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NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT, dated as of January
14, 2005
(this "AGREEMENT"), is entered into by and between VITROTECH
CORPORATION, a
Nevada corporation (the "COMPANY"), and VITROBIRTH, LLC, a
Delaware limited
liability company (the "INVESTOR").
RECITALS
A. On the terms and subject to the conditions set forth herein,
the
Investor is willing to purchase from the Company, and the
Company is willing to
sell to the Investor, up to four secured, convertible promissory
notes in the
aggregate principal amount of three million dollars
($3,000,000), together with
related warrants to acquire shares of the Company's capital
stock.
B. Capitalized terms not otherwise defined in Section 12(p) of
this
Agreement shall have the meaning set forth in the form of
secured, convertible
promissory note attached hereto as EXHIBIT A.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and
the
representations, warranties, covenants and conditions set forth
below, the
parties hereto, intending to be legally bound, agree as
follows:
1. THE LOAN, NOTES AND WARRANTS.
(a) Loan and Notes. On the terms and subject to the conditions
of
this Agreement, the Investor agrees to make a loan to the
Company in an
aggregate principal amount of up to three million dollars
($3,000,000) as
follows:
(i) The Company agrees to issue and sell to the Investor,
and,
subject to the terms and conditions of this Agreement, the
Investor agrees to
purchase from the Company, a secured, convertible promissory
note in the form of
EXHIBIT A hereto in the principal amount of $1,500,000 (the
"INITIAL NOTE");
(ii) The Company agrees to issue and sell to the Investor,
and, subject to the terms and conditions of this Agreement, the
Investor agrees
to purchase from the Company, a secured, convertible promissory
note in the form
of EXHIBIT A hereto in the principal amount of $500,000 (the
"SECOND NOTE");
(iii) The Company agrees to issue and sell to the Investor,
and, subject to the terms and conditions of this Agreement, the
Investor agrees
to purchase from the Company, a secured, convertible promissory
note in the form
of EXHIBIT A hereto in the principal amount of $500,000 (the
"THIRD NOTE"); and
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(iv) The Company agrees to issue and sell to the Investor,
and, subject to the terms and conditions of this Agreement, the
Investor agrees
to purchase from the Company, a secured, convertible promissory
note in the form
of EXHIBIT A hereto in the principal amount of $500,000 (the
"FOURTH NOTE").
(b) Warrant. In consideration for the purchase by the Investor
of
each of the Notes, the Company will issue to the Investor
warrants in the form
attached hereto as EXHIBIT B as follows (collectively,
"WARRANTS"): (i) at the
Initial Closing, Warrants to purchase 3,625,000 shares of Common
Stock at the
Warrant Price ("INITIAL Warrant"), (ii) at the Second Closing,
Warrants to
purchase 1,208,333 shares of Common Stock at the Warrant Price
("SECOND
WARRANT"), (iii) at the Third Closing, Warrants to purchase
1,208,333 shares of
Common Stock at the Warrant Price ("THIRD WARRANT"), and (iv) at
the Fourth
Closing, Warrants to purchase 1,208,334 shares of Common Stock.
at the Warrant
Price ("FOURTH WARRANT").
(c) Delivery.
(i) The sale and purchase of the Initial Note and Initial
Warrant shall take place at a closing (the "INITIAL CLOSING") to
be held at such
place and time as the Company and the Investor may determine
(the "INITIAL
CLOSING DATE"). At the Initial Closing, the Company will deliver
to the Investor
the Initial Note, Initial Warrant and a Registration Rights
Agreement against
receipt by the Company of $1,500,000. The Initial Note and
Warrant will be
registered in the Investor's name in the Company's records.
(ii) The sale and purchase of the Second Note and Second
Warrant shall take place at a closing (the "SECOND CLOSING") to
be held at such
place and time as the Company and the Investor may determine
(the "SECOND
CLOSING DATE"). At the Second Closing, the Company will deliver
to the Investor
the Second Note, Second Warrant and a Registration Rights
Agreement against
receipt by the Company of $500,000. The Second Note will be
registered in the
Investor's name in the Company's records.
(iii) The sale and purchase of the Third Note and Third
Warrant shall take place at a closing (the "THIRD CLOSING") to
be held at such
place and time as the Company and the Investor may determine
(the "THIRD CLOSING
Date"). At the Third Closing, the Company will deliver to the
Investor the Third
Note, Third Warrant and a Registration Rights Agreement against
receipt by the
Company of $500,000. The Third Note will be registered in the
Investor's name in
the Company's records.
(iv) The sale and purchase of the Fourth Note and Fourth
Warrant shall take place at a closing (the "FOURTH CLOSING") to
be held at such
place and time as the Company and the Investor may determine
(the "FOURTH
CLOSING DATE"). At the Fourth Closing, the Company will deliver
to the Investor
the Fourth Note, Fourth Warrant and a Registration Rights
Agreement against
receipt by the Company of $500,000. The Fourth Note will be
registered in the
Investor's name in the Company's records.
