FORM OF SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (as the same may be supplemented,
modified, amended, restated or replaced from time to time in the manner provided
herein, this "Agreement") is dated as of February 9, 2007 among Star Energy
Corporation, a Nevada corporation (the "Company"), and each purchaser identified
on the signature pages hereto (each, including its successors and assigns, a
"Purchaser" and collectively the "Purchasers", and together with the Company,
each a "party"" and collectively the "parties").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company, all upon the
terms and provisions and subject to the conditions more fully described in this
Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures or other applicable Transaction
Documents ( as such terms are defined herein), and (b) the following terms have
the meanings set forth in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed
under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as such Purchaser will be deemed to
be an Affiliate of such Purchaser.
"Business Day" means any day except Saturday, Sunday, any day which
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchasers' obligations
to pay the Subscription Amount and (ii) the Company's obligations to
deliver the Securities have been satisfied or waived.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$.001 per share, and any other class of securities into which such
securities may hereafter be reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle (upon exercise or conversion) 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 exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive,
Common Stock.
"Company Counsel" means Xxxxx Xxxxx & Associates, PLLC, with offices
located at 00 Xxxx Xxxxxxxxx Xxxxxx, Xxxxxx Xxxxxx, XX 00000.
"Conversion Price" shall have the meaning ascribed to such term in
the Debentures.
"Debentures" means the 8% Secured Convertible Debentures due,
subject to the terms therein, 3 years from their date of issuance, issued
by the Company to the Purchasers hereunder, in the form of Exhibit A
attached hereto, as the same may be supplemented, modified, amended,
restated or replaced from time to time in the manner provided therein.
"Disclosure Schedules" shall have the meaning ascribed to such term
in Section 3.1.
"Effective Date" means the date that the initial Registration
Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.
"Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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"Exempt Issuance" means the issuance of (a) shares of Common Stock
or options to employees, officers or directors of the Company pursuant to
any stock or option plan duly adopted for such purpose by a majority of
the non-employee members of the Board of Directors of the Company or a
majority of the members of a committee of non-employee directors
established, (b) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or any other securities exercisable
or exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities
have not been amended since the date of this Agreement to increase the
number of such securities or to decrease the exercise, exchange or
conversion price of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance
shall only be to a Person which is, itself or through its subsidiaries, an
operating company in a business synergistic with the business of the
Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities;
provided, however, the maximum aggregate amount of shares of Common Stock
and Common Stock Equivalents issuable as Exempt Issuance(s) pursuant to
(a), (b) and (c) above shall not exceed [____________ shares.
"FWS" means Xxxxxxx Xxxxxxxxx & Xxxxx LLP with offices located at
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Indebtedness" shall have the meaning ascribed to such term in
Section 3.1(aa).
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term
in Section 4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or transfer restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in
Section 5.17.
"Participation Maximum" shall have the meaning ascribed to such term
in Section 4.13.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
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"Pre-Notice" shall have the meaning ascribed to such term in Section
4.13.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or overtly
threatened.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.11.
"Registration Rights Agreement" means the Registration Rights
Agreement with respect to the Underlying Shares, dated the date hereof,
among the Company and the Purchasers, in the form of Exhibit B attached
hereto.
"Registration Statement" means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering
the resale of the Underlying Shares by each Purchaser as provided for in
the Registration Rights Agreement.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in
the future pursuant to the Transaction Documents, including any Underlying
Shares issuable upon exercise or conversion in full of all Warrants and
Debentures (including Underlying Shares issuable as payment of interest),
ignoring any conversion or exercise limits set forth therein, and assuming
that the Conversion Price is at all times on and after the date of
determination 75% of the then Conversion Price on the Trading Day
immediately prior to the date of determination.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Debentures, the Warrants, the Warrant Shares
and the Underlying Shares.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated hereunder.
"Security Agreement" means the Security Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit E
attached hereto, as the same may be supplemented, modified, amended,
restated or replace from time to time in the manor provided therein.
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"Security Documents" shall mean the Security Agreement, the
Subsidiary Guarantees and any other documents and filing required
thereunder in order to grant the Purchasers a security interest in the
personal assets and properties of the Company and the U.S. Subsidiaries as
provided in the Security Agreement, including all UCC-1 filing receipts,
as the same may be supplemented, modified, amended, restated or replace
from time to time in the manor provided therein.
"Short Sales" means all "short sales" as defined in Rule 200 of
Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock).
"Subscription Amount" means, as to each Purchaser, the aggregate
amount to be paid for Debentures and Warrants purchased hereunder as
specified below such Purchaser's name on the signature page of this
Agreement and next to the heading "Subscription Amount," in United States
dollars and in immediately available funds.
