Exhibit 10.2
SUBSCRIPTION
AGREEMENT
Environmental Power
Corporation
One Cate Street
4 th Floor
Portsmouth, NH 03801
Ladies and Gentlemen:
The undersigned (individually, an
“ Investor ” and, collectively with all others
executing Subscription Agreements of like tenor which are accepted
by the Company, the “ Investors ”) is writing to
advise you of the following terms and conditions under which the
Investor hereby offers to subscribe (the “ Offer
”) for the securities of this private placement (the “
Offering ”) offered by Environmental Power
Corporation, a Delaware corporation (the “ Company
”). The exclusive placement agents for the Offering are
Westminster Securities Corporation and Canaccord Adams, Inc. (each,
a “ Placement Agent ” and collectively, the
“ Placement Agents ”). The Company is issuing
investment units (“ Units ”) each consisting of
(i) one (1) share of Series A 9% Cumulative Convertible
Preferred Stock, par value $.01 per share (the “
Preferred ”), and (ii) five (5) detachable
warrants (the “ Warrants ”) to purchase one
share each of the Company’s common stock, par value $0.01 per
share (the “ Common Stock ”) on the following
terms:
(a) The purchase price for each Unit
shall be the sum of (i) ten times the Preferred Conversion
Price for each share of Preferred and (ii) $0.625
(representing a cost basis of $0.125 per Warrant). The “
Preferred Conversion Price ” will be 105% of the last
closing trade price of the Common Stock (“ Closing
Price ”) preceding the execution of definitive
Subscription Agreements between the Company and the Investors (the
“ Offering Market Price ”).
(b) Each share of Preferred will be
initially convertible into ten (10) shares (“
Shares ”) of Common Stock at the Preferred Conversion
Price. Each Warrant will represent the right to purchase one share
each of Common Stock at an exercise price equal to 110% of the
Offering Market Price per share (the “ Warrant Shares
”), expiring five years from their date of
issuance.
The Preferred and the Warrants shall
be collectively referred to as the “ Securities
”. The Shares and the Warrant Shares shall be collectively
referred to as the “ Underlying Shares
”.
The Company may issue up to
$15,000,000 of Units (the “ Maximum Offering ”)
in this Offering. The Investor understands that the Securities are
being issued pursuant to the exemption from registration
requirements of the Securities Act of 1933, as amended (the “
Securities Act ”), in a private placement pursuant to
an exemption from registration under Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder
(“ Regulation D ”). As such, the Securities and
the Underlying Shares are “restricted
securities”.
The Units are being offered on a
“best efforts” basis by the Company to Investors
introduced by the Placement Agents, during an offering period
commencing on October 20, 2006 (the “ Commencement
Date ”) and continuing until October 31, 2006 (the
“ Offering Period ”). The Offering will continue
until the earlier of (i) the close of business (5:00 p.m. EDT)
on October 31, 2006, (ii) termination by mutual agreement
of the Company and the Placement Agents, or (iii) completion
of the sale of the Maximum Offering (the “ Offering
Termination Date ”). Any subscription documents received
after the Offering Termination Date will be returned.
1. Subscription &
Closing .
Subject to the terms and conditions
hereinafter set forth in this Subscription Agreement, the Investor
hereby offers to purchase Securities as set forth in the Investor
Signature Page attached hereto.
Acceptance of this Offer shall be
deemed given by the countersigning of this Subscription Agreement,
in whole or in part, on behalf of the Company.
The closing of the Offering (the
“ Closing ”) will be held on such date (the
“Closing Date”) which is the later of three
(3) business days of the completion by the Company’s
subsidiary, Microgy Holdings LLC, of a tax-exempt bond financing
for a minimum of $40,000,000 in Texas substantially similar to that
described in the Preliminary Limited Offering Memorandum dated
September 27, 2006 and resulting in gross proceeds of at least
$40,000,000 (the “ Bond Financing ”) and the
satisfaction of each of the following conditions :
(a) Microgy, Inc. shall have
acknowledged the provisions of Section 6(m) herein by
executing the Investor Signature Page attached hereto.
