BRIDGE LOAN AGREEMENT
THIS
BRIDGE LOAN AGREEMENT,
dated
as of December 27, 2006, is entered into by and between NEAH
POWER SYSTEMS, INC.,
a
Nevada corporation with headquarters located at 00000 00xx
Xxxxxx,
XX, Xxxxx 000, Xxxxxxx, Xxxxxxxxxx 00000 (the “Company”), and each individual or
entity named on a signature page hereto (as used herein, each such signatory
is
referred to as the “Buyer” or a “Buyer”) (each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to each
other Buyer [each, an “Other Buyer”] under such agreement and the Transaction
Agreements, as defined below, referred to therein).
W
I T N E S S E T H:
WHEREAS,
the
Company and each of the Buyers are executing and delivering this Agreement
in
accordance with and in reliance upon the exemption from securities registration
for offers and sales to accredited investors afforded, inter alia,
by Rule
506 under Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended (the “1933 Act”), and/or Section 4(2) of the 1933 Act;
and
WHEREAS,
each
Buyer wishes to lend funds to the Company, subject to and upon the terms and
conditions of this Agreement and acceptance of this Agreement by the Company,
the repayment of which will be represented by 6% Secured Promissory Note of
the
Company (each, a “Note”), on the terms and conditions referred to herein;
and
WHEREAS,
in
connection with the loan to be made by each Buyer, the Company has agreed to
issue the Issued Shares (as defined below) to the Buyer; and
WHEREAS,
the
Company’s obligations to repay each Note will be guaranteed pursuant to a
Guaranty and a Security Interest Agreement (as defined below) executed by the
Subsidiary, as debtor, secured by a senior security interest of the assets
of
the Subsidiary; and
WHEREAS,
the
Company’s obligations to repay each Note will be guaranteed under a the Pledgor
Guarantee (as defined below) by one or more guarantors named therein (each,
a
“Pledgor”) and, pursuant to a Security Interest and Pledge Agreement (the
“Pledge Agreement”) executed by each such Pledgor and acknowledged by the
Company, secured by a pledge of certain shares of the Company’s Common Stock and
the Subsidiary Common Stock (the “Pledged Shares”), as to which Pledged Shares
such Pledgor is the registered and beneficial owner;
NOW
THEREFORE,
in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the parties agree as follows:
1. AGREEMENT
TO PURCHASE; PURCHASE PRICE.
a. Purchase.
(i) Subject
to the terms and conditions of this Agreement and the other Transaction
Agreements, each Buyer hereby agrees to loan to the Company the principal amount
specified on the Buyer’s signature page hereof (the “Loan Amount”). The
aggregate Loan Amount of all Buyers shall not exceed $1,550,000 (the “Aggregate
Loan Amount”).
(ii) The
obligation to repay the loan from the Buyer shall be evidenced by the Company’s
issuance of the Note, which shall be shall be in the form of Annex
I annexed
hereto. The Note will be guaranteed by each of the Pledgors, as provided in
Annex
VI-A
(each, a
“Pledgor Guarantee”) and secured by the pledge of the Pledged Shares under the
terms of the Pledge Agreement, which Pledge Agreement shall be substantially
in
the form of Annex
VII hereto
(the “Pledge Agreement”), which the Company will acknowledge. Repayment of the
Note shall be secured pursuant to the terms of a Security Interest Agreement,
to
which the Company and the Subsidiary shall be a party, which agreements shall
be
substantially in the form annexed hereto as Annex
VIII-A,
(a
“Security Interest Agreement”).
(iii) In
consideration of the loan to be made by each Buyer, the Company agrees to issue
to each Buyer the Initial Issued Shares on the Closing Date. Additional
provisions relating to the Issued Shares are provided below.
(iv) The
loan
to be made by the Buyer and the issuance of the Note and the Issued Shares
to
the Buyer and the other transactions contemplated hereby are sometimes referred
to herein and in the other Transaction Agreements as the purchase and sale
of
the Securities (as defined below), and are referred to collectively as the
“Transactions.”.
b. Certain
Definitions. As
used
herein, each of the following terms has the meaning set forth below, unless
the
context otherwise requires:
“Affiliate”
means, with respect to a specific Person referred to in the relevant provision,
another Person who or which controls or is controlled by or is under common
control with such specified Person.
“Buyer
Control Person” means each director, executive officer, promoter, and such other
Persons as may be deemed in control of the Buyer pursuant to Rule 405 under
the
1933 Act or Section 20 of the 1934 Act (as defined below).
“Buyer’s
Allocable Share” means the fraction, of which the numerator is the Buyer’s Loan
Amount and the denominator is the Aggregate Loan Amount.
2
“Certificates”
means the original ink-signed Note and the Issued Share Certificates, each
duly
executed by the Company and issued on the Closing Date in the name of the
Buyer.
“Closing
Date” means the date of the closing of the Transactions, as provided
herein.
“Company
Control Person” means each director, executive officer, promoter, and such other
Persons as may be deemed in control of the Company pursuant to Rule 405 under
the 1933 Act or Section 20 of the 1934 Act.
“Common
Stock” means the common stock, $0.001 par value, of the Company.
"Disclosure
Annex" means Annex
V to
this
Agreement; provided, however, that the Disclosure Annex shall be arranged in
sections corresponding to the identified Sections of this Agreement, but the
disclosure in any such section of the Disclosure Annex shall qualify other
provisions in this Agreement to the extent that it would be readily apparent
to
an informed reader from a reading of such section of the Disclosure Annex that
it is also relevant to other provisions of this Agreement.
“Escrow
Agent” means Xxxxxxx & Xxxxxx LLP, the escrow agent identified in the Joint
Escrow Instructions attached hereto as Annex
II
(the
“Joint Escrow Instructions”).
“Escrow
Funds” means the Loan Amount delivered to the Escrow Agent as contemplated by
Sections 1(c) and (d) hereof.
“Escrow
Property” means the Escrow Funds and the Certificates delivered to the Escrow
Agent as contemplated by Section 1(c) hereof.
“Guarantee”
means each Pledgor Guarantee or any one or more of them, as the context may
require.
“Holder”
means the Person holding the relevant Securities at the relevant
time.
“Initial
Issued Shares” means, for each Buyer, (i) 500,000 shares of Common Stock,
multiplied by (ii) the Buyer’s Allocable Share; the Initial Issued Shares are to
be issued on the Closing Date.
“Issued
Share Certificates” means one or more stock certificates issued by the Company
in the name of the Buyer representing, in the aggregate, the relevant Issued
Shares.
“Issued
Shares” means the Initial Issued Shares and the Additional Issued Shares, if
any.
3
“Last
Audited Date” means December 31, 2005.
