CONVERTIBLE NOTE PURCHASE AGREEMENT
This Convertible
Note Purchase
Agreement,
dated as of April 5,
2007
(the "Effective
Date") is entered into
by and among CISTERA
NETWORKS INC., a
Nevada corporation
(the "Company") and each of the Purchasers of Notes and
Warrants whose
names are set forth on Exhibit A hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Agreement" means this agreement, as it may be amended or modified
and
in effect from time to time.
"Article" means an article of this Agreement unless another
document is
specifically referenced.
"Business Day" means a
day (other than a
Saturday or Sunday) on which
banks generally are open in Dallas for the conduct of substantially
all of their
commercial lending activities.
"Capitalized Lease" of
a Person means any
lease of Property
by such
Person as lessee,
which would be
capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
"Capitalized Lease
Obligations"
of a Person
means the amount of
the
obligations of such
Person under
Capitalized Leases
which would be shown as a
liability on a balance sheet of such Person prepared in accordance
with GAAP.
"Cash Equivalent
Investments" means (i) short-term obligations of, or
fully guaranteed by,
the United States of America, (ii) commercial paper rated
A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, and (iv) certificates of
deposit
issued by and time deposits with commercial banks (whether
domestic or
foreign)
having capital and surplus in excess of $100,000,000; PROVIDED in
each case that
the same provides for payment of both principal and interest (and not
principal
alone or interest
alone) and is not subject to any contingency regarding the
payment of principal or interest.
"Change in Control" means (i) the acquisition (other than as a result
of the exercise of the Warrants or the conversion of the Notes as set forth in
Article V) of beneficial ownership (within the meaning of Rule
13d-3 promulgated
under the Securities
Exchange Act of 1934)
of twenty percent
(20%) or more of
the outstanding shares
of voting stock of the Company by any Person, or two or
more Persons
acting in concert;
provided that such Person or Persons did
not
then have beneficial ownership of twenty percent (20%) or more of the
outstanding shares of
voting stock of the Company on the Effective Date; (ii)
the sale of all or
substantially all of
the assets of the Company; or (iii) a
merger or
consolidation of the
Company with any other Person, after which the
Company is not the surviving entity.
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"Closing" is defined in Section 2.2.
"Closing Date" is defined in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended,
reformed or
otherwise modified from time to time.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means
the Company's common
stock, par value $.001
per
share, or shares
resulting from any
subdivision or
combination of such common
stock or, in the case of any reorganization, reclassification,
merger,
consolidation or sale of the type referred to in Section 4.2, the
stock or other
securities or property provided for in such Section.
"Company" means CISTERA NETWORKS INC., a Nevada
corporation,
and its
successors and assigns.
"Company SEC
Documents"
means
all forms, reports, statements,
schedules, registration statements and other documents required to
be filed with
the Commission.
"Company Stock Plans" means the Company's 2004 Long Term Incentive
Plan
and any other of the Company's stock option plans that existed
prior to December
31, 2004.
"Contingent Obligation" of a Person means any agreement,
undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or
otherwise becomes
or
is contingently liable upon, the obligation or liability of any
other Person, or
agrees to maintain the net worth or working capital or other
financial condition
of any other Person,
or otherwise assures any creditor of such other Person
against loss,
including, without
limitation,
any comfort
letter, operating
agreement, take-or-pay contract or the obligations of any such
Person as general
partner of a partnership with respect to the liabilities of the
partnership.
"Controlled
Group" means
all members of a controlled group of
corporations or other business entities and all trades or
businesses (whether or
not incorporated)
under common control which, together with the Company or
any
of its Subsidiaries,
are treated as a
single employer under Section 414 of the
Code.
"Conversion Price Per Share" means $0.75 per share.
"Default" means an event described in Article XI.
"Environmental Claim"
means any written or oral notice, claim, demand,
action, suit,
complaint,
proceeding
or other communication by any person
alleging liability or potential liability arising out of, relating
to, based on
or resulting from (i) the presence, discharge, emission, release or
threatened
release of any Hazardous Materials at any location, whether or not
such property
is owned, leased or
operated or (ii) circumstances forming the basis of any
violation or alleged violation of any Environmental Law or
Environmental
Permit
or (iii) otherwise relating to obligations or liabilities under any
Environmental Laws; provided, however, that the term "Environmental
Claim" shall
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<PAGE>
not include any such claim, demand, action, suit, complaint,
proceeding or other
communication under an insurance or reinsurance policy issued by
the Company.