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At any time, and from time to time, the Investor may, at its
sole
and exclusive option, convert all or any part of the principal
and accrued
interest outstanding under any or all of the Notes into fully
paid and
nonassessable shares of Common Stock of the Company at a
conversion price per
share of Common Stock equal to $0.12, subject to adjustment as
provided in
Section 8 of the Notes.
(d) Use of Proceeds. The Company shall use the proceeds of the
sale
and issuance of the Notes only for the purposes set forth on
SCHEDULE 1 to this
Agreement. Except as set forth on SCHEDULE 1 to this Agreement,
no portion of
such proceeds shall be used to pay or redeem all or any portion
of any
Indebtedness of the Company or any Subsidiary existing as of the
Initial Closing
Date.
(e) Payments. The Company will make all cash payments due under
the
Notes in immediately available funds by 11:00 a.m. pacific time
on the date such
payment is due in the manner and at the address for such purpose
specified below
the Investor's name on the signature page hereto, or at such
other address as
the Investor or other registered holder of the applicable Note
may from time to
time direct in writing.
(f) No Original Issue Discount. The Company and the Investor
acknowledge and agree that the Warrant sold to the Investor in
connection
herewith is part of an investment unit, which includes the
Initial Note, within
the meaning of Section 1273(c)(2) of the Internal Revenue Code
of 1986, as
amended ("IRC"). As of the Initial Closing Date, the Company and
the Investor
further agree that as between the Company and the Investor, the
fair market
value of the right to buy one share of Common Stock under the
terms as set forth
in the Warrant purchased on the Initial Closing Date is equal to
$0.001 and
that, pursuant to Treas. Reg. Section 1.1273-2(h), a portion of
the issue price
of the investment unit (such amount being equal to $0.001
multiplied by the
number of shares of Common Stock issuable upon exercise of such
Warrant) will be
allocable to such Warrant and the balance shall be allocable to
the Initial Note
purchased on the Initial Closing Date. The Company and the
Investor agree to
prepare their federal income tax returns in a manner consistent
with the
foregoing agreement and, pursuant to Treas. Reg. Section 1.1273,
the original
issue discount on the Initial Note shall be considered to be
zero.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents
and warrants to the Investor that, except as set forth on a
Schedule of
Exceptions (the "SCHEDULE OF EXCEPTIONS") furnished to the
Investor prior to
execution hereof and attached hereto as SCHEDULE 2 specifically
identifying the
relevant subparagraph hereof, which exceptions shall be deemed
to be
representations and warranties as if made hereunder:
(a) Organization, Good Standing and Qualification. The Company
is a
corporation duly organized, validly existing and in good
standing under the laws
of the State of Nevada. The Company is duly qualified to
transact business and
is in good standing in each jurisdiction in which such
qualification is
required. The Company has all required power and authority
necessary to own and
operate its property, to carry on its business as now conducted
and presently
proposed to be conducted and to carry out the transactions
contemplated by this
Agreement.
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(b) Capitalization.
(i) The authorized capital stock of the Company consists of
500,000,000 shares of Common Stock, par value $0.001 per share.
There are
outstanding 158,720,389 shares of Common Stock and the Company
has no other
shares of capital stock outstanding. All of the outstanding
shares of capital
stock of the Company have been duly authorized, validly issued
and are fully
paid and nonassessable and were issued in compliance with all
applicable state
and federal laws concerning the issuance of securities.
(ii) Except as set forth on the Schedule of Exceptions: (A)
there are no outstanding options, warrants, rights to subscribe
for, calls or
commitments of any character whatsoever relating to, or
securities or rights
convertible into or exercisable or exchangeable for, any shares
of capital stock
of the Company, or arrangements by which the Company is or may
become bound to
issue additional shares of capital stock, nor are any such
issuances or
arrangements contemplated other than pursuant to the Company's
2004 Consultant
Stock Plan, (B) there are no agreements or arrangements under
which the Company
is obligated to register the sale of any of its securities under
the Securities
Act and (C) the Company has no obligations (contingent or
otherwise) to
purchase, redeem or otherwise acquire any of its equity
securities or any
interests therein or to pay any dividend or make any
distribution in respect
thereof. The Company is not a party or subject to any agreement
or understanding
between any Person which affects or relates to the voting or
giving of written
consents concerning any security or by a director of the
Company.
(iii) The Company has furnished to the Issuer true and
correct
copies of the Company's Organizational Documents as in effect on
the date
hereof. The Company is not in violation of any provision of its
Organizational
Documents. None of the Securities is subject to preemptive
rights or any other
similar rights of the stockholders of the Company.
