CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT

Exhibit 10.1

 

 

CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT

 

by and among

 

Transmeridian Exploration Incorporated, as Issuer and Seller

 

and

 

the parties named herein, as Purchasers

 

with respect to Seller’s

 

Convertible Promissory Notes

 

and Warrants to Purchase Common Stock

 

August 30, 2005

 

 

Table of Exhibits and Schedules

 

CONVERTIBLE PROMISSORY NOTE AND WARRANT

 

PURCHASE AGREEMENT

 

This Convertible Promissory Note and Warrant Purchase Agreement (the “ Agreement ”) is made and entered into as of August 30, 2005, by and among Transmeridian Exploration Incorporated, a Delaware corporation (the “ Seller ”) and each of the persons listed on Schedule 1 hereto (each is individually referred to as a “ Purchaser ” and collectively, as the “ Purchasers ”).

 

WHEREAS, each of the Purchasers is willing to purchase from the Seller, and the Seller desires to sell to the Purchasers, (i) up to an aggregate original principal amount of $22,500,000 of Convertible Promissory Notes (the “ Notes ”) and (ii) Common Stock Purchase Warrants (the “ Warrants ”) entitling the holders thereof to purchase up to 4,500,000 shares of the Seller’s common stock, $0.0006 par value (the “ Common Stock ”) as more fully set forth herein.

 

NOW THEREFORE, in consideration of the mutual promises and representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

 

ARTICLE I - PURCHASE AND SALE

 

1.1 Purchase and Sale .

 

(a) On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 2.2), the Seller will sell and each of the Purchasers will purchase (i) a Note with an aggregate original principal amount as set forth on Schedule 1 and (ii) Warrants to purchase a number of shares of Common Stock as set forth on Schedule 1 .

 

(b) The securities, other than Common Stock, if any, issuable upon conversion of the Notes are referred to as “ New Securities ”. The shares of Common Stock issuable upon conversion of the Notes or the New Securities, as applicable, are referred to herein as the “ Common Conversion Shares ”. The New Securities and the Common Conversion Shares are sometimes collectively referred to herein as the “ Conversion Shares ”. The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the “ Warrant Shares .” The Notes, Warrants, Warrant Shares, New Securities and Common Conversion Shares are sometimes collectively referred to herein as the “ Securities ”.

 

1.2 Terms of the Notes and Warrants . The terms and provisions of the Notes are set forth in the form of Convertible Promissory Note, attached hereto as Exhibit A . The terms and provisions of the Warrants are more fully set forth in the form of Common Stock Purchase Warrant, attached hereto as Exhibit B .

 

1.3 Transfers; Legends .

 

(a) (i) Except as restricted by federal securities laws and the securities law of any state or other jurisdictions, the Notes, Warrants and Warrant Shares may be transferred, in whole or in part, by any of the Purchasers at any time. Upon the issuance of the Conversion Shares (and the authorization and designation by the Seller of the New Securities, if applicable), except

as required by federal securities laws and the securities law of any state or other jurisdiction, the Conversion Shares may be transferred in whole or in part, by any of the Purchasers at any time. Any such transfer shall be made by a Purchaser in accordance with applicable law. Any transferee shall agree to be bound by the terms of the Investor Rights Agreement and this Agreement. The Seller shall reissue certificates evidencing the applicable Securities upon surrender of certificates evidencing the Securities being transferred in accordance with this Section 1.3(a).

 

(ii) In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “ Securities Act ”), or to the Seller, the Seller may require the transferor thereof to furnish to the Seller an opinion of counsel selected by the transferor, such counsel and the form and substance of which opinion shall be reasonably satisfactory to the Seller and Seller’s counsel, to the effect that such transfer does not require registration under the Securities Act; provided, however , that in the case of a transfer pursuant to Rule 144 under the Securities Act, no opinion shall be required if the transferor provides the Company with a customary seller’s representation letter, and, if such sale is not pursuant to subsection (k) of Rule 144, a customary broker’s representation letter and Form 144. Notwithstanding the foregoing, the Seller hereby consents to and agrees to register on the books of the Seller and with any transfer agent for the securities of the Seller, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Seller that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof) and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part in violation of the Securities Act.