"Subsequent Financing" shall have the meaning ascribed to such term
in Section 4.13.
"Subsequent Financing Notice" shall have the meaning ascribed to
such term in Section 4.13.
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Subsidiary Guarantee" means the Subsidiary Guarantee, dated the
date hereof, by each Subsidiary in favor of the Purchasers, in the form of
Exhibit F attached hereto, as the same may be supplemented, modified,
amended, restated or replace from time to time in the manor provided
therein.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global
Market, the Nasdaq Global Select Market, the New York Stock Exchange or
the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, the Security Agreement, the
Subsidiary Guarantee, all exhibits and schedules hereto and thereto and
any other documents or agreements executed in connection with the
transactions contemplated hereunder, as the same may be supplemented,
modified, amended, restated or replace from time to time in the manor
provided therein.
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"Transfer Agent" means Interwest Transfer Company, with a mailing
address of 000 Xxxx Xxxxxx Xxxxxxxx Xxxx, Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx
00000 and a facsimile number of 801-277-3147, and any successor transfer
agent of the Company.
"Underlying Shares" means the shares of Common Stock issued and
issuable upon conversion or redemption of the Debentures and upon exercise
of the Warrants and issued and issuable in lieu of the cash payment of
interest on the Debentures in accordance with the terms of the Debentures.
"Variable Rate Transaction" shall have the meaning ascribed to such
term in Section 4.14(b).
"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 Trading
Market on which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time
to 4:02 p.m. New York City time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock
are then reported in the "Pink Sheets" published by 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 an independent appraiser selected in good
faith by the Purchaser and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
"Warrants" means collectively the Common Stock purchase warrants
delivered to the Purchasers at the Closing in accordance with Section
2.2(a) hereof, which Warrants shall be exercisable immediately and have a
term of exercise equal to five years, in the form of Exhibit C attached
hereto, as the same may be supplemented, modified, amended, restated or
replace from time to time in the manor provided therein.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser, severally and not jointly, agrees to purchase no less than
an aggregate of $10,000,000 and up to an aggregate of $15,000,000 in principal
amount of the Debentures. Each Purchaser shall deliver to the Company, via wire
transfer or a certified check, immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its
respective Debenture and a Warrant, as determined pursuant to Section 2.2(a),
and the Company and each Purchaser shall deliver the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set
forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS or
such other location as the parties shall mutually agree.
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2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of
Exhibit D attached hereto;
(iii) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of such
Purchaser;
(iv) a Warrant registered in the name of such Purchaser to
purchase up to a number of shares of Common Stock equal to 65% of
such Purchaser's Subscription Amount divided by the initial
Conversion Price, with an exercise price equal to $___(1), subject
to adjustment therein;
(v) the Security Agreement, duly executed by the Company and
each U.S. Subsidiary, along with all of the Security Documents,
including the U.S. Subsidiary Guarantee, duly executed by the
parties thereto;
(vi) a lock up agreement, in the form of Exhibit G, attached
hereto, duly executed by all officers, directors and 10%
stockholders of the Company; and
(vii) the Registration Rights Agreement duly executed by the
Company.
(b) On the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) such Purchaser's Subscription Amount by wire transfer to
the account as specified in writing by the Company;
(iii) the Security Agreement duly executed by such Purchaser;
and
(iv) the Registration Rights Agreement duly executed by such
Purchaser.
2.3 Closing Conditions.
_______________________
(1) 110% of the closing price of the Common Stock on the Trading Day immediately
prior to the date hereof.
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(a) The obligations of the Company hereunder in connection with the
Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) the minimum aggregate Subscription Amount hereunder shall
be at least $10,000,000;
(iii) all obligations, covenants and agreements of the
Purchasers required to be performed at or prior to the Closing Date
shall have been performed; and
(iv) the delivery by the Purchasers of the items set forth in
Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being
met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Company
contained herein;
(ii) all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have
been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) the minimum aggregate Subscription Amount hereunder shall
be at least $10,000,000;
(v) there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
(vi) from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the
Company's principal Trading Market (except for any suspension of
trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited,
or minimum prices shall not have been established on securities
whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect
on, or any material adverse change in, any financial market which,
in each case, in the reasonable judgment of each Purchaser, makes it
impracticable or inadvisable to purchase the Debentures at the
Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in
the Disclosure Schedules, which Disclosure Schedules shall be deemed a part
hereof and shall qualify any representation or otherwise made herein to the
extent of the disclosure contained in the Disclosure Schedules, the Company
hereby makes the following representations and warranties to each Purchaser as
of the date hereof (unless otherwise indicated):
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar
rights to subscribe for or purchase securities.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry
on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the
Subsidiaries 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 (i) a material adverse effect on the legality,
validity or enforceability of any Transaction Document, (ii) a material
adverse effect on the results of operations, assets, business (including
prospects) or financial condition of the Company and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on the Company's
ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
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(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, its board of
directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company
of the other transactions contemplated hereby and thereby do not and will
not: (i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would
become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary
is subject (including federal and state securities laws and regulations),
or by which any property or asset of the Company or a Subsidiary is bound
or affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) filings required pursuant to Section
4.6, (ii) the filing with the Commission of the Registration Statement,
(iii) the notice and/or application(s) to each applicable Trading Market
for the issuance and sale of the Securities and the listing of the
Underlying Shares for trading thereon in the time and manner required
thereby and (iv) the filing of Form D with the Commission and such filings
as are required to be made under applicable state securities laws
(collectively, the "Required Approvals").