(c) Subsidiaries. Other than as specified in paragraph 2(c) of
the
Schedule of Exceptions, neither the Company nor any of its
Subsidiaries
presently owns or controls, directly or indirectly, or holds any
rights to
acquire, any interest in any other corporation, association or
other business
entity nor has the Company or any of its Subsidiaries ever held
such interest.
Neither the Company nor its Subsidiaries is a participant in any
joint venture,
partnership or similar arrangement nor has the Company or any of
its
Subsidiaries ever been a participant in any such arrangement.
Each of the
Company's Subsidiaries is duly organized and existing under the
laws of its
jurisdiction of organization and is in good standing under such
laws. None of
the Company's Subsidiaries owns or leases property or engages in
any activity in
any jurisdiction that might require its qualification to do
business as a
foreign corporation.
(d) Authorization. All corporate action on the part of each of
the
Company and its Subsidiaries, and their respective officers,
directors and
stockholders necessary for the authorization, execution and
delivery of each of
the Transaction Documents to which it is a party, the
performance of all
obligations of each of the Company and its Subsidiaries
hereunder and
thereunder, the sale and issuance (or reservation for issuance)
of the Notes and
Warrant being sold hereunder and the Common Stock issuable upon
conversion of
the Notes and Warrant has been taken or will be taken prior to
the Initial
Closing. The Transaction Documents to which each of the Company
and/or its
Subsidiaries is a party constitute valid and legally binding
obligations of the
Company and/or its Subsidiaries, enforceable in accordance with
their respective
terms. The Company's board of directors has determined in its
good faith
business judgment that the issuance of the Notes and the Warrant
hereunder and
the consummation of the other transactions contemplated by the
Transaction
Documents are in the best interest of the Company and its
stockholders.
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(e) Mining Companies. To the best of the Company's Knowledge,
(i)
each of the Mining Companies is duly organized and existing
under the laws of
its jurisdiction of organization and is in good standing under
such laws (ii)
each of the Mining Companies is qualified to do business as a
foreign entity and
is in good standing in each jurisdiction where owns property or
conducts
business, (iii) all company action on the part of each of the
Mining Companies,
and their respective officers, managers and members necessary
for the
authorization, execution and delivery of the Mine Security
Agreements, the
performance of all obligations of each of the Mining Companies
thereunder, has
been taken or will be taken prior to the Initial Closing, (iv)
the Mine Security
Agreements constitute valid and legally binding obligations of
the Mining
Companies, enforceable in accordance with their respective
terms, and (v) each
of the Mining Companies' respective have determined in its good
faith business
judgment that the execution and delivery of the Mine Security
Agreement are in
the best interest of the Mining Companies.
(f) Valid Issuance of Notes, Warrant and Common Stock. The Notes
and
Warrant that are being purchased by the Investor hereunder, when
issued, sold
and delivered in accordance with the terms of this Agreement for
the
consideration expressed herein, will be duly and validly issued
and will be free
of restrictions on transfer, other than restrictions on transfer
under
applicable state and federal securities laws. The Common Stock
issuable upon
conversion of the Notes and the exercise of the Warrant has been
duly and
validly reserved for issuance and, upon issuance, will be duly
and validly
issued, fully paid and nonassessable and will be free of
restrictions on
transfer, other than restrictions under applicable state and
federal securities
laws.
(g) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation,
declaration or
filing with, any federal, state or local governmental authority
on the part of
the Company or any of its Subsidiaries is required in connection
with the
consummation of the transactions contemplated by this Agreement,
except for such
filings required pursuant to applicable federal and state
securities laws, which
filings will be effected within the required statutory
period.
(h) Offering. Subject in part to the truth and accuracy of
the
Investor's representations set forth in SECTION 3 of this
Agreement, the offer,
sale and issuance of the Notes and Warrant as contemplated by
this Agreement are
exempt from the registration requirements of the Securities Act
and the
qualification or registration requirements of the applicable
blue sky laws.
Neither the Company nor any authorized agent acting on its
behalf will take any
action hereafter that would cause the loss of such
exemptions.
(i) Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the
Company or any of its
Subsidiaries (or, to the best of the Company's knowledge,
threatened against or
affecting any of the officers, directors or employees of the
Company or any of
its Subsidiaries with respect to their businesses or proposed
business
activities) that questions the validity of this Agreement or the
other
Transaction Documents or the right of the
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Company or any of its Subsidiaries to enter into such agreements
or to
consummate the transactions contemplated hereby, or that might
result, either
individually or in the aggregate, in any material adverse
changes in the
business, assets or condition of the Company or any of its
Subsidiaries,
financially or otherwise, or any change in the current equity
ownership of the
Company or any of its Subsidiaries nor is the Company or any of
its Subsidiaries
aware that there is any basis for the foregoing. The foregoing
includes, without
limitation, actions, suits, proceedings or investigations
pending or threatened
(or any basis therefor known to the Company) involving the prior
employment of
any of the Company's or any of its Subsidiaries' employees,
their use in
connection with the Company's or any of its Subsidiaries'
business of any
information or techniques allegedly proprietary to any of their
former employers
or their obligations under any agreements with prior employers.