 

(iii) An “ Affiliate ” means any Person (as such term is defined below) that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. A “ Person ” means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision of any thereof) or other entity of any kind.

 

(b) The certificates representing the Securities, unless, with respect to the Common Conversion Shares and the Warrant Shares, such shares are eligible for resale without registration pursuant to Rule 144(k) under the Securities Act or have been sold pursuant to an effective registration statement under the Securities Act, shall bear the following legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.”

 

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ARTICLE II - PURCHASE PRICE AND CLOSING

 

2.1 Purchase Price . The purchase price (the “ Purchase Price ”) to be paid by each of the Purchasers to the Seller to acquire the Notes and the applicable Warrants shall be as set forth beside the name of such Purchaser on Schedule 1 hereto. The Purchase Price paid by each Purchaser shall be placed in escrow pending the Closing as provided in Article 6.1(b) hereof.

 

2.2 The Closing . The closing of the transactions contemplated under this Agreement (the “ Closing ”) will take place as promptly as practicable, but no later than two (2) business days following satisfaction or waiver of the conditions set forth in Article 6.1(a) and (b) and 6.2(a) (other than those conditions which by their terms are not to be satisfied or waived until the Closing), at the offices of Wiggin and Dana LLP, 400 Atlantic Street, Stamford, Connecticut 06901. The date on which the Closing occurs is the “ Closing Date .”

 

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER

 

The Seller represents and warrants to the Purchasers as follows:

 

3.1 Corporate Existence and Power; Subsidiaries . The Seller and its Subsidiaries are corporations duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which they are incorporated or continued, and have all corporate powers required to carry on their business as now conducted. The Seller and its Subsidiaries are duly qualified to do business as a foreign corporation and are in good standing in each jurisdiction where the character of the property owned or leased by them or the nature of their activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect on the Seller or any of its Subsidiaries. For purposes of this Agreement, the term “ Material Adverse Effect ” means, with respect to any person or entity, a material adverse effect on its and its Subsidiaries’ condition (financial or otherwise), business, properties, assets, liabilities (including contingent liabilities), results of operations or current prospects, taken as a whole. True and complete copies of the Seller’s Certificate of Incorporation, as amended, and Bylaws, as amended, as currently in effect and as will be in effect on the Closing Date (collectively, the “ Certificate and Bylaws ”), have previously been provided or made available to the Purchasers. For purposes of this Agreement, the term “ Subsidiary” or “Subsidiaries ” means, with respect to any entity, any corporation or other organization of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such entity or of which such entity is a partner or is, directly or indirectly, the beneficial owner of 50% or more of any class of equity securities or equivalent profit participation interests. The Seller has no Subsidiaries other than as set forth on Schedule 3.1 , each of which, unless otherwise indicated on Schedule 3.1 , is wholly-owned by the Seller.

 

3.2 Corporate Authorization; Enforceability . The execution, delivery and performance by the Seller of this Agreement, and the Warrants, the Closing Escrow Agreement (as defined below), the Notes, the Investor Rights Agreement, and each of the other documents executed pursuant to and in connection with this Agreement (collectively, the “ Related

 

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Documents ”), and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, (i) the sale and delivery of the Notes and the Warrants, (ii) the subsequent issuance of the New Securities upon conversion of the Notes, if applicable, (iii) the subsequent issuance of the Common Conversion Shares upon conversion of the New Securities or the Notes, as applicable, and (iv) the subsequent issuance of the Warrant Shares upon exercise of the Warrants) have been duly authorized, and no additional corporate or stockholder action is required pursuant to the rules of any stock exchange, market or bulletin board on which the Common Stock is traded or otherwise for the approval of this Agreement, the Related Documents or the consummation of the transactions contemplated hereby or thereby; provided, however, that the authorization, designation and issuance of the New Securities, if applicable, would require approval of the Seller’s Board of Directors. The Warrant Shares have been duly reserved for issuance by the Seller. Upon the authorization and designation by the Seller of the New Securities, if applicable, the Conversion Shares will be duly reserved for issuance by the Seller. This Agreement and the Related Documents have been or, to the extent contemplated hereby or by the Related Documents, will be duly executed and delivered and constitute the legal, valid and binding agreement of the Seller, enforceable against the Seller in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of its obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

3.3 Charter, Bylaws and Corporate Records . The minute books of the Seller and its Subsidiaries contain complete and accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and stockholders of the Seller and its Subsidiaries from the date of incorporation of each such entity to the date hereof. All material corporate decisions and actions have been validly made or taken. All corporate books, including without limitation the share transfer register, comply with applicable laws and regulations and have been regularly updated.

