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
22122 20 th Avenue, SE, Suite 161, Bothell, Washington
98021 (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.
(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.
“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 Krieger &
Prager 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.
“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.
“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:
For credit to the account of
Re: NEAH POWER SYSTEMS, INC. Dec 06
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 EDGAR listed on Annex
IV hereto (the documents listed on such Annex IV, to the
extent available on EDGAR or otherwise provided to the Buyer as
indicated on said Annex IV, collectively, the “Company's SEC
Documents”).
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.
(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.
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.
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:
(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.
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 Person