(b) The Company shall have delivered
to Investors a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, in the form attached hereto as
Exhibit C;
(c) The Company shall have delivered
to Investors an opinion of counsel to the Company in the form
attached hereto as Exhibit D;
(d) The Company shall have delivered
to Investors a copy of the resolutions adapted by its Board of
Directors authorizing the Offering, the issuance of the Preferred
and Warrants, and the issuance or reservation of the Preferred,
Shares, Warrants and Warrant Shares.
(e) Trading in the Company’s
Common Stock shall not have been suspended from the American Stock
Exchange;
(f) The American Stock Exchange
shall have approved the Shares and Warrant Shares for
listing;
(g) No Material Adverse Effect (as
hereinafter defined) shall have occurred since the date this Offer
was accepted;
(h) All of the representations and
warranties of the Company and each Investor hereunder shall be true
and correct in all material respects as of the Closing Date, except
for representations and warranties that are expressly made as of a
particular date, which shall be true and correct as of such
date;
(i) The Company shall have filed
with the Delaware Secretary of State the Certificate of
Designations, Preferences and Rights of the Series A Preferred
Stock in the form attached hereto as Exhibit E;
(j) The Company shall have issued or
authorized the issuance of the certificates representing the
Preferred and the Warrants, in the form attached hereto as Exhibit
F, to each Investor based upon their respective purchase amounts
hereunder, which Preferred certificates and Warrants shall be
delivered to the Investors within two (2) business days of the
Closing Date; and
(k) The Company shall have received
immediately available funds representing the purchase price for the
Units from each Investor hereunder.
2. Conditions to Offer . The
Offering is made subject to the following conditions:
(a) that the Company shall have the
right to accept or reject this Offer, in whole or in part, for any
reason whatsoever;
(b) that the Investor agrees to
comply with the terms of this Subscription Agreement;
and
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(c) that this Offer shall be deemed
null and void and no rights pursuant to this Subscription Agreement
shall be granted to the Investors or the Company if the Bond
Financing has not closed prior to December 29, 2006 (“
Termination Date ”), provided, however, that
the Termination Date may be extended by the Investor by written
notice to the Company to no later than February 28, 2007 to
allow the Bond Financing to be completed.
3. Representations and Warranties
of the Investor .
The Investor, in order to induce the
Company to accept this Offer, hereby warrants and represents as
follows:
(a) Organization; Authority .
The Investor, if not an individual, is an entity duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and
authority to enter into and to consummate the transactions
contemplated by this Subscription Agreement and otherwise to carry
out its obligations hereunder. The purchase by Investor of the
Securities hereunder has been duly authorized by all necessary
action on the part of Investor. This Subscription Agreement has
been duly executed by Investor, and when delivered by Investor in
accordance with the terms hereof, will constitute the valid and
legally binding obligation of Investor, enforceable against it in
accordance with its terms, except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies
and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law. Investor agrees that
the Investor’s subscription shall be irrevocable by Investor,
and that, except as required by applicable law, Investor shall not
be otherwise entitled to cancel, terminate or revoke this
Subscription Agreement or any of Investor’s obligations
hereunder.
(b) Restricted Securities .
Investor understands that the Securities and the Underlying Shares
each are “restricted securities” and have not been
registered under the Securities Act or any applicable state
securities law. The Investor hereby agrees that the Company may
insert the following or similar legend on the face of the
certificates or other instruments evidencing the Securities and
Underlying Shares, if required in compliance with federal and state
securities laws:
“These securities have not
been registered under the Securities Act of 1933, as amended (the
“Securities Act”) or under the securities laws of any
state. They may not be sold, offered for sale, or hypothecated in
the absence of an effective registration statement with respect to
the securities under the Securities Act or an opinion of counsel
reasonably satisfactory to the company that such registration is
not required pursuant to a valid exemption therefrom under the
Securities Act.”
