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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.
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.
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"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.
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"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.
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"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
350 Fifth Avenue
New York, New York 10001
ABA#
For credit to the account of
Account No.:
Re: NEAH POWER SYSTEMS, INC. Dec
06
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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").
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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.
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(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.
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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.
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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:
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(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 respectiv
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