"Environmental Laws"
means any and all federal, state, local and
foreign statutes,
laws, judicial
decisions,
regulations,
ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental
restrictions relating to
(i) the protection of
the environment,
(ii) the effect of the
environment on
human health,
(iii)
emissions,
discharges
or releases of pollutants,
contaminants, hazardous substances or wastes into surface water,
ground water or
land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants,
contaminants,
hazardous
substances or wastes or the clean-up or other remediation
thereof.
"Environmental
Permits"
"Environmental
Permits" means all
permits,
licenses,
registrations and other governmental authorizations required for an
entity and its facilities to conduct its business under
Environmental Laws.
"Environmental Report" means any report, study, assessment, audit, or
other similar
document that addresses any issue of noncompliance with, or
liability under, any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as
amended from time to time, and any rule or regulation issued
thereunder.
"Excluded Taxes" means, in the case of Purchasers, taxes imposed on
its
overall net income,
and franchise taxes imposed on it, by (i) the jurisdiction
under the laws of which Purchaser is incorporated or organized or resides or
(ii) the jurisdiction
in which Purchaser's principal executive office is
located.
"Exhibit" refers
to an exhibit to this Agreement, unless another
document is specifically referenced.
"GAAP" means generally accepted accounting principles as in effect
from
time to time, applied in a manner consistent.
"Hazardous Materials"
means any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, pollutants, contaminants,
radioactivity,
and any other
substances of any
kind, whether
or not any such
substance is
defined as hazardous
or toxic under any
Environmental Law,
that is regulated
pursuant to or could give rise to liability under any Environmental
Law.
"Purchaser" means the
Person(s) listed on
the signature page of
this
Agreement as a "Purchaser" and its respective successors and
assigns.
"Indebtedness" of a
Person means such
Person's (i)
obligations
for
borrowed money, (ii)
obligations
representing the
deferred purchase
price of
Property or services (other than accounts payable arising in the
ordinary course
of such Person's
business payable on terms customary in the trade), (iii)
obligations, whether
or not assumed,
secured by Liens or payable out of the
proceeds or production
from Property now or hereafter owned or acquired by such
Person, (iv)
obligations which are
evidenced by notes,
acceptances, or
other
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<PAGE>
instruments, (v)
obligations
of such Person to
purchase securities
or other
Property arising
out of or in connection with the sale of the same or
substantially similar securities or Property, (vi) Capitalized
Lease Obligations
and (vii) any other obligation for borrowed money or other financial
accommodation which in accordance with GAAP would be shown as a
liability on the
consolidated balance sheet of such Person.
"Interest Compounding Date" means each March 31, June 30, September
31,
and December 31 during the term of the Notes.
"Investment" of
a Person means any loan, advance (other than
commission, travel and
similar advances to
officers and employees
made in the
ordinary course
of business), extension of credit (other than accounts
receivable arising in
the ordinary course of business on terms customary in the
trade) or contribution of capital by such Person; stocks, bonds, mutual funds,
partnership interests,
notes, debentures or other securities owned by such
Person; any deposit
accounts and
certificate of deposit
owned by such Person;
and structured
notes, derivative financial instruments and other similar
instruments or contracts owned by such Person.
"Lien" means
any lien (statutory or other), mortgage, pledge,
hypothecation,
assignment, deposit
arrangement,
encumbrance
or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever
(including, without
limitation, the
interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan Documents"
means this Agreement,
the Notes and Warrants
issued
pursuant to Section 2.1 and the Registration Rights Agreement.
"Material Adverse
Effect" means a
material adverse
effect on (i) the
business, Property,
condition (financial or otherwise), results of operations,
or prospects
of the Company and its
Subsidiaries
taken as a whole,
(ii) the
ability of the Company to perform its obligations under the Loan Documents,
or
(iii) the validity or
enforceability of any of the Loan Documents or the rights
or remedies of Purchasers thereunder.
"Material Indebtedness" is any Indebtedness in excess of
$50,000.