Unless the Underlying Shares are
subject to an effective registration statement or eligible to be
resold pursuant to an exemption from registration, the Investor
further represents and agrees that the Investor will not sell,
transfer, pledge (unless pursuant to Section 6(a) below) or
otherwise dispose of or encumber the Securities (or the Underlying
Shares) unless prior to any such sale, transfer, pledge,
disposition or encumbrance, the undersigned will, if requested,
furnish to the Company’s transfer agent (or to the Company or
any other agent of the Company acting as transfer agent with
respect to the Preferred or Warrants) an opinion of counsel in form
and substance that registration under the Securities Act or
applicable state securities laws is not required, which opinion
shall be obtained from (i) the Company’s counsel or
(ii) Investor’s counsel, provided such opinion is
reasonably satisfactory to the Company and/or the Company’s
counsel.
(c) No Distribution .
Investor is acquiring the Securities as principal for its own
account, in the ordinary course of its business, and not with a
view to or for distributing or reselling such Securities or any
part thereof. Investor has no present intention of distributing any
of such Securities or Underlying Shares and has no agreement or
understanding, directly or indirectly, with any other individual,
corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company, government (or an agency or subdivision thereof) or other
entity of any kind (each, a “ Person ”)
regarding the distribution of such Securities or Underlying Shares
(this representation and warranty shall not limit such
Investor’s right to sell the Preferred, Shares, Warrants or
Warrant Shares pursuant to a Registration Statement or otherwise in
compliance with applicable federal and state securities
laws).
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(d) Accredited Investor
Status . The Investor hereby represents and warrants to the
Company that the Investor is an “accredited investor”
within the meaning of Rule 501 of Regulation D, insofar as the
Investor is one or more of the following:
(i) A tax exempt organization as
defined in Section 501(c)(3) of the Internal Revenue Code, or
a corporation, a Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
Securities, with total assets in excess of $5,000,000;
(ii) A natural person whose
individual net worth (or joint net worth with that person’s
spouse) exceeds $1,000,000;
(iii) A natural person who had an
individual income in excess of $200,000 (or joint income with such
person’s spouse in excess of $300,000) in each of the two
most recent years and who reasonably expects an income in excess of
$200,000 (or joint income in excess of $300,000) in the current
year;
(iv) A trust with total assets in
excess of $5,000,000, not formed for the specific purpose of
acquiring the Securities, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) under the
Securities Act; or
(v) An entity all the equity owners
of which may respond affirmatively to any of the preceding
clauses.
The Investor is not required to be
registered as a broker-dealer under Section 15 of the Exchange
Act and the Investor is not a broker-dealer. In connection with a
subscription hereunder, Investor will complete, execute and return
the Statement of Accredited Investor attached hereto as Exhibit
A certifying such status.
(e) Experience of Investor .
Investor, either alone or together with its representatives, has
such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. The Investor has
not authorized any Person to act as his Purchaser Representative
(as that term is defined in Regulation D of the General Rules and
Regulations under the Securities Act) in connection with this
transaction. Investor is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(f) General Solicitation .
Investor is not purchasing the Securities as a result of any
advertisement, article, notice or other communication regarding the
Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
any other general solicitation or general advertisement
(g) Access to Information.
The Investor has reviewed the SEC Reports (as defined in Sectio n
4(h) below) and the Company has not made any other representations
or warranties to the Investor with respect to the Company except as
contained herein or in the SEC Reports. The Investor has been
afforded the opportunity to ask questions of, and receive answers
from, the officers and/or directors of the Company concerning the
terms and conditions of the Offering and to obtain any additional
information, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or
expense, necessary to verify the accuracy of the information
furnished; and has availed himself of such opportunity to the
extent he considers appropriate in order to permit him to evaluate
the merits and risks of an investment in the Securities. It is
understood that all documents, records and books pertaining to this
investment have been made available for inspection by the Investor
during reasonable business hours at its principal place of
business. Notwithstanding the foregoing, it is understood that the
Investor is purchasing the Securities without being furnished any
prospectus setting forth all of the information that would be
required to be furnished under the Securities Act and this Offering
has not been passed upon or the merits thereof endorsed or approved
by any state or federal authorities.