 

3.4 Regulatory Authorization . Except as otherwise specifically contemplated in this Agreement and the Related Documents, and except for: (i) the filings referenced in Section 5.11 and 5.13; (ii) the filing of a Form D with respect to the Notes and Warrants under Regulation D under the Securities Act; (iii) the filing of the Registration Statement with the Commission; and (iv) any filings required under state or provincial securities laws that are permitted to be made after the date hereof, the execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, (i) the sale and delivery of the Notes and Warrants, (ii) the subsequent issuance of the New Securities upon conversion of the Notes, if applicable, (iii) the subsequent issuance of the Common Conversion Shares upon conversion of the New Securities or the Notes, as applicable, and (iv) the subsequent issuance of the Warrant Shares upon exercise of the Warrants) by the Seller require no action by or in respect of, or filing with, any governmental or regulatory body, agency, official or authority; provided, however, that the authorization and designation of the New Securities may require the filing with the Secretary of State of the State of Delaware, of a certificate of designations, rights and preferences of such New Securities. Seller has filed an application to list the Warrant Shares for trading on the American Stock Exchange.

 

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3.5 Non-Contravention . The execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation by the Seller of the transactions contemplated hereby and thereby (including the issuance of the Conversion Shares and Warrant Shares) do not and will not (a) contravene or conflict with the Certificate and Bylaws of the Seller and its Subsidiaries or any material agreement to which the Seller is a party or by which it is bound; provided, however, that the authorization and designation of the New Securities may require the filing with the Secretary of State of the State of Delaware of a certificate of designations, rights and preferences of such New Securities; (b) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Seller or its Subsidiaries; (c) constitute a default (or would constitute a default with notice or lapse of time or both) under or give rise to a right of termination, cancellation or acceleration or loss of any benefit under any material agreement, contract or other instrument binding upon the Seller or its Subsidiaries or under any material license, franchise, permit or other similar authorization held by the Seller or its Subsidiaries; or (d) result in the creation or imposition of any Lien (as defined below) on any asset of the Seller or its Subsidiaries. For purposes of this Agreement, the term “ Lien ” means, with respect to any material asset, any mortgage, lien, pledge, charge, security interest, claim or encumbrance of any kind in respect of such asset.

 

3.6 SEC Documents . The Seller is obligated under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) to file reports pursuant to Sections 13 or 15(d) thereof (all such reports filed or required to be filed by the Seller, including all exhibits thereto or incorporated therein by reference, and all documents filed by the Seller under the Securities Act hereinafter called the “ SEC Documents ”). The Seller has filed all reports or other documents required to be filed under the Exchange Act. All SEC Documents filed by the Seller (i) were prepared in all material respects in accordance with the requirements of the Exchange Act and (ii) did not at the time they were filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) contain any untrue statement of a material fact or omit 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 Seller has previously delivered or made available to the Purchasers a correct and complete copy of each report which the Seller filed with the Securities and Exchange Commission (the “SEC ” or the “ Commission ”) under the Exchange Act for any period ending on or after December 31, 2004 (the “ Recent Reports ”). None of the information about the Seller or any of its Subsidiaries which has been disclosed to the Purchasers herein or in the course of discussions and negotiations with respect hereto which is not disclosed in the Recent Reports is or was required to be so disclosed, and no material non-public information has been disclosed to the Purchasers.

 

3.7 Financial Statements . Each of (i) Seller’s audited consolidated balance sheet and related consolidated statements of income, cash flows and changes in stockholders’ equity (including the related notes) as of and for the years ended December 31, 2004 and December 31, 2003, as contained in the Recent Reports for such periods and (ii) the Seller’s unaudited consolidated balance sheet and related consolidated statements of income and cash flows as of and for the six months ended June 30, 2005 as contained in the Recent Reports (both of (i) and (ii), collectively, the “ Seller’s Financial Statements ” or the “ Financial Statements ”) (x) present fairly in all material respects the financial position of the Seller and its Subsidiaries on a consolidated basis as of the dates thereof and the results of operations, cash flows and

 

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stockholders’ equity as of and for each of the periods then ended, except that the unaudited financial statements are subject to normal year-end adjustments, and (y) were prepared in accordance with United States generally accepted accounting principals (“ GAAP ”) applied on a consistent basis throughout the periods involved, in each case, except as otherwise indicated in the notes thereto.