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(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other
than restrictions on transfer provided for in the Transaction Documents.
The Underlying Shares, when issued in accordance with the terms of the
Transaction Documents, will be validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company, other
than restrictions on transfer (if any) provided for in the Transaction
Documents. The Company has reserved from its duly authorized capital stock
a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Required Minimum on the date hereof.
(g) Capitalization. The capitalization of the Company is as set
forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record, by
Affiliates of the Company as of the date hereof. Except as set forth on
Schedule 3.1(g)(i), the Company has not issued any capital stock since its
most recently filed current or periodic report under the Exchange Act,
other than pursuant to the exercise of employee stock options under the
Company's stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company's employee stock purchase plan and
pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report
under the Exchange Act. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the purchase of the Securities contemplated by the
Transaction Documents. Except as a result of the purchase and sale of the
Securities and as set forth on Schedule 3.1(g), 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
contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional
shares of Common Stock or Common Stock Equivalents. The issuance and sale
of the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than to the Purchasers
pursuant to the Transaction Documents) 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. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a
party or, to the knowledge of the Company, between or among any of the
Company's stockholders.
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(h) SEC Reports; Financial Statements. Except as set forth on
Schedule 3.1(h), 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, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to
file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, 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, other than
any non-timely filing that would not preclude the Company's use of a S-3
registration statement. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities
Act and the Exchange Act, as applicable, 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 the light of the circumstances under
which they were made, not misleading, other than to the extent correct in
a subsequent SEC Report. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the 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, except for changes in GAAP, and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and such financial statements 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.
(i) Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof, (i)
there has been no event, occurrence or development that has had or that
could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B)
liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or disclosed in filings made with the
Commission, or (C) indebtedness, liabilities or other obligations that
would not have been prohibited under the Debentures if they has been
executed as of the last day in the fiscal year covered by such audited
financial statements, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information. Except
for the issuance of the Securities contemplated by this Agreement, no
event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed
by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least one
Trading Day prior to the date that this representation is made.
12
(j) Litigation. There is no Proceeding pending or, to the knowledge
of the Company, overtly threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "Action")
which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or
(ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor
any Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.
There has not been, and to the knowledge of the Company, there is not
pending or overtly threatened, 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 or any Subsidiary under the Exchange Act or the Securities Act.
(k) 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. None of the Company's or its Subsidiaries' employees is a
member of a union that relates to such employee's relationship with the
Company, and neither the Company or any of its Subsidiaries is a party to
a collective bargaining agreement, and the Company and its 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 with the Company or any of its Subsidiaries, or
any similar contract, agreement or restrictive covenant with any
predecessor employer, 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 U.S. 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.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in 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 and all such laws that affect the environment, except in each
case as could not have or reasonably be expected to result in a Material
Adverse Effect.
13
(m) 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 as described in the SEC Reports,
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.
(n) 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 (i) such 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, (ii) Liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties, (iii)
Permitted Liens as defined in the Debentures. Any real property and
facilities held under lease by the Company and the Subsidiaries are held
by them under valid, subsisting and enforceable leases under which the
Company and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights
and similar rights necessary or material for use in connection with their
respective businesses as described in the SEC Reports and where the
failure to so have such rights could reasonably be expected to have a
Material Adverse Effect (collectively, the "Intellectual Property
Rights"). Neither the Company nor any Subsidiary has received a notice
(written or otherwise) 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. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their Intellectual Property
Rights, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(p) Insurance. Except as set forth on Schedule 3.1(p), 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, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription
Amount. 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.