“Material
Adverse Effect” means an event or combination of events, which individually or
in the aggregate, would reasonably be expected to (w) adversely affect the
legality, validity or enforceability of the Securities or any of the Transaction
Agreements, (x) have or result in a material adverse effect on the results
of
operations, assets, prospects, or condition (financial or otherwise) of the
Company and its subsidiaries, taken as a whole, (y) adversely impair the
Company's ability to perform fully on a timely basis its obligations under
any
of the Transaction Agreements or the transactions contemplated thereby, or
(z)
materially and adversely affect the value of the rights granted to the Buyer
in
the Transaction Agreements.
“Maturity
Date Extension Notice” has the meaning ascribed to in the Note.
“Person”
means any living person or any entity, such as, but not necessarily limited
to,
a corporation, partnership or trust.
“Principal
Trading Market” means the Over the Counter Bulletin Board or such other market
on which the Common Stock is principally traded at the relevant time, but shall
not include the “pink sheets.”
“Registrable
Securities” means all of the following: (i) the Issued Shares and (ii) the
Pledged Shares which have been claimed by the Holder as contemplated by the
Pledge Agreement, except to the extent such shares can then be sold by the
Holder without volume or other restrictions or limit.
“Registration
Rights Provisions” means the piggy-back registration rights contemplated by the
terms of this Agreement, including, but not necessarily limited to, Section
4(g)
hereof, and of the other Transaction Agreements.
“Registration
Statement” means an effective registration statement covering the Registrable
Securities.
“Securities”
means the Note and the Shares.
“Security
Interest Agreement” shall mean, as applicable, the Security Interest Agreement,
the Intellectual Property Security Interest Agreement and Subsidiary Security
Interest and Pledge Agreement.
“Shares”
means the shares of Common Stock representing any or all of the Issued Shares
and, where relevant, the Pledged Shares.
“State
of
Incorporation” means Nevada.
4
“Subsidiary”
means Neah Power Systems, Inc., a Washington corporation.
“Trading
Day” means any day during which the Principal Trading Market shall be open for
business.
“Transfer
Agent” means, at any time, the transfer agent for the Company’s Common
Stock.
“Transaction
Agreements” means this Bridge Loan Agreement, each Note, each Guarantee, the
Joint Escrow Instructions, each Security Interest Agreement, each Pledge
Agreement, and includes all ancillary documents referred to in those
agreements.
c. Form
of Payment; Delivery of Certificates.
(i) The
Buyer
shall pay the Loan Amount by delivering immediately available good funds in
United States Dollars to the Escrow Agent no later than the date prior to the
Closing Date.
(ii) No
later
than the Closing Date, but in any event promptly following payment by the Buyer
to the Escrow Agent of the Loan Amount, the Company shall cause its transfer
agent to deliver the relevant Certificates, each duly executed on behalf of
the
Company and issued in the name of the Buyer, to the Escrow Agent.
(iii) By
signing this Agreement, each of the Buyer and the Company, subject to acceptance
by the Escrow Agent, agrees to all of the terms and conditions of, and becomes
a
party to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
d. Method
of Payment.
Payment
into escrow of the Loan Amount shall be made by wire transfer of funds
to:
Bank
of
New York
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
ABA#
For
credit to the account of
Account
No.:
Re: NEAH
POWER SYSTEMS, INC. Dec 06
5
2.
BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The
Buyer
represents and warrants to, and covenants and agrees with, the Company as
follows:
a. Without
limiting Buyer's right to sell the Securities pursuant to an effective
registration statement or otherwise in compliance with the 1933 Act, the Buyer
is purchasing the Securities for its own account for investment only and not
with a view towards the public sale or distribution thereof and not with a
view
to or for sale in connection with any distribution thereof.
b. The
Buyer
is (i) an “accredited investor” as that term is defined in Rule 501 of the
General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3),
(ii) experienced in making investments of the kind described in this Agreement
and the related documents, (iii) able, by reason of the business and financial
experience of its officers (if an entity) and professional advisors (who are
not
affiliated with or compensated in any way by the Company or any of its
Affiliates or selling agents), to protect its own interests in connection with
the transactions described in this Agreement, and the related documents, and
to
evaluate the merits and risks of an investment in the Securities, and (iv)
able
to afford the entire loss of its investment in the Securities.
c. All
subsequent offers and sales of the Securities by the Buyer shall be made
pursuant to registration of the relevant Securities under the 1933 Act or
pursuant to an exemption from registration.
d. The
Buyer
understands that the Securities are being offered and sold to it in reliance
on
specific exemptions from the registration requirements of the 1933 Act and
state
securities laws and that the Company is relying upon the truth and accuracy
of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
e. The
Buyer
and its advisors, if any, have been furnished with or have been given access
to
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by the Buyer, including those set forth on in any annex attached
hereto. The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and its management and have received complete
and satisfactory answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyer has also had the opportunity to obtain and to review
the Company's filings on XXXXX listed on Annex
IV
hereto
(the documents listed on such Annex IV, to the extent available on XXXXX or
otherwise provided to the Buyer as indicated on said Annex IV, collectively,
the
“Company's SEC Documents”).
6
f. The
Buyer
understands that its investment in the Securities involves a high degree of
risk.
g. The
Buyer
hereby represents that, in connection with its purchase of the Securities,
it
has not relied on any statement or representation by the Company or any of
its
officers, directors and employees or any of their respective attorneys or
agents, except as specifically set forth herein.
h. The
Buyer
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Securities.
i. This
Agreement and the other Transaction Agreements to which the Buyer is a party,
and the transactions contemplated thereby, have been duly and validly
authorized, executed and delivered on behalf of the Buyer and are valid and
binding agreements of the Buyer enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
3. COMPANY
REPRESENTATIONS, ETC. The
Company represents and warrants to the Buyer as of the date hereof and as of
the
Closing Date that, except as otherwise provided in the Disclosure Annex or
in
the Company’s SEC Documents:
a. Rights
of Others Affecting the Transactions. There
are
no preemptive rights of any shareholder of the Company, as such, to acquire
the
Note or the Issued Shares. No party other than a Buyer or an Other Buyer has
a
currently exercisable right of first refusal which would be applicable to any
or
all of the transactions contemplated by the Transaction Agreements.
b. Status.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Incorporation and has the requisite corporate
power to own its properties and to carry on its business as now being conducted.
The Company is duly qualified as a foreign corporation to do business and is
in
good standing in each jurisdiction where the nature of the business conducted
or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have or result in
a
Material Adverse Effect. The Company has registered its stock and is obligated
to file reports pursuant to Section 12 or Section 15(d) of the Securities and
Exchange Act of 1934, as amended (the “1934 Act”). The Common Stock is quoted on
the pink sheets and an application has been filed and is pending to have it
quoted on the Principal Trading Market. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such quotation on the Principal Trading Market, and the Company has
maintained all requirements on its part for the continuation of such quotation.
c. Authorized
Shares; Subsidiaries.
7
(i) The
authorized capital stock of the Company consists of (a) 500,000,000 shares
of
Common Stock, $0.001 par value per share, of which approximately 102,662,431
shares are outstanding as of the date hereof, and (b) 25,000 shares of Series
A
Convertible Preferred Stock, par value $.001 per share, of which as of the
date
hereof, there are designated and outstanding no shares.
