnified Party pursuant to this subparagraph (y), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
Page
22
(z)
If
the Indemnifying Party notifies the Indemnified Party that it does not dispute
its liability or the amount of its liability to the Indemnified Party with
respect to the Third Party Claim under paragraph (a) of this Section or fails
to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the amount of Damages specified
in
the Claim Notice shall be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall
pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(ii) In
the
event any Indemnified Party should have a claim under paragraph (a) of this
Section against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim
for
indemnity under paragraph (a) of this Section specifying the nature of and
basis
for such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such claim
(an
"Indemnity Notice") with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute
the
claim or the amount of the claim described in such Indemnity Notice or fails
to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under paragraph (a)
of
this Section and the Indemnifying Party shall pay the amount of such Damages
to
the Indemnified Party on demand. If the Indemnifying Party has timely disputed
its liability or the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute; provided, however, that it the dispute
is not resolved within thirty (30) days after the Claim Notice, the Indemnifying
Party shall be entitled to institute such legal action as it deems
appropriate.
Page
23
c. The
indemnity agreements contained herein shall be in addition to (i) any cause
of
action or similar rights of the indemnified party against the indemnifying
party
or others, and (ii) any liabilities the indemnifying party may be subject
to.
10. JURY
TRIAL WAIVER. The
Company and the Purchaser hereby waive a trial by jury in any action, proceeding
or counterclaim brought by either of the Parties hereto against the other in
respect of any matter arising out or in connection with the Transaction
Agreements.
11. GOVERNING
LAW: MISCELLANEOUS.
a. (i)
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of New York for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Each of the parties consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the County of New York or the state courts
of the State of New York sitting in the County of New York in connection with
any dispute arising under this Agreement or any of the other Transaction
Agreements and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on
forum non conveniens,
to the
bringing of any such proceeding in such jurisdictions or to any claim that
such
venue of the suit, action or proceeding is improper. To the extent determined
by
such court, the Company shall reimburse the Purchaser for any reasonable legal
fees and disbursements incurred by the Purchaser in enforcement of or protection
of any of its rights under any of the Transaction Agreements. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
(ii)
The
Company and the Purchaser acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Agreements were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches
of
the provisions of this Agreement and the other Transaction Agreements and to
enforce specifically the terms and provisions hereof and thereof, this being
in
addition to any other remedy to which any of them may be entitled by law or
equity.
b. Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as
a
waiver thereof.
c. This
Agreement shall inure to the benefit of and be binding upon the successors
and
assigns of each of the parties hereto.
Page
24
d. All
pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
e. A
facsimile transmission of this signed Agreement shall be legal and binding
on
all parties hereto.
f. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original.
g. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
h. If
any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
i. This
Agreement may be amended only by an instrument in writing signed by the party
to
be charged with enforcement thereof.
j. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
12. Agent
(a)
Authorization
of Action.
Each
Purchaser hereby appoints and authorizes CAMHZN Master LDC (the “Agent”) to be
its agent in its name and on its behalf and to exercise such rights or powers
granted to the Agent or the Purchasers (i) under the Transaction Documents
to
the extent specifically provided therein and on the terms thereof, together
with
such rights, powers and discretions as are reasonably incidental thereto. As
to
any matters not expressly provided for by the Transaction Documents, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected
in so
acting or refraining from acting) upon the instructions of the Purchasers,
and
any action so taken or not so taken by the Agent shall be binding upon all
Purchasers; provided, however, that the Agent shall not be required to take
any
action which exposes the Agent to liability in such capacity, which could result
in the Agent incurring any costs and expenses or which is contrary to this
Agreement or applicable law.
(b)
Indemnification.
Each
Purchaser hereby agrees to indemnify and hold harmless the Agent from and
against any and all liabilities, obligations, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against the Agent
(in its capacity as agent for the Purchasers) in any way relating to or arising
out of the Transaction Documents or any action taken or admitted by the Agent
under or in respect of the Transaction Documents; provided that no Purchaser
shall be liable for any portion of such liabilities, obligations, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent’s gross negligence or willful misconduct. Without limiting the
generality of the foregoing, each Purchaser agrees to reimburse the Agent
promptly upon demand on a pro rata basis in accordance with the then outstanding
indebtedness, liabilities and obligations owing to such Purchaser by the Company
in respect of any out-of-pocket expenses (including counsel fees) incurred
by
the Agent in connection with the preservation of any rights of the Agent or
the
Purchasers under, the enforcement of, or legal advice in respect of the rights
or responsibilities under, the Transaction Documents, to the extent that the
Agent is not reimbursed for such expenses by the Company or its
Subsidiaries.