14
(q) Transactions with Affiliates and Employees. Except as set forth
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
$60,000 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) Xxxxxxxx-Xxxxx; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002
that are applicable to it as of the Closing Date. To the extent required
to do so as of the Closing Date under the Xxxxxxxx-Xxxxx Act of 2002: (A)
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; (B) 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; (C) 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"); and (D) 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 except for changes required by the Xxxxxxxx-Xxxxx
Act of 2002.
15
(s) Certain Fees. No brokerage or finder's fees or commissions are
or will be payable by the Company to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction
Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers as contemplated hereby. The
issuance and sale of the Securities hereunder does not contravene the
rules and regulations of the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, 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.
(v) Registration Rights. Other than each of the Purchasers or as set
forth on Schedule 3.1(v), no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) or 12(g) 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 has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.
(x) Application of Takeover Protections. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company's certificate of
incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could reasonably be expected to become applicable
to the Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
16
(y) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with
any information that it believes constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the
Disclosure Schedules to this Agreement, is true and correct in all
material respects 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, in light of the circumstances under which they
were made and when made, not misleading. The Company acknowledges and
agrees that no Purchaser makes or has made any representations or
warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provision of any Trading Market on which
any of the securities of the Company are listed or designated.
(aa) Solvency. Based on the consolidated financial condition of the
Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
fair saleable value of the assets of the Company and its subsidiaries
taken as a whole exceeds the amount that will be required to be paid on or
in respect of the Company's existing debts and other liabilities of the
Company and its subsidiaries taken as a whole (including the likely amount
of known contingent liabilities) as they mature; (ii) the assets of the
Company and its subsidiaries taken as a whole do not constitute
unreasonably small capital to carry on their 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 its subsidiaries taken as a whole, and the projected
capital requirements and capital availability thereof; and (iii) the
current cash flow of the Company and its subsidiaries taken as a whole,
together with the proceeds they would receive, were they to liquidate all
of their assets, after taking into account all anticipated uses of the
cash, would be sufficient to pay all amounts on or in respect of their
liabilities when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable
on or in respect of its debt). 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
17
of any jurisdiction within one year from the Closing Date. Schedule
3.1(aa) sets forth as of the dates thereof all outstanding secured and
unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" means (a) any liabilities for borrowed money or
similar amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business and inter-company
advances among the Company and its subsidiaries), (b) 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 for (i) guaranties
by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business and (ii)
guaranties of the Indebtedness or other obligations of the Company or any
Subsidiary by any other Subsidiary or the Company; and (c) the present
value of any lease payments in excess of $50,000 due under leases required
to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in any payment or other material default with respect to any
Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to have 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 that has been asserted or overtly threatened
against the Company or any Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person
acting on behalf of the Company has offered or sold any of the Securities
by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain
other "accredited investors" within the meaning of Rule 501 under the
Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of
the Company, 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 made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision
of the Foreign Corrupt Practices Act of 1977, as amended.
18
(ee) Accountants. The Company's accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedule. To the knowledge and belief
of the Company, such accounting firm (i) is a registered public accounting
firm as required by the Exchange Act and (ii) shall express its opinion
with respect to the financial statements to be included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2006.
(ff) Seniority. As of the Closing Date, no Indebtedness or other
claim against the Company is senior to the Debentures 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).
(gg) No Disagreements with Accountants and Lawyers. 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 the Company is current
with respect to any fees owed to its accountants and lawyers.
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
The Company acknowledges and agrees that each of the Purchasers is acting
solely in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchasers' purchase of the Securities. The Company further represents to
each Purchaser that the Company's decision to enter into this Agreement
and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the
Company and its representatives.
(ii) Acknowledgment Regarding Purchasers' Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Sections 3.2(f) and 4.16 hereof), it is understood and
acknowledged by the Company (i) that none of the Purchasers have been
asked to agree, nor has any Purchaser agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market or
other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or "derivative"
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the
Company's publicly-traded securities; (iii) that any Purchaser, and
counter-parties in "derivative" transactions to which any such Purchaser
is a party, directly or indirectly, presently may have a "short" position
in the Common Stock, and (iv) that each Purchaser shall not be deemed to
have any affiliation with or control over any arm's length counter-party
in any "derivative" transaction. The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging
activities not involving physical delivery of any of the Securities (other
than in accordance with the Transaction Documents and applicable law) at
various times during the period that the Securities are outstanding,
including, without limitation, during the periods that the value of the
Underlying Shares deliverable with respect to Securities are being
determined and (b) such hedging activities (if any) could reasonably be
expected to reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging activities
are being conducted. The Company acknowledges that such aforementioned
hedging activities do not constitute a breach of any of the Transaction
Documents.