(ii) All
issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect
the
issuance of the Shares on the Closing Date.
(iii) As
of the
Closing Date, the Shares shall have been duly authorized by all necessary
corporate action on the part of the Company, and, when issued on the Closing
Date or pursuant to other relevant provisions of the Transaction Agreements,
in
each case in accordance with their respective terms, will be duly and validly
issued, fully paid and non-assessable and will not subject the Holder thereof
to
personal liability by reason of being such Holder.
(iv) The
Company has no direct or indirect Subsidiaries other than as specified in the
Disclosure Annex. Except as disclosed in the Disclosure Annex or in the
succeeding subparagraph (b), the Company owns, directly or indirectly, all
of
the capital stock of each of its Subsidiaries, free and clear of any and all
liens (other than liens specifically permitted by the relevant Security Interest
Agreement), and all the issued and outstanding shares of capital stock of each
of its Subsidiaries are validly issued and are fully paid, non-assessable and
free of preemptive and similar rights.
d. Transaction
Agreements and Stock.
This
Agreement and each of the other Transaction Agreements, and the transactions
contemplated thereby, have been duly and validly authorized by the Company,
this
Agreement has been duly executed and delivered by the Company and this Agreement
is, and the Note and each of the other Transaction Agreements, when executed
and
delivered by the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
e. Non-contravention.
The
execution and delivery of this Agreement and each of the other Transaction
Agreements by the Company, the issuance of the Securities, and the consummation
by the Company or the Subsidiary of the other transactions contemplated by
this
Agreement, each of the Notes and the other Transaction Agreements do not and
will not conflict with or result in a breach by the Company or the Subsidiary
of
any of the terms or provisions of, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give
to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) under (i) the certificate of
incorporation or by-laws of the Company or the Subsidiary, as the case may
be,
each as currently in effect, (ii) any indenture, mortgage, deed of trust, or
other material agreement or instrument to which the Company or the Subsidiary
is
a party or by which it or any of its properties or assets are bound, including
any listing agreement for the Common Stock of the Company except as herein
set
forth, or (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or the Subsidiary or
any
of their respective properties or assets, except such conflict, breach or
default which would not have or result in a Material Adverse
Effect.
8
f. Approvals.
No
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market or the
shareholders of the Company is required to be obtained by the Company for the
issuance and sale of the Securities to the Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained.
g. Filings.
None of
the reports
required to be filed by the Company under the Exchange Act, including pursuant
to Section 13(a)
or
15(d)
thereof, for the 12 months preceding the date hereof (the
“SEC
Documents”) contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements made therein in light of the
circumstances under which they were made, not misleading. Since November 10,
2006, the Company has timely filed all requisite forms, reports and exhibits
thereto required to be filed by the Company with the SEC.
h. Absence
of Certain Changes.
Since
the Last Audited Date, there has been no material adverse change and no Material
Adverse Effect, except as disclosed (whether with respect to past events or
to
anticipated events) in the Company’s SEC Documents. Since the Last Audited Date,
except as provided in the Company’s SEC Documents, the Company has not (i)
incurred or become subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of business consistent with
past practices; (ii) discharged or satisfied any material lien or encumbrance
or
paid any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with
past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets,
or
canceled any debts owed to the Company by any third party or claims of the
Company against any third party, except in the ordinary course of business
consistent with past practices; (v) waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of any material
amount of existing business; (vi) made any increases in employee compensation,
except in the ordinary course of business consistent with past practices; or
(vii) experienced any material problems with labor or management in connection
with the terms and conditions of their employment.
i. Full
Disclosure.
To the
best of the Company’s knowledge, there is no fact known to the Company (other
than general economic conditions known to the public generally or as disclosed
in the Company’s SEC Documents) that has not been disclosed in writing to the
Buyer that would reasonably be expected to have or result in a Material Adverse
Effect.
9
j. Absence
of Litigation.
There is
no action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company, threatened
against or affecting the Company before or by any governmental authority or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other person, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect or which would adversely affect the validity
or
enforceability of, or the authority or ability of the Company to perform its
obligations under, any of the Transaction Agreements. The Company is not aware
of any valid basis for any such claim that (either individually or in the
aggregate with all other such events and circumstances) could reasonably be
expected to have a Material Adverse Effect. There are no outstanding or
unsatisfied judgments, orders, decrees, writs, injunctions or stipulations
to
which the Company is a party or by which it or any of its properties is bound,
that involve the transaction contemplated herein or that, alone or in the
aggregate, could reasonably be expect to have a Material Adverse
Effect.
k. Absence
of Events of Default.
Except
as set forth in Section 3(e) hereof, (i) neither the Company nor any of its
subsidiaries is in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust or other material agreement to which it
is a
party or by which its property is bound, and (ii) no Event of Default (or its
equivalent term), as defined in the respective agreement to which the Company
or
its subsidiary is a party, and no event which, with the giving of notice or
the
passage of time or both, would become an Event of Default (or its equivalent
term) (as so defined in such agreement), has occurred and is continuing, which
would have a Material Adverse Effect.
l. Absence
of Certain Company Control Person Actions or Events.
To the
Company’s knowledge, none of the following has occurred during the past five (5)
years with respect to a Company Control Person:
(1)
A
petition under the federal bankruptcy laws or any state insolvency law was
filed
by or against, or a receiver, fiscal agent or similar officer was appointed
by a
court for the business or property of such Company Control Person, or any
partnership in which he was a general partner at or within two years before
the
time of such filing, or any corporation or business association of which he
was
an executive officer at or within two years before the time of such
filing;
(2)
Such
Company Control Person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding traffic violations and
other
minor offenses);
(3)
Such
Company Control Person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
10
(i)
acting, as an investment advisor, underwriter, broker or dealer in securities,
or as an affiliated person, director or employee of any investment company,
bank, savings and loan association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, any other Person regulated by the Commodity Futures
Trading Commission ("CFTC") or engaging in or continuing any conduct or practice
in connection with such activity;
(ii)
engaging in any type of business practice; or
(iii)
engaging in any activity in connection with the purchase or sale of any security
or commodity or in connection with any violation of federal or state securities
laws or federal commodities laws;
(4)
Such
Company Control Person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such Company Control Person to engage in any activity described in paragraph
(3)
of this item, or to be associated with Persons engaged in any such activity;
or
(5)
Such
Company Control Person was found by a court of competent jurisdiction in a
civil
action or by the CFTC or SEC to have violated any federal or state securities
law, and the judgment in such civil action or finding by the CFTC or SEC has
not
been subsequently reversed, suspended, or vacated.
m. No
Undisclosed Liabilities or Events.