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(h) Subscriptions by Placement
Agents . The Investor hereby acknowledges that the Placement
Agents, their affiliates and/or their beneficial owners may
subscribe for Securities.
The Investor certifies that each of
the foregoing representations and warranties set forth in
subsection (a) through (h) inclusive of this
Section 3 are true as of the date hereof and shall survive
such date and the Closing.
4. Representations and Warranties
of the Company.
The Company hereby makes the
following representations and warranties to the Investor.
Exceptions to the below, if any, shall be set forth in a disclosure
schedule, attached hereto, each such disclosure schedule numbered
in accordance with the section and paragraph number below to which
it relates.
(a) Subsidiaries . The
Company wholly owns, directly or indirectly, the following
subsidiaries which are currently active and/or operating: Buzzard
Power Corporation, Microgy, Inc., Microgy Holdings, LLC, MST
Production Ltd., MST Estates, LLC, MST GP LLC, Rio Leche Estates,
L.L.C. and EPC Corporation (each subsidiary of the Company
individually a “ Subsidiary ” and collectively,
“ Subsidiaries ”). All capital stock owned by
the Company directly or through one or more Subsidiaries in each
such Subsidiary is validly issued and is fully paid, non-assessable
and free of preemptive and similar rights.
(b) Organization and
Qualification . Each of the Company and its Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.
Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be
expected to result in (i) a material adverse effect on the
legality, validity or enforceability of this Subscription
Agreement, (ii) a material adverse effect on the results of
operations, assets, business, or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under this
Subscription Agreement (any of (i), (ii) or (iii), a “
Material Adverse Effect ”) and no action, claim, suit,
investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether
commenced or threatened (“ Proceeding ”) has
been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization;
Enforcement . The Company has the requisite corporate power and
authority to enter into and to consummate the Offering. The
execution and delivery of this Subscription Agreement by the
Company and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary action on the
part of the Company and no further consent or action is required by
the Company, other than the Required Approvals (as defined below).
This Subscription Agreement, when executed and delivered in
accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company
in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of
creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as the
indemnification obligations of the Company set forth herein may be
limited by applicable law or public policy.
(d) No Conflicts . The
execution, delivery and performance of this Subscription Agreement
by the Company and the consummation by the Company of the Offering
do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) subject to
obtaining the Required Approvals (as defined
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below), conflict with, 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) of any agreement, credit
facility, debt or other instrument (evidencing a Company or
Subsidiaries’ debt or otherwise) or other understanding to
which the Company or either of the Subsidiaries is a party or by
which any property or asset of the Company or its Subsidiaries is
bound or affected and which is filed as an exhibit to the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2005, or any other periodic or current report
filed by the Company with the Securities and Exchange Commission
(the “ Commission ”) since December 31,
2005 (the “ Material Contracts ”), or
(iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any
court or governmental authority as currently in effect to which the
Company or either of the Subsidiaries is subject (including federal
and state securities laws and regulations), or by which any
property or asset of the Company or any of the Subsidiaries is
bound or affected; except in the case of each of clauses
(ii) and (iii) (except with respect to federal and state
securities laws), such as could not, individually or in the
aggregate (a) adversely affect the legality, validity or
enforceability of the Offering or (b) have or result in or be
reasonably likely to have or result in a Material Adverse
Effect.
(e) Filings, Consents and
Approvals . Neither the Company nor any of the Subsidiaries is
required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any
court or other federal, state, local or other governmental
authority or other Person in connection with the execution,
delivery and performance by the Company of this Subscription
Agreement, other than: (i) the filing with the Commission of
the Registration Statement required by Section 5(a),
(ii) the filing with the Commission of a Notice on Form D
pursuant to Regulation D, (iii) applicable Blue Sky filings,
(iv) the filing of the Certificate of Designations of the
Preferred with the Delaware Secretary of State, and (v) the
application(s) to the American Stock Exchange for the listing of
the Underlying Shares for trading thereon in the time and manner
required thereby (collectively, the “ Required
Approvals ”).