Page
25
(c)
Successor
Agent.
The
Agent may, as hereinafter provided, resign at any time by giving not less than
30 days’ written notice thereof to the Purchasers and the Company. Upon any such
resignation, the Purchasers shall have the right to appoint a successor Agent
(the “Successor Agent”), which shall be a Purchaser and which shall be
acceptable to the Company, acting reasonably. Upon the acceptance of any
appointment as Agent hereunder by a Successor Agent, such Successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent and the retiring Agent shall thereupon be
discharged from its further duties and obligations as Agent under the
Transaction Documents. After any retiring Agent’s resignation hereunder as
Agent, the provisions of this Section 5.19 shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under the Transaction Documents. Absent such a resignation by the Agent, the
Agent’s appointment shall continue until revoked in writing by Purchasers
holding 75% of the outstanding principal amount of the Notes, at which time
such
Purchasers shall appoint a new Agent.
(d)
Taking
and Enforcement of Remedies.
(1) Each
of
the Purchasers hereby acknowledges that, to the extent permitted by applicable
law, the remedies provided under the Transaction Documents to the Purchasers
are
for the benefit of the Purchasers collectively and acting together and not
severally and further acknowledges that its rights under the Transaction
Documents are to be exercised not severally, but collectively by the Agent
upon
the decision of the Purchasers; accordingly, notwithstanding any of the
provisions contained in any of the Transaction Documents, each of the Purchasers
hereby covenants and agrees that it shall not be entitled to take any action
with respect to the Transaction Documents, including, without limitation, any
acceleration of the indebtedness, liabilities or obligations of the Company
or
any of its Subsidiaries, but that any such action shall be taken only by the
Agent with the prior written agreement of the Purchasers, provided that,
notwithstanding the foregoing:
(2) in
the
absence of instructions from the Purchasers and where in the sole opinion of
the
Agent the exigencies of the situation warrant such action, the Agent may without
notice to or consent of the Purchasers take such action on behalf of the
Purchasers as it deems appropriate or desirable in the interest of the
Purchasers; and
(3) the
commencement of litigation before any court shall be made in the name of each
Purchaser individually unless the laws of the jurisdiction of such court permit
such litigation to be commenced in the name of the Agent on behalf of the
Purchasers (whether pursuant to a specific power of attorney in favor of the
Agent or otherwise) and the Agent agrees to commence such litigation in its
name; provided, however, that no litigation shall be commenced in the name
of
any Purchaser without the prior written consent of such
Purchaser;
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26
(4) each
of
the Purchasers hereby further covenants and agrees that upon any such written
consent being given by the Purchasers, they shall co-operate fully with the
Agent to the extent requested by the Agent in the collective realization,
including, without limitation, the appointment of a receiver and manager to
act
for their collective benefit; and each Purchaser covenants and agrees to do
all
acts and things to make, execute and deliver all agreements and other
instruments, including, without limitation, any instruments necessary to effect
any registrations, so as to fully carry out the intent and purpose of this
Section 5.19; and each of the Purchasers hereby covenants and agrees that it
has
not heretofore and shall not seek, take, accept or receive any security for
any
of the obligations and liabilities of the Company under the Transaction
Documents or under any other document, instrument, writing or agreement
ancillary thereto other than such security as is provided hereunder and shall
not enter into any agreement with the Company or any of its Subsidiaries
relating in any manner whatsoever to the transactions contemplated hereunder,
unless all of the Purchasers shall at the same time obtain the benefit of any
such security or agreement, as the case may be.