To the
best of the Company’s knowledge, the Company has no liabilities or obligations
other than those disclosed in the Transaction Agreements or the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since the Last Audited Date, or which individually or in the aggregate, do
not
or would not have a Material Adverse Effect. No event or circumstances has
occurred or exists with respect to the Company or its properties, business,
operations, condition (financial or otherwise), or results of operations, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been
so
publicly announced or disclosed. There are no proposals currently under
consideration or currently anticipated to be under consideration by the Board
of
Directors or the executive officers of the Company which proposal would (x)
change the articles or certificate of incorporation or other charter document
or
by-laws of the Company, each as currently in effect, with or without shareholder
approval, which change would reduce or otherwise adversely affect the rights
and
powers of the shareholders of the Common Stock or (y) materially or
substantially adversely change the business, assets or capital of the Company,
including its interests in subsidiaries.
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n. No
Integrated Offering.
Neither
the Company nor any of its Affiliates nor any Person acting on its or their
behalf has, directly or indirectly, at any time since April 1, 2006, made any
offer or sales of any security or solicited any offers to buy any security
under
circumstances that would eliminate the availability of the exemption from
registration under Regulation D in connection with the offer and sale of the
Securities as contemplated hereby.
o. Dilution.
The
Issued Shares may have a dilutive effect on the ownership interests of the
other
shareholders (and Persons having the right to become shareholders) of the
Company. The Company's executive officers and directors have studied and fully
understand the nature of the Securities being sold hereby and recognize that
they have such a potential dilutive effect. The board of directors of the
Company has concluded, in its good faith business judgment, that such issuance
is in the best interests of the Company.
p. Recognition
of Pledge Agreement and Pledged Shares.
The
Company acknowledges that the execution and delivery of each Pledge Agreement,
and the fulfillment o f the terms thereof, is a condition to the closing of
the
Transactions. The Company will recognize the terms of each Pledge Agreement
and,
as provided therein, the transfer of the Pledged Shares to the Buyers and will
take no position or give the Transfer Agent any instructions which would be
inconsistent with the rights of the Buyers to have the Pledged Shares
transferred to the Buyers in accordance with the terms of the Pledge Agreement.
q. Fees
to Brokers, Finders and Others.
The
Company has taken no action which would give rise to any claim by any Person,
other than Palladium Capital Advisors, for brokerage commission, finder's fees
or similar payments by Buyer relating to this Agreement or the transactions
contemplated hereby. Buyer shall have no obligation with respect to such fees
or
with respect to any claims made by or on behalf of other Persons for fees of
a
type contemplated in this paragraph that may be due in connection with the
transactions contemplated hereby. The Company shall indemnify and hold harmless
each of Buyer, its employees, officers, directors, agents, and partners, and
their respective Affiliates, from and against all claims, losses, damages,
costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as and when
incurred.
r. Confirmation.
The
Company confirms that all statements of the Company contained herein shall
survive acceptance of this Agreement by the Buyer. The Company agrees that,
if
any events occur or circumstances exist prior to the Closing Date or the release
of the Loan Amount to the Company which would make any of the Company’s
representations, warranties, agreements or other information set forth herein
materially untrue or materially inaccurate as of such date, the Company shall
immediately notify the Buyer (directly or through its counsel, if any) and
the
Escrow Agent in writing prior to such date of such fact, specifying which
representation, warranty or covenant is affected and the reasons
therefor.
4. CERTAIN
COVENANTS AND ACKNOWLEDGMENTS.
12
a. Transfer
Restrictions.
The
Buyer acknowledges that (1) the Securities have not been and are not being
registered under the provisions of the 1933 Act and, except as provided in
the
Registration Rights Provisions or otherwise included in an effective
registration statement, the Shares have not been and are not being registered
under the 1933 Act, and may not be transferred unless (A) subsequently
registered thereunder or (B) the Buyer shall have delivered to the Company
an
opinion of counsel, reasonably satisfactory in form, scope and substance to
the
Company, to the effect that the Securities to be sold or transferred may be
sold
or transferred pursuant to an exemption from such registration; (2) any sale
of
the Securities made in reliance on Rule 144 promulgated under the 1933 Act
may
be made only in accordance with the terms of said Rule and further, if said
Rule
is not applicable, any resale of such Securities under circumstances in which
the seller, or the Person through whom the sale is made, may be deemed to be
an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the
SEC
thereunder; and (3) neither the Company nor any other Person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Provisions) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive
Legend.
The
Buyer acknowledges and agrees that, until such time as the relevant Shares
have
been registered under the 1933 Act, as contemplated by the Registration Rights
Provisions and sold in accordance with an effective Registration Statement
or
otherwise in accordance with another effective registration statement, the
certificates and other instruments representing any of the Securities shall
bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. Filings.
The
Company undertakes and agrees to take all reasonable action under its control
to
make all necessary filings in connection with the sale of the Securities to
the
Buyer under any United States laws and regulations applicable to the Company,
or
by any domestic securities exchange or trading market, and to provide a copy
thereof to the Buyer promptly after such filing.
d. Reporting
Status.
So long
as the Buyer beneficially owns any of the Shares or has a security interest
in
the Pledged Shares, the Company shall take all reasonable action under its
control to file all reports required to be filed with the SEC pursuant to
Section 13 or 15(d) of the 1934 Act, and to ensure that adequate current public
information with respect to the Company, as required in accordance with Rule
144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the
1934
Act or the rules and regulations thereunder would permit such termination.
The
Company will take all reasonable action under its control to maintain the
continued listing and quotation and trading of its Common Stock (including,
without limitation, all Registrable Securities) on the Principal Trading Market
or a listing on the NASDAQ/Small Cap or National Markets and, to the extent
applicable to it, will comply in all material respects with the Company’s
reporting, filing and other obligations under the by-laws or rules of the
Principal Trading Market and/or the National Association of Securities Dealers,
Inc., as the case may be, applicable to it for so long as the Buyer beneficially
owns any of the Shares or has a security interest in the Pledged
Shares.
13
e. Use
of Proceeds.
The
Company will use the proceeds received hereunder for the purposes set forth
in
Annex
IX
annexed
hereto.
f. Issued
Shares.
The
Company agrees to issue the Initial Issued Shares to the Buyer on the Closing
Date. All of the Issued Shares shall have Registration Rights
Provisions.
g. Registration
Rights; Rule 144.
(i) The
Company shall include all of the Pledged Shares in a Registration Statement
to
be filed within thirty (30) days after the Closing Date, and use reasonable
effort to have such Registration Statement (and any applicable Blue Sky filings)
declared effective as soon as feasible.
(ii) The
Holder shall have piggy-back registration rights with respect to the Issued
Shares subject to the conditions set forth below. If the Company participates
(whether voluntarily or by reason of an obligation to a third party) in the
registration of any shares of the Company’s stock (other than a registration on
Form S-8 or on Form S-4), the Company shall give written notice thereof to
the
Holder and the Holder shall have the right, exercisable within ten (10) Trading
Days after receipt of such notice, to demand inclusion of all or a portion
of
the Holder’s Issued Shares in such registration statement (a “Subsequent
Registration Statement”), without any cutbacks. If the Holder exercises such
election, the Issued Shares so designated shall be included in the registration
statement (without any holdbacks) at no cost or expense to the Holder (other
than any commissions, if any, relating to the sale of Holder’s shares). Each
Holder’s rights under this Section 4(g)(i) shall expire at such time as such
Holder can sell all of such Holder’s remaining Issued Shares under Rule 144 (as
defined below) without volume or other restrictions or limit.