"Maturity Date" means,
for each Note, the two (2) year anniversary of
the issuance date for such Note.
"Multiemployer Plan"
means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Company
or any member
of the Controlled
Group is a party to which more than one employer is obligated
to make contributions.
"Notes" means the Senior Unsecured Convertible Promissory Notes, in
the
form of Exhibit B, issued pursuant to Section 2.1.
"Other Taxes" is defined in Section 3.5.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor
thereto.
"Person" means any natural person, corporation, firm, joint venture,
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partnership, limited liability company, association, enterprise, trust or other
entity or
organization, or any
government
or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by
Title
IV of ERISA or subject to the minimum funding standards under
Section 412 of the
Code as to which the Company or any member of the Controlled
Group may have any
liability.
"Property" of a
Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other
assets owned,
leased or operated by such Person.
"Qualified Financing"
means the first sale
to, or exchange with,
any
third party any Qualified Securities, in a private transaction occurring
after
the Effective Date and in which the Company receives gross proceeds of at
least
$500,000; provided, that a Qualified Financing shall not include
any transaction
involving (a) the Company's issuance of any Financing Securities
(other than for
cash) in connection with a merger, acquisition or consolidation of
the Company,
(ii) the Company's issuance of Financing Securities in connection
with strategic
license agreements and
other partnering
arrangements so long as such issuances
are not for the
purpose of raising
capital, (iii) the
Company's issuance of
Financing Securities
in connection with bona fide firm underwritten public
offerings of its securities, (iv) the Company's issuance of
Common Stock or the
issuance or grants of options to purchase Common Stock pursuant to the Company
Stock Plans,
(v) as a result of the exercise of options or warrants or
conversion of convertible notes or preferred stock which are granted or
issued
as of the date of this Agreement.
"Qualified Securities" means any securities convertible,
exercisable or
exchangeable into Common Stock, including debt securities so
convertible, issued
by the Company in a Qualified Financing.
"Registration Date"
means the date that the Registration Statement
contemplated in the
Registration Right
Agreement is declared
effective by the
Commission.
"Registration Rights Agreement" means the Registration Rights
Agreement
dated as of the
date of this Agreement, by and between the parties, as
contemplated under Section 7.1(a)(v).
"Reportable Event"
means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section,
with respect to a
Plan,
excluding, however,
such events as to
which the PBGC has by regulation waived
the requirement of
Section 4043(a) of
ERISA that it be notified within 30 days
of the occurrence of such event, PROVIDED, HOWEVER, that a failure to meet
the
minimum funding
standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such
waiver of the
notice requirement in accordance with either Section 4043(a) of
ERISA or Section
412(d) of the Code.
"Securities Act" means the Securities Act of 1933, as amended.
"Schedule" refers to a
specific schedule
to this Agreement, unless
another document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
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"Subsidiary" of a Person means (i) any corporation more than 50% of
the
outstanding securities
having ordinary voting
power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or
by one or more
of its Subsidiaries or
by such Person and one or more of its Subsidiaries, or
(ii) any partnership,
limited liability company, association, joint venture or
similar business
organization more than
50% of the ownership
interests having
ordinary voting
power of which shall at the time be so owned or
controlled.
Unless otherwise
expressly provided,
all references
herein to a
"Subsidiary"
shall mean a Subsidiary of the Company.
"Substantial Portion"
means, with respect to the Property of the
Company and its Subsidiaries, Property which (i) represents more
than 10% of the
consolidated assets of the Company and its Subsidiaries as would be
shown in the
consolidated financial
statements of the Company and its Subsidiaries as at the
beginning of the
twelve-month
period ending with the month in which such
determination is
made, or (ii) is responsible for more than 10% of the
consolidated net sales
or of the consolidated net income of the Company and its
Subsidiaries as reflected in the financial statements referred to in clause
(i)
above.
"Taxes" means any and
all present or future
taxes, duties, levies,
imposts, deductions,
charges or withholdings, and any and all liabilities
with
respect to the foregoing, but EXCLUDING Excluded Taxes.
"Unmatured Default"
means an event which
but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"Warrant" shall mean a
warrant in the form attached hereto as Exhibit
C, issued to a Purchaser in accordance with Section 2.1
The foregoing
definitions
shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
ISSUANCE OF NOTES AND WARRANTS
2.1 Authorization
and Issuance of the
Notes and Warrants.