(5) Notwithstanding
any other provision contained in the Transaction Documents, no Purchaser shall
be required to be joined as a party to any litigation commenced against the
Company or any of its Subsidiaries by the Agent under the Transaction Documents
(unless otherwise required by any court of competent jurisdiction) if it elects
not to be so joined in which event any such litigation shall not include claims
in respect of the rights of such Purchaser against the Company or any of its
Subsidiaries under the Transaction Documents until such time as such Purchaser
does elect to be so joined; provided that if at the time of such subsequent
election it is not possible or practicable for such Purchaser to be so joined,
then such Purchaser may commence proceedings in its own name in respect of
its
rights against the Company or any of its Subsidiaries.
13. NOTICES.
Any
notice required or permitted hereunder shall be given in writing (unless
otherwise specified herein) and shall be deemed effectively given on the
earliest of
(a)
the
date delivered, if delivered by personal delivery as against written receipt
therefor or by confirmed facsimile transmission,
(b)
the
fifth Trading Day after deposit, postage prepaid, in the United States Postal
Service by registered or certified mail, or
(c)
the
third Trading Day after mailing by domestic or international express courier,
with delivery costs and fees prepaid,
in
each
case, addressed to each of the other parties thereunto entitled at the following
addresses (or at such other addresses as such party may designate by ten (10)
days’ advance written notice similarly given to each of the other parties
hereto):
|
COMPANY:
|
||
|
00000
00xx
Xxxxxx XX, Xxxxx 000
|
||
|
Xxxxxxx,
XX 00000
|
||
|
Attn:
Xxxx Xxxxxxxxxx
|
||
|
Tel:
|
000-000-0000
|
|
|
Fax:
|
000-000-0000
|
|
Page
27
|
With
a copy to:
|
||
|
Xxxxx
Xxxxx & Kahan LLP
|
||
|
1620
26th
Street, 0xx
Xxxxx, Xxxxx Xxxxx
|
||
|
Xxxxx
Xxxxxx, XX 00000
|
||
|
Attention:
Xxxx X. Xxxxxxxx, Esq.
|
||
|
Tel:
|
000-000-0000
|
|
|
Fax:
|
000-000-0000
|
|
|
PURCHASER:
|
CAMHZN
MASTER LDC
|
|
|
c/o
Centrecourt Asset Management LLC
|
||
|
000
Xxxxxxx Xxxxxx, 0xx
Xxxxx
|
||
|
Xxx
Xxxx, XX 00000
|
||
|
Attention:
Xxxxxxx Xxxx
|
||
|
Tel:
|
000-000-0000
|
|
|
Fax:
|
000-000-0000
|
|
|
With
a copy to:
|
||
|
Law
Offices of Xxxxx X. Xxxxxx, PLLC
|
||
|
000
Xxx Xxxxxxx Xxxx, Xxxxx 000
|
||
|
Xxxxxx
Xxxx, Xxx Xxxx 00000
|
||
|
Attn:
Xxxxx X. Xxxxxx, Esq.
|
||
|
Tel:
|
000-000-0000
|
|
|
Fax:
|
000-000-0000
|
|
Page
28
14. SURVIVAL
OF REPRESENTATIONS AND WARRANTIES.
The
Company’s and the Purchaser’s representations and warranties herein shall
survive the execution and delivery of this Agreement and the delivery of the
Certificates and the payment of the Purchase Amount, and shall inure to the
benefit of the Purchaser and the Company and their respective successors and
assigns.
IN
WITNESS WHEREOF,
this
Agreement has been duly executed by the Purchaser and the Company as of the
date
set first above written.
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
|
CAMHZN
MASTER LDC
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
Page
29
|
ANNEX
I
|
FORM
OF NOTE
|
|
|
ANNEX
II
|
INTENTIONALLY
LEFT BLANK
|
|
|
ANNEX
III
|
INTENTIONALLY
LEFT BLANK
|
|
|
ANNEX
IV
|
INTENTIONALLY
LEFT BLANK
|
|
|
ANNEX
V
|
COMPANY
DISCLOSURE MATERIALS
|
|
|
ANNEX
VI
|
PLEDGE
AGREEMENT
|
|
|
ANNEX
VII
|
WARRANT
|
|
|
ANNEX
VIII
|
INTENTIONALLY
LEFT BLANK
|
Page
30