(iii) The
parties acknowledge that the damages which may be incurred by the Holder if
the
Company does not fulfill its obligations under subparagraph (i) above, which
will affect the Holder’s ability to sell the shares, may be difficult to
ascertain. If either (A) the Company fails to give the Buyer the notice referred
to in the immediately preceding subparagraph (i) which results in any of the
Holder’s shares not being included in the Subsequent Registration Statement or
(B) after giving such notice, the Company fails to include all of the Holder’s
shares (to the extent requested by the Holder) in the Subsequent Registration
Statement, then the Company will make payment to the Buyer, for each Computation
Period (as defined below) the amount equal to $15,500.00 multiplied by the
Buyer’s Allocable Share (the “Periodic Amount”). The term “Computation Period”
means each thirty (30) day period commencing on the effective date of the
Subsequent Registration Statement and ending on the date on which there are
one
or more effective registration statements covering the Buyer’s sale of all of
the Holder’s shares. The Periodic Amount shall be due without further demand or
notice from the Buyer. The parties agree that the amounts payable pursuant
to
the foregoing provisions of this Section 4(g) represent a reasonable estimate
on
the part of the parties, as of the date of this Agreement, of the amount of
such
damages.
14
(iv) With
a
view to making available to the Holder the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that
may
at any time permit Holder to sell securities of the Company to the public
without registration (collectively, “Rule 144”), the Company agrees to take all
reasonable action under its control to:
(a) make
and
keep public information available, as those terms are understood and defined
in
Rule 144;
(b) file
with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act; and
(c) furnish
to the Holder so long as such party owns Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) if
not
available on the SEC’s XXXXX system, a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by
the Company and (iii) such other information as may be reasonably requested
to
permit the Holder to sell such securities pursuant to Rule 144 without
registration; and
(d) at
the
request of any Holder then holding Registrable Securities, give the Transfer
Agent instructions (supported by an opinion of Company counsel, if required
or
requested by the Transfer Agent) to the effect that, upon the Transfer Agent’s
receipt from such Holder of
(i)
a
certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s holding
period (as determined in accordance with the provisions of Rule 144) for the
Shares which the Holder proposes to sell (the “Securities Being Sold”) is not
less than (1) year and (B) as to such other matters as may be appropriate in
accordance with Rule 144 under the Securities Act, and
(ii)
an
opinion of counsel acceptable to the Company (for which purposes it is agreed
that Xxxxxxx & Prager LLP shall be deemed acceptable if not given by Company
counsel) that, based on the Rule 144 Certificate, Securities Being Sold may
be
sold pursuant to the provisions of Rule 144, even in the absence of an effective
registration statement,
15
the
Transfer Agent is to effect the transfer of the Securities Being Sold and issue
to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent’s books and records (except to the extent any such
legend or restriction results from facts other than the identity of the relevant
Holder, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Buyer). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may
be
necessary to effectuate the issuance of an unlegended certificate.
(v) Notwithstanding
the foregoing, if at any time or from time to time after the date of
effectiveness of the registration statement, the Company notifies the Holder
in
writing of the existence of a Potential Material Event (as defined below),
the
Holder shall not offer or sell any Registrable Securities, or engage in any
other transaction involving or relating to the Registrable Securities, from
the
time of the giving of notice with respect to a Potential Material Event until
the Holder receives written notice from the Company that such Potential Material
Event either has been disclosed to the public or no longer constitutes a
Potential Material Event; provided, however,
that the
Company may not so suspend such right other than during a Permitted Suspension
Period. The term “Potential Material Event” means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good
faith
by the Board of Directors of the Company that disclosure of such information
in
the registration statement would be detrimental to the business and affairs
of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
h. New
Transactions; Right to Subscribe; Payment by Offset.
Any
other
provision of this Agreement or any of the other Transaction Agreements to the
contrary notwithstanding, if prior to the payment in full of the Note, the
Company offers any financing transaction (each, a “New Transaction,” which term
includes any financing transaction currently anticipated to be made by the
Company or currently being negotiated by the Company, whether or not any binding
agreements have or have not been entered into in connection therewith) to any
third party (each, a “New Party”), the Company shall give each Buyer at least
five (5) business days’ notice thereof and give each Buyer, severally and not
jointly, the opportunity to, subscribe to and participate in the New Transaction
on the same terms as any other New Party, except that (i) the Buyer may elect
to
make all or a portion of the Buyer’s payment therefor by an offset against all
or a portion of the amount due to the Buyer from the Company under the
Transaction Agreements, (ii) in the event the New Transaction is a transaction
other than the sale of Common Stock registered on an effective Registration
Statement .each Buyer shall be entitled to participate is such New Transaction
at 90% of the Purchase Price of a New Investor The Company agrees that, if
the
Buyer, in the Buyer’s sole discretion, elects to participate in the New
Transaction and, in connection with the consummation thereof, the Buyer makes
the representation that the Buyer is an accredited investor, the Company will
accept the subscription of the Buyer to the New Transaction and make such
offset, if any. Any offset so made shall be deemed the equivalent as if the
Buyer had made the cash payment of such amount in connection with the New
Transaction and the Company had made the payment on account of its obligations
to the Buyer. Any provision of any New Transaction to the contrary
notwithstanding, (X) the Buyer shall not be obligated to convert its Note into
any other security of the Company and may demand payment of all or a part of
amounts due to it from the Company in cash and (Y) the Buyer shall have a senior
security interest in the Collateral (as defined in each of the Security Interest
Agreements, respectively) until such time as the such security interest shall
terminate in accordance with the provisions of the relevant Security Interest
Agreement.
16
i. Publicity,
Filings, Releases, Etc.
Each of
the parties agrees that it will not disseminate any information relating to
the
Transaction Agreements or the transactions contemplated thereby, including
issuing any press releases, holding any press conferences or other forums,
or
filing any reports (collectively, “Publicity”), without giving the other party
reasonable advance notice and an opportunity to comment on the contents thereof.