(f) Issuance of the
Securities . The Securities are duly authorized and, when
issued and paid for in accordance with this Subscription Agreement,
will be duly and validly issued, fully paid and nonassessable, free
and clear of all liens, and not subject to any preemptive rights.
The Company has reserved from its duly authorized capital stock a
number of shares of Common Stock required for issuance of the
Shares and the Warrant Shares, and when issued (and paid for, in
the case of the Warrant Shares, assuming they are not subject to a
cashless exercise provision), will be duly and validly issued,
fully paid and nonassessable, free and clear of all liens and not
subject to any preemptive rights.
(g) Capitalization . The
number of shares and type of all authorized, issued and outstanding
capital stock of the Company is as set forth in the SEC Reports as
of their respective dates. No Person has any right of first
refusal, preemptive right, right of participation, or any similar
right to participate in the Offering. Except as disclosed in the
SEC Reports, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person or
entity any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The
issuance and sale of the Securities will not obligate the Company
to issue shares of Common Stock or other securities to any Person
(other than pursuant to this Offering, including the
Company’s obligation to issue to the Placement Agents
warrants representing the right to purchase an aggregate of 4% of
the number of Shares and Warrant Shares issuable pursuant to this
Offering) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset
price under such securities, except for a weighted average
anti-dilution adjustment to be applied to the exercise price of
warrants issued by the Company in connection with its 2004 private
placement of securities. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the
Securities and the Underlying Shares. Except as described in the
SEC Reports, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the
Company’s stockholders. A complete list of stockholders of
the Company that are officers, directors and individuals holding
more than 5% of the outstanding Common Stock is included in the SEC
Reports.
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(h) SEC Reports; Financial
Statements . The Company has filed all reports required to be
filed by it under the Securities Act and the Securities Exchange
Act of 1934, as amended (“ Exchange Act ”),
including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the “
SEC Reports ”) in accordance with the time
requirements of the Securities Act and the Exchange Act. As of
their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company has advised
Investor that a correct and complete copy of each of the SEC
Reports (together with all exhibits and schedules thereto and as
amended to date) is available at http://www.sec.gov , a
website maintained by the Commission where Investor may view the
SEC Reports. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in all material
respects in accordance with United States generally accepted
accounting principles applied on a consistent basis during the
periods involved (“ GAAP ”), except as may be
otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows
for the periods then ended.
(i) Material Changes . Except
as disclosed in the SEC Reports, since the date of the latest
audited financial statements included in the SEC Reports:
(i) there has been no event, occurrence or development that
has had a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the
Company’s financial statements pursuant to GAAP or required
to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of
its auditors, except as disclosed in the SEC Reports (iv) the
Company has not declared or made any dividend or distribution of
cash or other property to its stockholders except in the ordinary
course of business consistent with prior practice, or purchased,
redeemed or made any agreements to purchase or redeem any shares of
its capital stock except consistent with prior practice or pursuant
to existing Company stock option or similar plans, and (v) the
Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock
option or similar plans or as disclosed in the SEC
Reports.
(j) Litigation . There is no
action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, the Subsidiaries or
any of its properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an
“ Action ”) which: (i) adversely affects or
challenges the legality, validity or enforceability of this
Subscription Agreement or the Securities or (ii) could, if
there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal
or state securities laws or a claim of a breach of fiduciary duty.
The Company does not have pending before the Commission any request
for confidential treatment of information. There has not been, and
to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the
Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement
filed by the Company or any Subsidiaries under the Exchange Act or
the Securities Act.
(k) Labor Relations . No
material labor dispute exists or, to the knowledge of the Company,
is imminent with respect to any of the employees of the Company or
any Subsidiary that could reasonably be expected to result in a
Material Adverse Effect.
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(l) Compliance . Neither the
Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the
Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any Material Contract
(whether or not such default or violation has been waived),
(ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local
laws applicable to its business, except in each case as could not
have a Material Adverse Effect.