Upon the following
terms and conditions,
the Company has duly
authorized the issuance and sale to
Purchasers of (a) up to $3,000,000 in aggregate principal amount of Notes, and
each Purchaser shall purchase from the Company, and (b) Warrants to purchase
up
to an aggregate of 3,000,000 shares of Common Stock, at an exercise price of
$1.00 per share. The
Company and the
Purchasers are
executing and
delivering
this Agreement
in accordance with and in reliance upon the exemption from
securities registration afforded by Rule 506 of Regulation D
("Regulation D") as
promulgated by the Commission under the Securities Act of 1933,
as amended (the
"Securities Act") or Section 4(2) of the Securities Act.
2.2 The Closing. The
Company shall hold an initial closing of the issuance and
sale of the Notes and Warrants (the "Initial Closing") at made at
the offices of
Colbert & Johnson LLP, 6021 Morriss Road, Suite 101, Flower
Mound, Texas
75028,
Attention: Robert J.
Johnson, Telephone No:
(972) 724-3338 ext.
203,Facsimile
No: (972) 724-1922 (the "Closing") at 1:00 p.m. (central time) on the
Effective
Date (the "Initial
Closing Date"). The Company may hold additional interim
closings after the
Initial Closing (each,
an "Additional
Closing") on one
or
more dates as agreed upon between the Company and subsequent
Purchasers
(each,
an "Additional
Closing Date") The Initial Closing Date and the Additional
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Closing Dates are each
hereinafter sometimes
referred to as a
"Closing Date."
Delivery of the Notes shall be made to Purchasers against payment therefor,
by
wire transfer of immediately available funds on the applicable
Closing Date, to
an account designated in writing by the Company. The Notes and
Warrants shall be
issued in such name or names and in such permitted denomination or
denominations
as set forth in Exhibit A.
2.3 The Conversion
Shares. The Company has authorized and has reserved and
covenants to continue to reserve, free of preemptive rights and other similar
contractual rights of
stockholders,
such number of shares
of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Notes and exercise of the Warrants then outstanding.
ARTICLE III
REPAYMENT OF THE NOTES
3.1 Interest
Rates. Interest on the Notes shall be
computed, at the rate of
eight percent (8%) per
annum, for the actual
number of days elapsed and on the
basis of a year
consisting of 360 days, unless the maximum legal interest
rate
would thereby be
exceeded, in which event, to the extent necessary to avoid
exceeding such
maximum rate, interest shall be computed on the basis of
the
actual number
of days elapsed in the applicable calendar year in which it
accrued. Interest on
the Notes shall be compounded quarterly, on each Interest
Compounding Date.
3.2 Repayment of the Notes. The Company covenants and agrees that upon
issuance
of the Notes, it will
repay to Purchasers the unpaid principal balance of the
Notes in full,
together with all
accrued and unpaid
interest, fees and
other
amounts due hereunder, on the Maturity Date.
3.3 Prepayment.
The Company may prepay the Notes,
in whole or in part,
upon
thirty (30) days prior
written notice to
Purchasers;
provided that partial
prepayments may be
made only in
increments
of $10,000. In the event of a
proposed prepayment by the Company, prior to such prepayment,
Purchasers shall
have the right to convert the amount of the proposed prepayment into shares of
Common Stock in
accordance with
Article IV, regardless
of the period of
time
that the Notes have been outstanding.
3.4 Home Office Payment. The Company will pay all sums becoming due
on Notes for
principal and interest
to Purchasers in cash
(by check or wire transfer to the
account(s) designated
in writing by Purchasers) at the address specified below
for Purchasers,
or by such other
method or at such other address as Purchasers
shall have from time
to time specified
to the Company in writing for such
purpose, without the presentation or surrender of such Note or the
making of any
notation thereon,
except that upon written request of the Company made
concurrently with or reasonably promptly after payment or
prepayment in full of
any Note, Purchasers
shall surrender such Note for
cancellation,
reasonably
promptly after such request, to the Company at their principal
executive office.