Neither party will include in any such Publicity any statement or statements
or
other material to which the other party reasonably objects, unless in the
reasonable opinion of counsel to the party proposing such statement, such
statement is legally required to be included. In furtherance of the foregoing,
the Company will provide to the Buyer drafts of the applicable text of the
first
filing of a Current Report on Form 8-K or a Quarterly or Annual Report on Form
10-Q or 10-K intended to be made with the SEC which refers to the Transaction
Agreements or the transactions contemplated thereby as soon as practicable
(but
at least two (2) Trading Days before such filing will be made) will not include
in such filing any statement or statements or other material to which the other
party reasonably objects, unless in the reasonable opinion of counsel to the
party proposing such statement, such statement is legally required to be
included. Notwithstanding the foregoing, each of the parties hereby consents
to
the inclusion of the text of the Transaction Agreements in filings made with
the
SEC as well as any descriptive text accompanying or part of such filing which
is
accurate and reasonably determined by the Company’s counsel to be legally
required. Notwithstanding, but subject to, the foregoing provisions of this
Section 4(i), the Company will, after the Closing Date, promptly file a Current
Report on Form 8-K or, if appropriate, a quarterly or annual report on the
appropriate form, referring to the transactions contemplated by the Transaction
Agreements.
j. Independent
Nature of Buyers' Obligations and Rights.
The
obligations of each Buyer under the Transaction Agreements are several and
not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any Other Buyer under
any
one or more of the Transaction Agreements. The decision of each Buyer or Other
Buyer to purchase Securities pursuant to the Transaction Agreements has been
made by such Buyer independently of any Other Buyer. Nothing contained herein
or
in any Transaction Agreement, and no action taken by any Buyer pursuant thereto,
shall be deemed to constitute any two or more Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group
with
respect to such obligations or the transactions contemplated by the Transaction
Agreements. Each Buyer acknowledges that no Other Buyer has acted as agent
for
such Buyer in connection with making its investment hereunder and that no Buyer
will be acting as agent of such Other Buyer in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Agreements. Each Buyer 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 Agreements, and it shall not be
necessary for any Other Buyer to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Buyers
has been provided with the same Transaction Agreements for the purpose of
closing a transaction with multiple Buyers and not because it was required
or
requested to do so by any Buyer.
17
k. Equal
Treatment of Buyers.
No
consideration shall be offered or paid to any Buyer to amend or consent to
a
waiver or modification of any provision of any of the Transaction Agreements
unless the same consideration (on a pro rata basis) is also offered to all
Buyers parties to the Transaction Agreements.
l. Independent
Investment Decision.
No Buyer
has agreed to act with any Other Buyer for the purpose of acquiring, holding,
voting or disposing of the Securities purchased hereunder for purposes of
Section 13(d) under the 1934 Act, and each Buyer is acting independently with
respect to its investment in the Securities. The decision of each Buyer to
purchase Securities pursuant to this Agreement has been made by such Buyer
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company or its subsidiaries which may have made
or given by any Other Buyer or by any agent or employee of any Other Buyer,
and
no Buyer or any of its agents or employees shall have any liability to any
Other
Buyer (or any other person) relating to or arising from any such information,
materials, statements or opinions.
m. Issuance
or Transfer of Subsidiary Securities.
Prior to
the payment in full of the Note, the Company will not transfer any of the shares
or other securities of the Subsidiary which the Company beneficially owns on
the
date hereof to a third party, except as contemplated by the Security Interest
Agreement of the Company, and will not permit the Subsidiary to issue any equity
securities of the Subsidiary (or securities convertible into or exercisable
for
equity securities of the Subsidiary) to any third party. On or before the
Closing Date, the Company will obtain and deliver to the Escrow Agent (to be
released to the Buyer on the Closing Date) the Subsidiary Certificate. The
Company understands that a breach of the of the provisions of this paragraph
by
the Company or of the provisions of the Subsidiary Certificate by the Subsidiary
shall be an Event of Default under the Note and the other Transaction
Agreements. The Company is aware that if such event of default occurs, a Holder
of the Note will have certain redemption rights contemplated thereby and
hereby.
18
5. TRANSFER
AGENT INSTRUCTIONS.
a. The
Company warrants that, with respect to the Securities, other than the stop
transfer instructions to give effect to Section 4(a) hereof, it will give its
transfer agent no instructions inconsistent with instructions to issue Common
Stock to the Holder as contemplated in the Transaction Agreements. Except as
so
provided, the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and
the
other Transaction Agreements. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Securities. If the Buyer provides the Company with
an
opinion of counsel reasonably satisfactory to the Company that registration
of a
resale by the Buyer of any of the Securities in accordance with clause (1)(B)
of
Section 4(a) of this Agreement is not required under the 1933 Act, the Company
shall (except as provided in clause (2) of Section 4(a) of this Agreement)
permit the transfer or reissue of the Shares represented by one or more
certificates for Common Stock without legend (or where applicable, by electronic
registration) in such name and in such denominations as specified by the
Buyer.
b. The
Company will authorize the Transfer Agent to give information relating to the
Company directly to the Holder or the Holder’s representatives upon the request
of the Holder or any such representative, to the extent such information relates
to (i) the status of shares of Common Stock issued or claimed to be issued
to
the Holder in connection with a Notice of Exercise or transfer of Pledged Shares
to the Holder, or (ii) the aggregate number of outstanding shares of Common
Stock of all shareholders (as a group, and not individually) as of a current
or
other specified date. At the request of the Holder, the Company will provide
the
Holder with a copy of the authorization so given to the Transfer
Agent.
6. CLOSING
DATE.
a.
The
Closing Date shall occur on the date which is the first Trading Day after each
of the conditions contemplated by Sections 7 and 8 hereof shall have either
been
satisfied or been waived by the party in whose favor such conditions
run.
b. The
closing of the Transactions shall occur on the Closing Date at the offices
of
the Escrow Agent and shall take place no later than 3:00 P.M., New York time,
on
such day or such other time as is mutually agreed upon by the Company and the
Buyer.
c. Notwithstanding
anything to the contrary contained herein, the Escrow Agent will be authorized
to release the Escrow Funds to the Company and to others and to release the
other Escrow Property on the Closing Date upon satisfaction of the conditions
set forth in Sections 7 and 8 hereof and as provided in the Joint Escrow
Instructions.
19
7. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
The
Buyer
understands that the Company's obligation to sell the Notes and the Issued
Shares to the Buyer pursuant to this Agreement on the Closing Date is
conditioned upon:
a. The
execution and delivery of this Agreement by the Buyer;
b. Delivery
by the Buyer to the Escrow Agent of good funds as payment in full of an amount
equal to the Loan Amount in accordance with this Agreement;
c. The
Company shall have obtained all requisite third party consents and/or waivers
described in the Disclosure Annex;
d. The
accuracy on such Closing Date of the representations and warranties of the
Buyer
contained in this Agreement, each as if made on such date, and the performance
by the Buyer on or before such date of all covenants and agreements of the
Buyer
required to be performed on or before such date; and
e. There
shall not be in effect any law, rule or regulation prohibiting or restricting
the transactions contemplated hereby, or requiring any consent or approval
which
shall not have been obtained.
8. CONDITIONS
TO THE BUYER'S OBLIGATION TO PURCHASE.