 

3.8 Compliance with Law . The Seller and its Subsidiaries are in compliance and have conducted their business so as to comply with all laws, rules and regulations, judgments, decrees or orders of any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign, applicable to their operations, the impact of which would have a Material Adverse Effect. There are no judgments or orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency or by arbitration), against the Seller or its Subsidiaries or against any of their properties or businesses, the impact of which would have a Material Adverse Effect.

 

3.9 No Defaults . Except as disclosed in the Recent Reports or on Schedule 3.9, the Seller and its Subsidiaries are not, nor have they received notice that they would be with the passage of time, giving of notice, or both, (i) in violation of any provision of their respective Certificates and Bylaws (or other applicable organizational documents) (ii) in default or violation of any material term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to the Seller or its Subsidiaries or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which the Seller or its Subsidiaries are a party or by which the Seller or its Subsidiaries or their properties or assets may be bound, and no circumstances exist which would entitle any party to any material agreement, note, mortgage, indenture, contract, lease or instrument to which such Seller or its Subsidiaries are a party, to terminate such, as a result of such Seller or its Subsidiaries having failed to meet any provision thereof including, but not limited to, meeting any applicable milestone described therein, which individually, or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

 

3.10 Litigation . Except as disclosed in the Recent Reports or on Schedule 3.10 , there is no action, suit, proceeding, judgment, claim or investigation pending or, to the knowledge of the Seller, threatened against the Seller or its Subsidiaries which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Seller or its Subsidiaries or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby, and to the knowledge of the Seller or its Subsidiaries, there is no basis for the assertion of any of the foregoing. There are no claims or complaints existing or, to the knowledge of the Seller or its Subsidiaries, threatened for product liability in respect of any product of the Seller or its Subsidiaries, and the Seller and its Subsidiaries are not aware of any basis for the assertion of any such claim.

 

3.11 Absence of Certain Changes . Since December 31, 2004, the Seller has conducted its business only in the ordinary course, consistent with past practice, and there has not occurred, except as set forth in the Recent Reports or any exhibit thereto or incorporated by reference therein:

 

(a) any event that could reasonably be expected to have a Material Adverse Effect on the Seller or any of its Subsidiaries;

 

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(b) any amendments or changes in the Certificate or Bylaws (or equivalent organizational documents, as applicable) of the Seller and its Subsidiaries;

 

(c) any damage, destruction or loss, whether or not covered by insurance, that would, individually or in the aggregate, have or would be reasonably likely to have, a Material Adverse Effect on the Seller or its Subsidiaries;

 

(d) except as set forth on Schedule 3.11(d) , any

 

(i) incurrence, assumption or guarantee by the Seller or its Subsidiaries of any debt for borrowed money other than for equipment leases made in the ordinary course of business, consistent with past practice;

 

(ii) issuance or sale of any securities convertible into or exchangeable for securities of the Seller other than to directors, employees and consultants pursuant to existing equity compensation or stock option plans of the Seller;

 

(iii) issuance or sale of options or other rights to acquire from the Seller or its Subsidiaries, directly or indirectly, securities of the Seller or any securities convertible into or exchangeable for any such securities, other than options issued to directors, employees and consultants in the ordinary course of business, consistent with past practice;

 

(iv) issuance or sale of any stock, bond or other corporate security;

 

(v) discharge or satisfaction of any material Lien;

 

(vi) declaration or making any payment or distribution to stockholders or purchase or redemption of any share of its capital stock or other security;

 

(vii) sale, assignment or transfer of any of its intangible assets except in the ordinary course of business, consistent with past practice, or cancellation of any debt or claim except in the ordinary course of business, consistent with past practice;

 

(viii) waiver of any right of substantial value whether or not in the ordinary course of business;

 

(ix) material change in officer compensation, except in the ordinary course of business and consistent with past practice; or

 

(x) other commitment (contingent or otherwise) to do any of the foregoing.