19
(jj) Regulation M Compliance. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of
the securities of the Company or (iii) paid or agreed to pay to any Person
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
placement of the Securities.
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser hereby, represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and
performance by such Purchaser of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Document to which
it is a party has been duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with the terms hereof, will constitute the
valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
20
(b) Own Account. Such Purchaser understands that the Securities are
"restricted securities" and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities
as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation
of the Securities Act or any applicable state securities law, has no
present intention of distributing any of such Securities in violation of
the Securities Act or any applicable state securities law and has no
direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities (this
representation and warranty not limiting such Purchaser's right to sell
the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in violation
of the Securities Act or any applicable state securities law. Such
Purchaser is acquiring the Securities hereunder in the ordinary course of
its business.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on
which it exercises any Warrants or converts any Debentures it will be
either: (i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2),
(a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a "qualified
institutional buyer" as defined in Rule 144A(a) under the Securities Act.
Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of
such investment.
(e) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other
than the transaction contemplated hereunder, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, executed any transaction,
including Short Sales, in the securities of the Company during the period
commencing from the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person setting forth the
material terms of the transactions contemplated hereunder until the date
hereof ("Discussion Time"). Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and
the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager
that made the investment decision to purchase the Securities covered by
this Agreement. Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of
this transaction).
21
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of or transferred in
compliance with state and federal securities laws. In connection with any
transfer of Securities (other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Purchaser or
in connection with a pledge as contemplated in Section 4.1(b)), the
Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable to
the Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.
(b) The Purchasers agree to the imprinting, for so long as is
required by this Section 4.1, of a legend on any of the Securities in the
following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS
SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF
THIS SECURITY ARE SUBJECT TO THE TRANSFER RESTRICTIONS AND OTHER
PROVISIONS OF THE SECURITIES PURCHASE AGREEMENT WITH THE COMPANY DATED AS
OF ______________, 2007, AND THE OTHER TRANSACTION DOCUMENTS (AS DEFINED
THEREIN).
22
The Company acknowledges and agrees that a Purchaser may from time
to time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an "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, such Purchaser may
collaterally assign and physically deliver pledged or secured Securities
to the pledgees or secured parties. Such a pledge or transfer would not be
subject to approval of the Company. Unless and until the pledge or secured
party elects to foreclose or otherwise realize upon any of the Securities,
(i) no notice shall be required of such pledge, and (ii) no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in
connection with a pledge or transfer of the Securities, including, if the
Securities are subject to registration pursuant to the Registration 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, provided the Company shall not be
required in such documentation to make any additional representations or
warranties, incur ant additional liability or obligation or confirm or
grant to such pledge or secured party any additional rights beyond those
provided in the Transaction Documents.
(c) Certificates evidencing the Underlying Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i)
while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities
Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
144, or (iii) if such Underlying Shares are eligible for sale under Rule
144(k), or (iv) if such legend may be removed without potential liability
to the Company under applicable requirements of the Securities Act and the
Uniform Commercial Code (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall
cause its counsel to issue a legal opinion to the Transfer Agent promptly
after the Effective Date if required by the Transfer Agent to effect the
removal of the legend hereunder on the Underlying Shares subject to the
Registration Statement. If all or any portion of a Debenture or Warrant is
converted or exercised (as applicable) at a time when there is an
effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(k) or if
such legend may be removed without potential liability to the Company
under applicable requirements of the Securities Act and Uniform Commercial
Code (including judicial interpretations and pronouncements issued by the
staff of the Commission), then such Underlying Shares shall be issued free
of all legends. The Company agrees that following the Effective Date with
respect to the Underlying Shares subject to the Registration Statement or
at such time as such legend is no longer required under this Section
4.1(c), it will, no later than three Trading Days following the delivery
by a Purchaser to the Company or the Transfer Agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive
legend (such third Trading Day, the "Legend Removal Date"), deliver or
cause to be delivered to such Purchaser 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. Certificates for Underlying Shares subject to legend removal
hereunder shall be transmitted by the Transfer Agent to the Purchasers by
crediting the account of the Purchaser's prime broker with the Depository
Trust Company System.
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(d) In addition to such Purchaser's other available remedies, the
Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, for each $1,000 of Underlying Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Transfer Agent) delivered for removal of the restrictive legend and
subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day 15 Trading Days after such damages have begun to accrue) for
each Trading Day after the second Trading Day following the Legend Removal
Date until such certificate is delivered without a legend. Nothing herein
shall limit such Purchaser's right to pursue actual damages for the
Company's failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
(e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company's reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom, and that if Securities are sold pursuant to a
Registration Statement, they will be sold in compliance with the plan of
distribution set forth therein.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock, which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.