The
Company understands that the Buyer's obligation to purchase the Notes and the
Issued Shares on the Closing Date is conditioned upon:
a. The
execution and delivery of this Agreement and the other Transaction Agreements
by
the Company and, where relevant, by the Subsidiary;
b. Delivery
by the Company to the Escrow Agent of the Certificates in accordance with this
Agreement;
c. The
execution and delivery of the Pledgor’s Guarantee and the Pledge Agreement by
each Pledgor;
d. The
Company shall have delivered to the Buyer copies of all requisite third party
consents and/or waivers described in the Disclosure Annex;
e. (i)
Each
of the Company and the Subbsidiary shall have filed in the appropriate filing
office in Nevada a Financing Statements on Form UCC-1 naming such party as
debtor and the Buyers as secured parties and describing the Collateral referred
to in the relevant Security Interest Agreement and (ii) the Company shall have
recorded in the United States Patent and Trademark Office in form acceptable
to
the Buyer a security agreement reflecting the security interest of the Buyers
in
certain Intellectual Property (as defined in the Security Interest Agreement);
and evidence of such filings and/or recordings shall have been provided to
the
Escrow Agent;
20
f. The
accuracy in all material respects on the Closing Date of the representations
and
warranties of the Company contained in this Agreement, each as if made on such
date, and the performance by the Company on or before such date of all covenants
and agreements of the Company required to be performed on or before such date;
g. On
the
Closing Date, the Buyer shall have received an opinion of counsel for the
Company and the Subsidiary, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, substantially to the effect set forth
in
Annex
III
attached
hereto;
h. There
shall not be in effect any law, rule or regulation prohibiting or restricting
the transactions contemplated hereby, or requiring any consent or approval
which
shall not have been obtained; and
i. From
and
after the date hereof to and including the Closing Date, each of the following
conditions will remain in effect: (i) the trading of the Common Stock shall
not
have been suspended by the SEC or on the Principal Trading Market; (ii) trading
in securities generally on the Principal Trading Market shall not have been
suspended or limited; (iii) no minimum prices shall been established for
securities traded on the Principal Trading Market; and (iv) there shall not
have
been any material adverse change in any financial market.
9. INDEMNIFICATION
AND REIMBURSEMENT.
a.
(i)
The
Company agrees to indemnify and hold harmless the Buyer and its officers,
directors, employees, and agents, and each Buyer Control Person from and against
any losses, claims, damages, liabilities or expenses incurred (collectively,
“Damages”), joint or several, and any action in respect thereof to which the
Buyer, its partners, Affiliates, officers, directors, employees, and duly
authorized agents, and any such Buyer Control Person becomes subject to,
resulting from, arising out of or relating to any misrepresentation, breach
of
warranty or nonfulfillment of or failure to perform any covenant or agreement
on
the part of Company contained in this Agreement, as such Damages are incurred,
except to the extent such Damages result primarily from Buyer's failure to
perform any covenant or agreement contained in this Agreement or the Buyer's
or
its officer’s, director’s, employee’s, agent’s or Buyer Control Person’s gross
negligence, recklessness or bad faith in performing its obligations under this
Agreement.
(ii) The
Company hereby agrees that, if the Buyer, other than by reason of its gross
negligence, illegal or willful misconduct (in each case, as determined by a
non-appealable judgment to such effect), (x) becomes involved in any capacity
in
any action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by this Agreement or the other Transaction Agreements,
or if the Buyer is impleaded in any such action, proceeding or investigation
by
any Person, or (y) becomes involved in any capacity in any action, proceeding
or
investigation brought by the SEC, any self-regulatory organization or other
body
having jurisdiction, against or involving the Company or in connection with
or
as a result of the consummation of the transactions contemplated by this
Agreement or the other Transaction Agreements, or (z) is impleaded in any such
action, proceeding or investigation by any Person, then in any such case, the
Company shall indemnify, defend and hold harmless the Buyer from and against
and
in respect of all losses, claims, liabilities, damages or expenses resulting
from, imposed upon or incurred by the Buyer, directly or indirectly, and
reimburse such Buyer for its reasonable legal and other expenses (including
the
cost of any investigation and preparation) incurred in connection therewith,
as
such expenses are incurred. The indemnification and reimbursement obligations
of
the Company under this paragraph shall be in addition to any liability which
the
Company may otherwise have, shall extend upon the same terms and conditions
to
any Affiliates of the Buyer who are actually named in such action, proceeding
or
investigation, and partners, directors, agents, employees and Buyer Control
Persons (if any), as the case may be, of the Buyer and any such Affiliate,
and
shall be binding upon and inure to the benefit of any successors, assigns,
heirs
and personal representatives of the Company, the Buyer, any such Affiliate
and
any such Person. The Company also agrees that neither the Buyer nor any such
Affiliate, partner, director, agent, employee or Buyer Control Person shall
have
any liability to the Company or any Person asserting claims on behalf of or
in
right of the Company in connection with or as a result of the consummation
of
this Agreement or the other Transaction Agreements, except as may be expressly
and specifically provided in or contemplated by this Agreement.
21
b. All
claims for indemnification by any Indemnified Party (as defined below) under
this Section shall be asserted and resolved as follows:
(i)
In the
event any claim or demand in respect of which any Person claiming
indemnification under any provision of this Section (an "Indemnified Party")
might seek indemnity under paragraph (a) of this Section is asserted against
or
sought to be collected from such Indemnified Party by a Person other than a
party hereto or an Affiliate thereof (a "Third Party Claim"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of this Section against any Person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that
the
Indemnifying Party's ability to defend has been prejudiced by such failure
of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified
Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its liability to
the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such
Third
Party Claim. The following provisions shall also apply.
22
(x)
If
the Indemnifying Party notifies the Indemnified Party within the Dispute Period
that the Indemnifying Party desires to defend the Indemnified Party with respect
to the Third Party Claim pursuant to this paragraph (b) of this Section, then
the Indemnifying Party shall have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings,
which
proceedings shall be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party in the
case of any settlement that provides for any relief other than the payment
of
monetary damages or that provides for the payment of monetary damages as to
which the Indemnified Party shall not be indemnified in full pursuant to
paragraph (a) of this Section). The Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this subparagraph (x), file
any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate protect
its
interests; and provided further, that if requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
subparagraph (x), and except as provided in the preceding sentence, the
Indemnified Party shall bear its own costs and expenses with respect to such
participation. Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party Claim at any
time
if it irrevocably waives its right to indemnity under paragraph (a) of this
Section with respect to such Third Party Claim.
(y)
If
the Indemnifying Party fails to notify the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Third Party Claim
pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle the
Third
Party Claim, or if the Indemnifying Party fails to give any notice whatsoever
within the Dispute Period, then the Indemnified Party shall have the right
to
defend, at the sole cost and expense of the Indemnifying Party, the Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
by
the Indemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation
to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions
of
this subparagraph (y), if the Indemnifying Party has notified the Indemnified
Party within the Dispute Period that the Indemnifying Party disputes its
liability or the amount of its liability hereunder to the Indemnified Party
with
respect to such Third Party Claim and if such dispute is resolved in favor
of
the Indemnifying Party in the manner provided in subparagraph(z) below, the
Indemnifying Party will not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this subparagraph (y) or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for
all
reasonable costs and expenses incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party pursuant
to this subparagraph (y), and the Indemnifying Party shall bear its own costs
and expenses with respect to such participation.