 

(e) any creation, sufferance or assumption by the Seller or any of its Subsidiaries of any Lien on any asset (other than in connection with equipment leases and working capital lines of credit set forth on Schedule 3.11(e) ) or any making of any loan, advance or capital

 

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contribution to or investment in any Person, in an aggregate amount which exceeds $25,000 outstanding at any time;

 

(f) any entry into, amendment of, relinquishment, termination or non-renewal by the Seller or its Subsidiaries of any material contract, license, lease, transaction, commitment or other right or obligation, other than in the ordinary course of business, consistent with past practice; or

 

(g) any transfer or grant of a right with respect to the patents, trademarks, trade names, service marks, trade secrets, copyrights or other intellectual property rights owned or licensed by the Seller or its Subsidiaries, except as among the Seller and its Subsidiaries.

 

3.12 No Undisclosed Liabilities . Except as set forth in the Recent Reports, and except for liabilities and obligations incurred since December 31, 2004 in the ordinary course of business, consistent with past practice, as of the date hereof, (i) the Seller and its Subsidiaries do not have any material liabilities or obligations (absolute, accrued, contingent or otherwise), and (ii) there has not been any aspect of the prior or current conduct of the business of the Seller or its Subsidiaries which may form the basis for any material claim by any third party which if asserted could result in any such material liabilities or obligations.

 

3.13 Taxes . All tax returns and tax reports required to be filed with respect to the income, operations, business or assets of the Seller and its Subsidiaries have been timely filed (or appropriate extensions have been obtained) with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, and all of the foregoing as filed are correct and complete in all material respects, reflect accurately all liability for taxes of the Seller and its Subsidiaries for the periods to which such returns relate, and all amounts shown as owing thereon have been paid. All income, profits, franchise, sales, use, value added, occupancy, property, excise, payroll, withholding, FICA, FUTA and other taxes (including interest and penalties), if any, collectible or payable by the Seller and its Subsidiaries or relating to or chargeable against any of its material assets, revenues or income or relating to any employee, independent contractor, creditor, stockholder or other third party through the Closing Date, were fully collected and paid by such date if due by such date or provided for by adequate reserves in the Financial Statements as of and for the periods ended December 31, 2004 (other than taxes accruing after such date) and all similar items due through to the Closing Date will have been fully paid by that date or provided for by adequate reserves, whether or not any such taxes were reported or reflected in any tax returns or filings. Except as described on Schedule 3.13 , no taxation authority has sought to audit the records of the Seller or any of its Subsidiaries for the purpose of verifying or disputing any tax returns, reports or related information and disclosures provided to such taxation authority, or for the Seller’s or any of its Subsidiaries’ alleged failure to provide any such tax returns, reports or related information and disclosure. No material claims or deficiencies have been asserted against or inquiries raised with the Seller or any of its Subsidiaries with respect to any taxes or other governmental charges or levies which have not been paid or otherwise satisfied, including claims that, or inquiries whether, the Seller or any of its Subsidiaries has not filed a tax return that it was required to file, and, to the best of the Seller’s knowledge, there exists no reasonable basis for the making of any such claims or inquiries. Neither the Seller nor any of its Subsidiaries has waived any restrictions on assessment

 

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or collection of taxes or consented to the extension of any statute of limitations relating to taxation.

 

3.14 Interests of Officers, Directors and Other Affiliates . The description of any interest held, directly or indirectly, by any officer, director or other Affiliate of the Seller (other than the interests of the Seller and its Subsidiaries in such assets) in any property, real or personal, tangible or intangible, used in or pertaining to the Seller’s business, including any interest in the Intellectual Property (as defined in Section 3.15 hereof), as set forth in the Recent Reports, is true and complete, and no officer, director or other Affiliate of the Seller has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the Seller’s business, including the Seller’s Intellectual Property, other than as set forth in the Recent Reports.