24
4.4 Integration. 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 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 any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
(New York City time) on the Trading Day following the date hereof, issue a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents thereto. The Company
and each Purchaser shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Purchaser shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser, or without the prior consent of each
Purchaser, with respect to any press release of the Company, which consent shall
not unreasonably be withheld 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.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except (i) as required by federal securities law in
connection with (A) any registration statement contemplated by the Registration
Rights Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
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4.8 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, and each
Purchaser severally covenants and agrees that it will not request any such
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and shall not use such proceeds for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
or to redeem any Common Stock or Common Stock Equivalents or to settle any
outstanding litigation.
4.10 [RESERVED]
4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
"Purchaser Party", and collectively the "Purchaser parties") harmless from any
and all losses, liabilities, obligations, claims, contingencies, damages, costs
and expenses, including all judgments, amounts paid in settlements, court costs
and reasonable attorneys' fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to (a) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents or (b) any
action instituted against a Purchaser, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser or its Purchaser parties, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon any
sales, pledges, margin sales and similar transactions by such Purchaser to or
with any other stockholder, any breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder, any violations
by the Purchaser or its representatives of state or federal securities laws or
other applicable law, or any act, omission or other conduct by such Purchaser or
its representatives that constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
26
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party (or the majority of them
if more than one is involved in such action). Any Purchaser Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party, in which case
the Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel for all Purchaser parties involved in such
action. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by a Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent, that a loss, claim,
damage or liability is attributable to any sales, pledge, margin sales and
similar transactions by such Purchaser to or with any other stockholder, any
breach of such Purchaser's representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder, any violations by the Purchaser or its
representatives of state or federal securities laws or other applicable law, or
any act, omission or other conduct by such Purchaser or its representatives that
constitutes fraud, gross negligence, willful misconduct or malfeasance.
4.12 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance pursuant to the Transaction Documents
in such amount as may be required to fulfill its obligations in full under
the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and
otherwise unreserved) shares of Common Stock is less than the Required
Minimum on such date, then the Board of Directors of the Company shall use
commercially reasonable efforts to amend the Company's certificate or
articles of incorporation to increase the number of authorized but
unissued shares of Common Stock to at least the Required Minimum at such
time, as soon as possible and in any event not later than the 75th day
after such date.
(c) The Company shall, if applicable: (i) in the time and manner
required by the principal Trading Market, prepare and file with such
Trading Market an additional shares listing application covering a number
of shares of Common Stock at least equal to the Required Minimum on the
date of such application, (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 any
date at least equal to the Required Minimum on such date on such Trading
Market or another Trading Market.
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4.13 Participation in Future Financing.
(a) From the date hereof until the date that is the 12 month
anniversary of the Effective Date, upon any issuance by the Company or any
of its Subsidiaries of Common Stock or Common Stock Equivalents (a
"Subsequent Financing"), each Purchaser shall have the right to
participate in up to an amount of the Subsequent Financing equal to 50% of
the Subsequent Financing (the "Participation Maximum") on the same terms,
conditions and price provided for in the Subsequent Financing.
(b) At least 5 Trading Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Purchaser a written notice of
its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the details of
such financing (such additional notice, a "Subsequent Financing Notice").
Upon the request of a Purchaser, and only upon a request by such
Purchaser, for a Subsequent Financing Notice, the Company shall promptly,
but no later than 1 Trading Day after such request, deliver a Subsequent
Financing Notice to such Purchaser. The Subsequent Financing Notice shall
describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is
proposed to be effected and shall include a term sheet or similar document
relating thereto as an attachment.
(c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than
5:30 p.m. (New York City time) on the 5th Trading Day after all of the
Purchasers have received the Pre-Notice that the Purchaser is willing to
participate in the Subsequent Financing, the amount of the Purchaser's
participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent
Financing Notice. If the Company receives no notice from a Purchaser as of
such 5th Trading Day, such Purchaser shall be deemed to have notified the
Company that it does not elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by
the Purchasers of their willingness to participate in the Subsequent
Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Participation Maximum of such
Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and with the Persons set forth in
the Subsequent Financing Notice.
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(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day
after all of the Purchasers have received the Pre-Notice, the Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation
Maximum, each such Purchaser shall have the right to purchase its Pro Rata
Portion (as defined below) of the Participation Maximum. "Pro Rata
Portion" means the ratio of (x) the Subscription Amount of Securities
purchased on the Closing Date by a Purchaser participating under this
Section 4.13 and (y) the sum of the aggregate Subscription Amounts of
Securities purchased on the Closing Date by all Purchasers participating
under this Section 4.13.