23
(z)
If
the Indemnifying Party notifies the Indemnified Party that it does not dispute
its liability or the amount of its liability to the Indemnified Party with
respect to the Third Party Claim under paragraph (a) of this Section or fails
to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the amount of Damages specified
in
the Claim Notice shall be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall
pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(ii) In
the
event any Indemnified Party should have a claim under paragraph (a) of this
Section against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim
for
indemnity under paragraph (a) of this Section specifying the nature of and
basis
for such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such claim
(an
"Indemnity Notice") with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute
the
claim or the amount of the claim described in such Indemnity Notice or fails
to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under paragraph (a)
of
this Section and the Indemnifying Party shall pay the amount of such Damages
to
the Indemnified Party on demand. If the Indemnifying Party has timely disputed
its liability or the amount of its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute; provided, however, that it the dispute
is not resolved within thirty (30) days after the Claim Notice, the Indemnifying
Party shall be entitled to institute such legal action as it deems
appropriate.
24
c. The
indemnity agreements contained herein shall be in addition to (i) any cause
of
action or similar rights of the indemnified party against the indemnifying
party
or others, and (ii) any liabilities the indemnifying party may be subject
to.
10. JURY
TRIAL WAIVER. The
Company and the Buyer hereby waive a trial by jury in any action, proceeding
or
counterclaim brought by either of the Parties hereto against the other in
respect of any matter arising out or in connection with the Transaction
Agreements.
11. GOVERNING
LAW: MISCELLANEOUS.
a. (i)
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of New York for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Each of the parties consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the County of New York or the state courts
of the State of New York sitting in the County of New York in connection with
any dispute arising under this Agreement or any of the other Transaction
Agreements and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on
forum non conveniens,
to the
bringing of any such proceeding in such jurisdictions or to any claim that
such
venue of the suit, action or proceeding is improper. To the extent determined
by
such court, the Company shall reimburse the Buyer for any reasonable legal
fees
and disbursements incurred by the Buyer in enforcement of or protection of
any
of its rights under any of the Transaction Agreements. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(ii)
The
Company and the Buyer acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement or the other
Transaction Agreements were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches
of
the provisions of this Agreement and the other Transaction Agreements and to
enforce specifically the terms and provisions hereof and thereof, this being
in
addition to any other remedy to which any of them may be entitled by law or
equity.
25
b. Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as
a
waiver thereof.
c. This
Agreement shall inure to the benefit of and be binding upon the successors
and
assigns of each of the parties hereto.
d. All
pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
e. A
facsimile transmission of this signed Agreement shall be legal and binding
on
all parties hereto.
f. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original.
g. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
h. If
any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
i. This
Agreement may be amended only by an instrument in writing signed by the party
to
be charged with enforcement thereof.
j. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
12. NOTICES.
Any
notice required or permitted hereunder shall be given in writing (unless
otherwise specified herein) and shall be deemed effectively given on the
earliest of
(a)
the
date delivered, if delivered by personal delivery as against written receipt
therefor or by confirmed facsimile transmission,
(b)
the
fifth Trading Day after deposit, postage prepaid, in the United States Postal
Service by registered or certified mail, or
26
(c)
the
third Trading Day after mailing by domestic or international express courier,
with delivery costs and fees prepaid,
in
each
case, addressed to each of the other parties thereunto entitled at the following
addresses (or at such other addresses as such party may designate by ten (10)
days’ advance written notice similarly given to each of the other parties
hereto):
COMPANY:
At
the
address set forth at the head of this Agreement.
Attn:
President
Telephone
No.:
Telecopier
No.:
with
a
copy to:
Xxxx
X.
Xxxxxxxx. Esq.
Xxxxxxxxx
Traurig, LLP
0000
Xxxxxxxx Xxxxxx, Xxxxx 000X
Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Telephone
No.: (000) 000-0000
Telecopier
No.: (000) 000-0000
BUYER:
At
the
address set forth on the signature page of this Agreement.
with
a
copy to:
Xxxxxxx
& Xxxxxx llp,
Esqs.
00
Xxxxxxxx
Xxxxx
000
Xxx
Xxxx,
XX 00000
Attn:
Xxxxxx X. Xxxxxxx, Esq.
Telephone
No.: (000) 000-0000
Telecopier
No. (000) 000-0000
ESCROW
AGENT:
Xxxxxxx
& Xxxxxx llp,
Esqs.
00
Xxxxxxxx
Xxxxx
0000
Xxx
Xxxx,
XX 00000
Attn:
Xxxxxx Xxxxxxx, Esq.
Telephone
No.: (000) 000-0000
Telecopier
No. (000) 000-0000
13. SURVIVAL
OF REPRESENTATIONS AND WARRANTIES.
The
Company’s and the Buyer’s representations and warranties herein shall survive
the execution and delivery of this Agreement and the delivery of the
Certificates and the payment of the Loan Amount, and shall inure to the benefit
of the Buyer and the Company and their respective successors and
assigns.
27
[Balance
of page intentionally left blank]
28
IN
WITNESS WHEREOF,
with
respect to the Loan Amount specified below, this Agreement has been duly
executed by the Buyer and the Company as of the date set first above
written.
| LOAN AMOUNT: |
$
|
| Buyer: | |
| Printed Name of Buyer | |
| Telephone No. _________________ | By: _________________________________ |
| Telecopier No. _________________ | (Signature of Authorized Person) |
| _____________________________________ | |
|
Printed
Name and Title
|
|
| _____________________________________ | |
|
Jurisdiction
of Incorporation or
Organization
|
|
| COMPANY | |
| NEAH POWER SYSTEMS, INC. | |
|
By:
_________________________________
(Signature
of Authorized Person)
|
|
|
_____________________________________
Printed
Name and Title
|
29
| ANNEX I | FORM OF NOTE | |
| ANNEX II | JOINT ESCROW INSTRUCTIONS | |
| ANNEX III | OPINION OF COUNSEL OF COMPANY | |
| ANNEX IV | COMPANY’S SEC DOCUMENTS AVAILABLE ON XXXXX | |
| ANNEX V | COMPANY DISCLOSURE MATERIALS | |
| ANNEX VI | GUARANTEES OF EACH PLEDGOR | |
| ANNEX VII | PLEDGE AGREEMENT | |
| ANNEX VIII | A. | SECURITY INTEREST AGREEMENT OF THE SUBSIDIARY |
| B. | GUARANTY OF SUBSIDIARY | |
|
C.
|
COMPANY SECURITY INTEREST AND PLEDGE AGREEMENT | |
| ANNEX IX | USE OF PROCEEDS | |
30