 

3.15 Intellectual Property . Other than as set forth in the Recent Reports:

 

(a) the Seller or a Subsidiary thereof has the right to use or is the sole and exclusive owner of all right, title and interest in and to all material foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration) owned, used or controlled by the Seller and its Subsidiaries (collectively, the “ Rights ”) and in and to each material invention, software, trade secret, technology, product, composition, formula and method or process used by the Seller or its Subsidiaries (the Rights and such other items, the “ Intellectual Property ”), and, to the Seller’s knowledge, has the right to use the same, free and clear of any claim or conflict with the rights of others;

 

(b) no royalties or fees (license or otherwise) are payable by the Seller or its Subsidiaries to any Person by reason of the ownership or use of any of the Intellectual Property, except as set forth on Schedule 3.15 ;

 

(c) there have been no claims made against the Seller or its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of any of the Intellectual Property, and, to its knowledge, there are no reasonable grounds for any such claims;

 

(d) neither the Seller nor its Subsidiaries have made any claim of any violation or infringement by others of its rights in the Intellectual Property, and to the best of the Seller’s knowledge, no reasonable grounds for such claims exist; and

 

(e) neither the Seller nor its Subsidiaries have received notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property.

 

3.16 Restrictions on Business Activities . Other than as set forth in the Recent Reports, there is no agreement, judgment, injunction, order or decree binding upon the Seller or its Subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Seller or its Subsidiaries, any acquisition of property by the Seller or its Subsidiaries or the conduct of business by the Seller or its Subsidiaries as currently conducted or as currently proposed to be conducted by the Seller.

 

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3.17 Preemptive Rights . No Person possesses any right of first refusal, preemptive rights or similar rights in respect of (i) the Notes or Warrants, (ii) the New Securities to be issued to the Purchasers upon conversion of the Notes, if applicable, (iii) the Common Conversion Shares to be issued upon conversion of the New Securities or the Notes, as applicable, or (iv) the Warrant Shares to be issued upon exercise of the Warrants.

 

3.18 Insurance . The insurance policies providing insurance coverage to the Seller or its Subsidiaries, including the policies in respect of product liability, are, in the reasonable opinion of Seller, adequate for the business conducted by the Seller and its Subsidiaries and are sufficient for compliance by the Seller and its Subsidiaries with all requirements of law and all material agreements to which the Seller or its Subsidiaries are a party or by which any of their assets are bound. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and the Seller and its Subsidiaries have complied with all material terms and conditions of such policies, including premium payments. None of the insurance carriers has indicated to the Seller or its Subsidiaries an intention to cancel any such policy.

 

3.19 Subsidiaries and Investments . Except as set forth in the Recent Reports or on Schedule 3.1 or Schedule 3.19 , the Seller has no Subsidiaries or Investments. For purposes of this Agreement, the term “ Investments ” shall mean, with respect to any Person, all advances, loans or extensions of credit to any other Person, all purchases or commitments to purchase any stock, bonds, notes, debentures or other securities of any other Person, and any other investment in any other Person, including partnerships or joint ventures (whether by capital contribution or otherwise) or other similar arrangement (whether written or oral) with any Person, including but not limited to arrangements in which (i) the Person shares profits and losses, (ii) any such other Person has the right to obligate or bind the Person to any third party, or (iii) the Person may be wholly or partially liable for the debts or obligations of such partnership, joint venture or other arrangement.

 

3.20 Capitalization . (a) The authorized capital stock of the Seller consists of 200,000,000 shares of common stock, $0.0006 par value per share, of which 81,798,797 shares are issued and outstanding as of the date hereof, and 5,000,000 shares of preferred stock, issuable in one or more classes or series, with such relative rights and preferences as the Board of Directors may determine, 1,785.714 of which are designated as the Series A Cumulative Convertible Preferred Stock (the “ Series A Preferred ”) and are issued and outstanding immediately prior to the execution of this Agreement.

 

(b) All shares of the Seller’s issued and outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and non-assessable. No securities issued by the Seller from the date of its incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the capital stock of the Seller. All taxes required to be paid by Seller in connection with the issuance and any transfers of the Seller’s capital stock have been paid. Except as set forth on Schedule 3.20 , all permits or authorizations required to be obtained from, or registrations required to be effected with, any Person in connection with any and all issuances of securities of the Seller from the date of the Seller’s incorporation to the date hereof have been obtained or effected, and all securities of the Seller have been issued and are held in accordance with the provisions of all applicable securities and other laws.

 

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