(f) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of
participation set forth above in this Section 4.13, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not
consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 60 Trading Days after the date of the initial
Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not apply
in respect of (i) an Exempt Issuance or (ii) an underwritten public
offering of Common Stock.
4.14 Subsequent Equity Sales.
(a) From the date hereof until 90 days after the Effective Date,
neither the Company nor any Subsidiary shall issue shares of Common Stock
or Common Stock Equivalents; provided, however, the 90 day period set
forth in this Section 4.14 shall be extended for the number of Trading
Days during such period in which (i) trading in the Common Stock is
suspended by any 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 Purchasers for the resale of
the Underlying Shares.
(b) From the date hereof until such time as no Purchaser holds any
of the Securities other than any Underlying Securities that have been
de-legended in accordance with this Agreement, the Company shall be
prohibited from effecting or entering into an agreement to effect any
Subsequent Financing involving a Variable Rate Transaction. "Variable Rate
Transaction" means a transaction in which the Company issues or sells (i)
any debt or 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 debt or equity securities, 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 debt or 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.
(c) Notwithstanding the foregoing, this Section 4.14 shall not apply
in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.
29
4.15 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the Purchasers. Further, the Company shall not make any
payment of principal or interest on the Debentures in amounts which are
disproportionate to the respective principal amounts outstanding on the
Debentures at any applicable time. For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to their respective
representations or warranties, purchase, disposition or voting of Securities or
otherwise.
4.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any Affiliate acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period commencing at the Discussion Time
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.17 Form D; Blue Sky Filings. The Company agrees to timely file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof, promptly upon request of any Purchaser. The Company shall take
such action as the Company shall reasonably determine is necessary in order to
obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers at the Closing under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Purchaser.
4.18 Capital Changes. Until the one year anniversary of the Effective
Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in principal amount outstanding of the Debentures.
30
4.19 Most Favored Nation Provision. If the Company effects a Subsequent
Financing at any time while the Debentures are outstanding, each Purchaser may
elect, in its sole discretion, to exchange all or some of the Debentures then
held by such Purchaser for additional securities of the same class issued in a
Subsequent Financing (such exchange to be made at the same time as the closing
of such Subsequent Financing) based on the principal amount of such Debenture
then outstanding being exchanged plus accrued, but unpaid interest thereon and
the effective price at which such securities were sold in such Subsequent
Financing. The Company shall provide each Purchaser notice of any such
Subsequent Financing in the manner provided in Section 4.13.
ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
February 28, 2007; provided, however, that such termination will not affect the
right of any party to xxx for any breach by the other party (or parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse
Enable Capital Management, LLC ("Enable") the non-accountable sum of $10,000,
for its legal fees and expenses, $________ of which has been paid prior to the
Closing. The Company shall deliver to each Purchaser, prior to the Closing, a
completed and executed copy of the Closing Statement attached hereto as Annex A.
Except as expressly set forth in the Transaction Documents to the contrary, each
party shall pay the fees and expenses of its own advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of any Securities
to the Purchasers.
5.3 Entire Agreement. No party has (directly or indirectly) offered, made,
accepted or acknowledged any representation, warranty, promise, assurance or
other agreement or understanding (whether written, oral, express, implied or
otherwise) to, with or for the benefit of any other party any of their
respective Affiliates or representatives respecting any of the matters contained
in this Agreement and the other Transaction Documents except for those expressly
set forth in this Agreement and the other Transaction Documents. The Transaction
Documents, together with the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior representations, warranties, promises, assurances and other
agreements and understandings (whether written, oral, express, implied or
otherwise), with respect to such matters, which the parties acknowledge have
been merged into such documents, exhibits and schedules.
31
5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date timely delivery to a U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. Refusal to accept
delivery shall constitute delivery. The address for such notices and
communications shall be as set forth on the signature pages attached hereto or
at such other address as shall be designated by written notice to the other
parties.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in or pursuant to written instrument
signed, in the case of an amendment, by the Company and each Purchaser or, in
the case of a waiver, by the party against whom enforcement of any such waived
provision is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors and Assigns. 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 Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
"Purchasers." Notwithstanding anything to the contrary in this Agreement or any
other Transaction Document, no Person who purchases from a Purchaser any
Underlying Securities pursuant to an effective registration statement or Rule
144 shall in any way be, or be deemed or construed to be, with respect to such
Securities, (a) a "Purchaser" or its successor or assignee under this Agreement
or any other Transaction Document, or (b) entitled to any of the rights, powers,
privileges, remedies or interests of a "Purchaser" under this Agreement or any
other Transaction Document.