3.5 Taxes. Any and all
payments by the Company hereunder or under the Notes
or
other Loan Documents that are made to or for the benefit of
Purchasers shall
be
made free and clear of
and without
deduction for any and all Taxes. If the
Company shall be
required by law to
deduct any Taxes from or in respect of any
sum payable hereunder or under any Notes or other Loan Documents to
Holder, the
sum payable shall be
increased as may be necessary so that after making all
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required deductions
of Taxes (including deductions of Taxes applicable to
additional sums
payable under this
paragraph),
Purchasers
receive an amount
equal to the sum it would have received had no such deductions been made. The
Company shall make such deductions and the Company shall
pay the full amount so
deducted to the relevant taxation authority or other authority in accordance
with applicable law. In addition, the Company agree to pay any
present or future
stamp, documentary,
excise, privilege,
intangible or similar levies that arise
at any time or from time to time from any payment made under any and all Loan
Documents or from the execution or delivery by the Company or from
the filing or
recording or
maintenance
of, or otherwise with respect to the exercise by
Purchasers of
their respective rights under any and all Loan Documents
(collectively, "Other
Taxes"). The Company will indemnify
Purchasers for the
full amount of Taxes imposed on or with respect to amounts payable
hereunder and
Other Taxes, and any
liability (including penalties, interest and expenses)
arising there from or
with respect
thereto. Payment of this indemnification
shall be made within
thirty (30) days from the date Holder provide the Company
with a certificate
certifying
and setting forth in reasonable detail the
calculation thereof
as to the amount and type of such Taxes. Any such
certificates submitted
by Purchasers in good faith to the Company shall, absent
manifest error, be final, conclusive and binding on all
parties. The obligation
of the Company under this Section 3.5 shall survive the payment of
the Notes and
the termination
of this Agreement. Within thirty (30) days after the
Company
having received a
receipt for payment of Taxes and/or Other Taxes, the Company
shall furnish to the
appropriate Holder,
the original or
certified copy of
a
receipt evidencing payment.
3.6 Maximum Lawful Rate. This Agreement, the Notes and the other Loan
Documents
are hereby
limited by this Section 3.6. In no event, whether by reason of
acceleration of the
maturity of the amounts due hereunder or otherwise, shall
interest and fees contracted for, charged, received, paid or agreed to be paid
to Holder exceed the maximum amount permissible under such applicable law. If,
from any circumstance
whatsoever, interest
and fees would otherwise be payable
to Purchasers in excess of the maximum amount permissible under applicable
law,
the interest and fees
shall be reduced to the maximum amount permitted under
applicable law.
If from any circumstance, Purchasers shall have received
anything of value
deemed interest by
applicable
law in excess of the
maximum
lawful amount, an amount equal to any excess of interest shall be
applied to the
reduction of the Aggregate Commitment or principal
amount of the Notes,
as the
case may be, in such manner as may be determined by Purchasers, and not to the
payment of fees or interest, or if such excessive interest exceeds the unpaid
balance of the
Aggregate Commitment
or principal amount of
the Notes, as the
case may be, such excess shall be refunded to the Company.
3.7 Certain
Waivers. The Company unconditionally waive (i) any rights to
presentment, demand,
protest or (except as expressly required hereby) notice of
any kind, and (ii) any rights of recession, setoff, counterclaim or defense to
payment under the Notes or otherwise that the Company may have or claim
against
any Holder or any prior Holder.
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ARTICLE IV
CONVERSION OF NOTES
4.1 Conversion
upon Qualified Financing. Subject to this Section 4.1, the
Purchasers shall have the right to convert the principal and
accrued interest of
the Note, in whole or in part, into Qualified Securities, upon the same terms
and conditions as set forth in the Qualified Financing.
(a) The Company shall
notify each Holder,
in writing,
at least ten (10)
days
prior to the
completion of any Qualified Financing of the terms and
conditions
of the Qualified Financing. Holders electing to convert Notes,
or portions of a
Note, into
Qualified Securities, within five (5) days of the date of such
notice, notify the
Company, in writing, of such election, specifying the
principal and accrued
interest to be so converted, and shall surrender to the
Company, the Note, in the form specified in Section 4.4, to be so
converted.
(b) All Notes
submitted by Holders for conversion into Qualified Securities
shall be deemed to be converted on the date the Qualified Financing is
consummated by the Company.