(m) Permits . Except for
construction, environmental and other permits required to be
obtained in the ordinary course of its business, the Company and
the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct its business as
currently conducted, except where the failure to possess such
permits would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect
(“ Material Permits ”), and the Company has not
received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(n) Title to Assets . The
Company and the Subsidiaries have good and marketable title in all
real and personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and
clear of any liens, encumbrances or other restrictions. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in
compliance except as set forth herein or in the SEC
Reports.
(o) Patents and Trademarks .
The Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their
respective businesses as currently conducted and which the failure
to so have could have a Material Adverse Effect (collectively, the
“ Intellectual Property Rights ”). Neither the
Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.
(p) Insurance . The Company
and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged. To the best of
Company’s knowledge, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in
cost.
(q) Transactions with Affiliates
and Employees . None of the officers or directors of the
Company and, to the knowledge of the Company, none of the employees
of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) for
reimbursement for expenses incurred on behalf of the Company,
(iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company or
(iv) as otherwise disclosed in the SEC Reports.
(r) Internal Accounting
Controls . Each of the Company and the Subsidiaries is in
material compliance with all provisions of the Sarbanes Oxley Act
of 2002 which are presently applicable to it and intends to comply
with other applicable provisions of the Sarbanes-Oxley Act that may
become effective and applicable, and the rules and regulations
promulgated thereunder, upon the effectiveness and applicability
of
8
such provisions with respect to the
Company. Each of the Company and the Subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the Company and designed such disclosure controls and procedures to
ensure that material information relating to the Company, including
its Subsidiaries, is made known to the certifying officers by
others within those entities. The Company’s certifying
officers have evaluated the effectiveness of the Company’s
controls and procedures as of June 30, 2006 (such date, the
“ Evaluation Date ”). The Company presented in
its Quarterly Report on Form 10-Q for the quarter ended
June 30, 2006 the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company’s
internal controls (within the meaning of Item 308 of
Regulation S-K under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting, except
as disclosed in the SEC Reports.
(s) Private Placement .
Assuming the accuracy of the Investor representations and
warranties set forth in Section 3, no registration under the
Securities Act is required for the offer and sale of the Securities
by the Company to the Investors as contemplated hereby.
(t) Application of Takeover
Protections . Except with respect to any limitations which
could apply to the Investor pursuant to Section 203 under the
Delaware General Corporation Law, the Company and its Board of
Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the
Company’s Certificate of Incorporation (or similar charter
documents) or the laws of its state of incorporation that is or
could become applicable to the Investors as a result of the
Investors and the Company fulfilling their obligations or
exercising their rights under this Subscription Agreement,
including without limitation as a result of the Company’s
issuance of the Securities and the Investor’s ownership of
the Securities and Underlying Shares.
(u) Disclosure . To the
knowledge of the Company, all written statements provided to the
Investor regarding the Company, its business and the transactions
contemplated hereby, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true
and correct with respect to such representations and warranties and
do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that the
Investor makes or has made no representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in this Subscription Agreement (including
its Exhibits).
(v) No Integrated Offering .
Neither the Company, nor any of its affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any
security, under circumstances that would cause this Offering to be
integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions in
a manner that would require the registration under the Securities
Act of the Offering or, if then listed or quoted on a trading
market, that would be integrated with the Offering for purposes of
the rules and regulations of any trading market. The Company does
not have any registration statement pending before the Commission
or currently under the Commission’s review. Except pursuant
to equity incentive plans filed as exhibits to the SEC Reports,
since April 1, 2006, the Company has not offered or sold any
of its equity securities or debt securities convertible into shares
of Common Stock.
(w) Tax Status . Except for
matters that would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened
against the Company or any Subsidiary.
9
(x) No General Solicitation .
Neither the Company nor any Person acting on behalf of the Company
has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the
Securities for sale only to each Investor in the Offering and
certain other “accredited investors” within the meaning
of Rule 501 under the Securities Act.
(y) Foreign Corrupt
Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other Person acting on behalf of the Company,
has (i) directly or indirectly, used any corrupt funds for
unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic
political parties or campaigns from corporate fu