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
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5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall, to the
greatest extent permitted by applicable law, be governed by and construed and
enforced in accordance with the internal laws of the State of New York and the
federal laws of the United States of America,, without regard to any principles
of conflicts of law thereof that would defer to the substantive laws of any
other jurisdiction. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York, borough of Manhattan. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. The preceeding consents to New York governing law and jurisdiction
and venue in New York State's Supreme Court have been made by the parties in
reliance (at least in part) on Section 5-1401 and 5-1402 of the General
Obligations Law of the State of New York, as amended (as and to the extent
applicable), and other applicable law. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.
5.10 Survival. The representations and warranties shall survive the
Closing and the delivery of the Securities for the applicable statue of
limitations.
5.11 Execution. This Agreement and the other Transaction Documents may be
executed in two or more counterparts of the entire document or of the signature
pages hereto, any of which may be delivered by telecopy, email or other
electronic means, and all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, e-mail delivery of a ".pdf" or similar
format data file or other electronic means, such signature shall create a valid
and binding obligation of the party executing (or on whose behalf such signature
is executed) with the same force and effect as if such facsimile, ".pdf"
electronically transmitted signature page were an original thereof.
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5.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, in each case unless it absence of
the invalid, illegal, void or unenforceable term, provision, convenant or
restriction would impair the practical realization of the applicable party's
principal rights and benefits hereunder, and the parties hereto shall use their
commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable, in each case
unless it absence of the invalid, illegal, void or unenforceable term,
provision, covenant or restriction would impair the practical realization of the
applicable party's principal rights and benefits hereunder.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any party exercises a right, election,
demand or option under a Transaction Document and the other applicable party (or
parties) fails to timely perform its or their related obligations within the
periods therein provided, then such first party may rescind or withdraw, in its
sole discretion from time to time upon written notice to the other applicable
party (or parties), any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights; provided, however, in the
case of a rescission of a conversion of a Debenture or exercise of a Warrant,
the Purchaser shall be required to return any shares of Common Stock delivered
in connection with any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence of
such loss, theft or destruction and a customary indemnity agreement from that
applicant for a new certificate or instrument reasonably satisfactory to the
Company. The applicant for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs (including
customary indemnity) associated with the issuance of such replacement
Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents, and each hereby agrees to
waive, and not to assert in any action for specific performance of any such
obligation, the defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied by such
payment(s) shall be revived and continued in full force and effect as if such
payment(s) had not been made or such enforcement or setoff had not occurred.
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5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if such
maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness without premium or penalty or be refunded to the Company, the
manner of handling such excess to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FWS. FWS
does not represent any of the Purchasers but only Xxxxxx & Xxxxxxx, LLC, the
placement agent for the transaction. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.
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5.19 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing to the Purchasers under the
Transaction Documents is a continuing obligation of the Company and shall not
terminate until all unpaid partial liquidated damages and other amounts have
been paid in accordance with the terms of the Transaction Documents
notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been
canceled.
5.20 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
5.21 Waiver of Jury Trial. In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, each party, knowingly
and intentionally and to the greatest extent permitted by applicable law, hereby
absolutely, unconditionally, irrevocably and expressly waives forever trial by
jury.
(Signature Pages Follow)
36
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
STAR ENERGY CORPORATION Address for Notice:
-------------------
By:________________________________________________ 000 Xxxxxxx Xxxxxx
Name: 21st Floor
Title: Xxx Xxxx, XX 00000
With a copy to (which shall not constitute notice):
Xxxxx Xxxxx & Associates, PLLC
00 X. Xxxxxxxxx Xxxxxx
Xxxxxx Xxxxxx, XX 00000
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
37
[PURCHASER SIGNATURE PAGES TO SERG SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser:______________________________________________________________
Signature of Authorized Signatory of Purchaser:_________________________________
Name of Authorized Signatory:___________________________________________________
Title of Authorized Signatory:__________________________________________________
Email Address of Purchaser:_____________________________________________________
Facsimile Number of Purchaser:__________________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:_____________
Warrant Shares:__________________
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
38
Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $15,000,000 of Debentures and
Warrants from Star Energy Corporation (the "Company"). All funds will be wired
into a trust account maintained by ____________, counsel to the Company. All
funds will be disbursed in accordance with this Closing Statement.
Disbursement Date: February ___, 2007
--------------------------------------------------------------------------------
I. PURCHASE PRICE
Gross Proceeds Received $
II. DISBURSEMENTS
$
$
$
$
$
Total Amount Disbursed: $
WIRE INSTRUCTIONS:
To: _____________________________________
To: _____________________________________
39