4.2 Conversion into Common Stock. Holders shall have the right to
convert, upon
thirty (30) days prior written notice, the principal and accrued
interest of the
Note, in whole or in part, into shares of Common Stock at then current
Conversion Price Per Share, on any Interest Compounding Date
occurring after the
Registration Date. All notices of conversion must be accompanied by
surrender of
the Note, in the form
specified in Section 4.4, to be so converted and shall be
deemed to be converted
on the date set forth in the written notice; provided,
such notice is properly given.
(a) Subdivision
or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of
its outstanding
shares of Common
Stock into a
greater
number of shares, the
Conversion Price Per Share in effect immediately prior to
such subdivision will be proportionately decreased. If the Company at any time
combines (by
reverse stock split or otherwise) one or more classes of its
outstanding shares
of Common Stock into a smaller number of shares, the
Conversion Price Per Share in effect immediately prior to such
combination will
be proportionately increased.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale. In
case at
any time or from
time to time, the Company shall (a) effect a capital
reorganization,
reclassification or
recapitalization,
(b) consolidate
with,
combine with
or merge into any other Person, or (c) transfer all or
substantially all of its properties or assets to any other Person
under any plan
or arrangement
contemplating the dissolution of the Company, then in each such
case, Purchasers,
at any time after the
consummation of such
reorganization,
recapitalization,
consolidation or
merger or the effective date of such
dissolution, as the
case may be, shall receive, in lieu of the Common Stock (or
other securities)
issuable upon
conversion of the
Notes, the stock and
other
securities and property (including cash) to which Purchasers would have been
entitled upon such consummation or in connection with such
dissolution,
as the
case may be, if Purchasers had so converted the Note immediately prior thereto
at the Conversion
Price Per Share in
effect immediately
prior thereto, all
subject to further adjustment thereafter as provided in this
Article IV.
(c) Reclassification
of Common Stock. In case of any reclassification or change
of outstanding shares
of the Common Stock (other than a change in par value, or
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from par value to no
par value,
or from no par
value to par
value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger in which the
Company is the
continuing corporation
and which does not
result in any
reclassification or
change of outstanding
shares of the
Common
Stock), or in case of
any sale or conveyance
to another corporation of the
property of
the Company as an entirety or substantially as an entirety,
Purchasers shall have
the right thereafter
to convert this Note
into the kind
and amount of shares of stock of the Company or of such
successor or
purchasing
corporation and
other securities and property receivable upon such
reclassification, change, consolidation, merger, sale, or
conveyance by a holder
of the number of
shares of Common Stock
of the Company
into which this Note
might have been converted immediately prior to such
reclassification,
change,
consolidation, merger,
sale or conveyance. The provisions of this Section shall
similarly apply
to successive reclassifications, changes, consolidations,
mergers, sales, or conveyances.
4.3 Issuance of Securities upon Conversion. As promptly as practicable
after
conversion of a Note,
the Company shall deliver a certificate or certificates
representing (a) the securities or debt into which the Note (or
portion thereto)
is converted,
if such conversion is pursuant to Section
4.1(a), or (b) the
number of fully paid and nonassessable shares of the Common Stock
into which the
Note (or portion thereto) has been converted, if such conversion is pursuant
to
Section 4.1(b).
Upon conversion, all the rights of Purchasers as a holder
thereof shall
cease with
respect to the Note
(or the portion
thereof being
converted) at such
time, and the person or persons
entitled to receive the
securities, debt or
shares of the Common
Stock upon
conversion
of this Note
shall be treated for all purposes as having become the record holder or
holders
of such Qualified
Securities or shares of Common Stock at such time. Provided,
however, that no
conversion on any date
when the stock
transfer books of
the
Company shall be closed shall be effective to constitute the person or persons
entitled to receive the Qualified Securities or shares of Common
Stock upon such
conversion as the
record holder or holders of such
Qualified Securities or
shares of Common Stock on such date, but such conversion shall be effective to
constitute the person or persons entitled to receive such Qualified
Securities
or shares of Common
Stock as the record
holder or holders thereof for all
purposes immediately
prior to the close of
the business on the next succeeding
day on which such stock transfer books are open.
4.4 Endorsement; Re-Issue. Notes, when surrendered for conversion,
shall be duly
endorsed, or be
accompanied
by a written
instrument
of transfer in a form
satisfactory to the Company duly executed by Purchasers.
For convenience, the
conversion of all or a portion, as the case may be, of the
principal and accrued
interest of this Note into the Common Stock is hereinafter
sometimes referred to
as the conversion of this Note. In the event that this Note is
converted in part
only, upon such conversion, the Company shall execute and deliver
to Purchasers,
without service
charge, a new Note, of any authorized denomination or
denominations as requested by Purchasers, in aggregate principal
amount equal to
and in exchange for the unconverted portion of the Note so
surrendered.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents
and warrants to Purchasers that the statements
contained in the
Article V are true and correct, except as set forth in the
Schedules delivered by the Company to Purchasers concurrently
herewith.
10
<PAGE>
5.1 Organization. The
Company is a corporation duly organized, validly existing
and in good standing
under the laws of the State of Nevada. The Company (i) is
qualified or licensed in all jurisdictions where such qualification or license
is required to own and operate its properties and conduct its business in the
manner and at the places presently conducted; (ii) holds all
franchises, grants,
licenses, certificates, permits, consents and orders, all of which
are valid and
in full force
and effect, from all applicable United States and foreign
regulatory authorities
necessary to own and operate its properties and to
conduct its business in the manner and at the places presently conducted; and
(iii) has full power
and authority
(corporate
and other) to own, lease and
operate its properties
and assets and to
carry on its business
as presently
conducted and as
proposed to be
conducted, except
where the failure to
be so
qualified or
licensed or to hold such franchises, grants, licenses,
certificates, permits,
consents and orders or
to have such power and authority
would not, when taken
together with all other such failures, reasonably be
expected to have a Material Adverse Effect with respect to the Company. The
Company does not directly or indirectly own any equity or similar
interest in,
or any interest
convertible into or exchangeable or exercisable for, any equity
or similar interest
in, any corporation,
partnership,
joint venture or
other
business association or entity.
5.2 Capital
Structure.
(a) As of September
30, 2006, the authorized capital stock of the Company
consists of 50,000,000
shares of Common Stock and 1,000,000 shares of preferred
stock. As of September
30, 2006, (i) 8,152,063 shares of Common Stock were
issued and outstanding, (ii) no shares of Common Stock were held in
the treasury
of the Company,
(iii) 1,000,000 shares of Common Stock were reserved for
issuance under
outstanding Company
Stock Plans, including
stock appreciation
rights, performance units and stock units, and (iv) no shares of
preferred stock
were issued or outstanding. All the outstanding shares of the
Company's capital
stock are duly authorized, validly issued, fully paid and
non-assessable.
There
are no bonds,
debentures, notes or
other indebtedness having voting rights (or
convertible or exchangeable into securities having such rights)
("Company Voting
Debt") of the Company
issued and outstanding. The shares of Common Stock
issuable upon
conversion
of the Notes and
exercise of the Warrants have been
reserved for issuance and, when issued upon conversion of the Notes or
exercise
of the Warrants in accordance with the terms thereof, will be duly authorized,
validly issued and
fully paid and
nonassessable and not
subject to preemptive
rights. Except as set
forth above,
in Schedule
5.2(a) or as described
in the
Company SEC Documents, and for the transactions contemplated by this
Agreement,
(i) there are no shares of capital stock of the Company authorized, issued or
outstanding and (ii)
there are no existing (A) options, warrants, calls,
preemptive rights,
subscriptions or other
rights, convertible or
exchangeable
securities,
agreements,
arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company,
obligating the
Company
to issue, transfer or sell or cause to be issued, transferred or
sold any shares
of capital stock or
Company Voting Debt
of, or other equity
interest in, the
Company, (B)
securities convertible
into or exchangeable for such shares or
equity interests or
(C) obligations
of the Company to
grant, extend or
enter
into any such option,
warrant, call,
preemptive right,
subscription or
other
right, convertible security, agreement, arrangement or commitment. The
Company
does not own any equity securities of any other Person.
(b) There are no voting trusts, proxies or other agreements or
understandings to
which the Company is a party with respect to the voting of the
capital stock of
the Company.
The Company is not a party to any agreement or obligation,
contingent or otherwise, to redeem, repurchase or otherwise
acquire or retire
11
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