Neither the
Company nor any of its Subsidiaries is a party or subject to the
provisions of
any order, writ, injunction, judgment or decree of any court or
government
agency or instrumentality. Neither the Company nor any of its
Subsidiaries has
received any opinion or memorandum or legal advice from legal
counsel to the
effect that it is exposed, from a legal standpoint, to any
liability or
disadvantage which may be material to its business. There is no
action, suit,
proceeding or investigation by the Company or any of its
Subsidiaries currently
pending or that the Company or any of its Subsidiaries intends
to initiate.
(j) Patents and Trademarks. The Schedule of Exceptions contains
a
complete and accurate list of all (i) patented or registered
Intellectual
Property Rights owned or used by the Company, or any of its
Subsidiaries (ii)
pending patent applications and applications for registrations
of other
Intellectual Property Rights filed by the Company or any of its
Subsidiaries and
(iii) unregistered trade names and corporate names owned or used
by the Company
or any of its Subsidiaries. Paragraph 2(j) of the Schedule of
Exceptions also
contains a complete and accurate list of all licenses and other
rights granted
by the Company or any of its Subsidiaries to any third party
with respect to any
Intellectual Property Rights and all licenses and other rights
granted by any
third party to the Company or any of its Subsidiaries with
respect to any
Intellectual Property Rights, in each case identifying the
subject Intellectual
Property Rights but not including licenses arising from the
purchase of "off the
shelf" or other standard products. Each of the Company and its
Subsidiaries owns
all right, title and interest in and to all of the Intellectual
Property Rights
listed in paragraph 2(j) of the Schedule of Exceptions free and
clear of
Encumbrances. Each of the Company and its Subsidiaries owns all
right, title and
interest in and to all of the Intellectual Property Rights free
and clear of all
Encumbrances. Each of the Company and its Subsidiaries owns all
right, title and
interest to, or has the right to use pursuant to a valid
license, all
Intellectual Property Rights necessary for the operation of the
business of the
Company or any of its Subsidiaries as presently conducted and as
presently
proposed to be conducted, free and clear of all Encumbrances.
Each of the
Company and its Subsidiaries has taken all necessary and
desirable actions to
maintain and protect the Intellectual Property Rights that it
owns. To the best
of the Company's knowledge, the owners of any Intellectual
Property Rights
licensed to the Company or any of its Subsidiaries have taken
all necessary and
desirable actions to maintain and protect the Intellectual
Property Rights that
are subject to such licenses. There have been no claims made
against the Company
or any of its Subsidiaries asserting the invalidity, misuse or
unenforceability
of any of such Intellectual Property Rights, and to the best of
the Company's
knowledge, there are no valid grounds for the same. Neither the
Company nor any
of its Subsidiaries has received any notices of, and is not
aware of any facts
which indicate a likelihood of, any infringement or
misappropriation by, or
conflict with, any third party with respect to such Intellectual
Property Rights
(including, without limitation, any
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demand or request that the Company or any of its Subsidiaries
license any rights
from a third party). To the best of the Company's knowledge, the
conduct of the
Company's or any of its Subsidiaries' business has not
infringed,
misappropriated or conflicted with and does not infringe,
misappropriate or
conflict with any Intellectual Property Rights of others, nor
would any future
conduct as presently contemplated infringe, misappropriate or
conflict with any
Intellectual Property Rights of others. To the best of the
Company's knowledge,
the Intellectual Property Rights owned by or licensed to the
Company or any of
its Subsidiaries have not been infringed, misappropriated or
conflicted by
others. The transactions contemplated by this Agreement shall
have no adverse
effect on the Company's or any of its Subsidiaries' right, title
and interest in
and to the Intellectual Property Rights. To the best of the
Company's knowledge
after due inquiry, none of its employees is obligated under any
contract
(including licenses, covenants or commitments of any nature) or
other agreement,
or subject to any judgment, decree or order of any court or
administrative
agency, that would interfere with the use of his or her best
efforts to promote
the interests of the Company or any of its Subsidiaries or that
would conflict
with the Company's or any of its Subsidiaries' business as
presently conducted
and as presently proposed to be conducted. Neither the execution
of this
Agreement nor the transactions contemplated by this Agreement
nor the carrying
on of the Company's or any of its Subsidiaries' business by the
employees of the
Company or any of its Subsidiaries, nor the conduct of the
Company's or any of
its Subsidiaries' business as presently proposed to be
conducted, will conflict
with or result in a breach of the terms, conditions or
provisions of, or
constitute a default under, any contract, covenant or instrument
under which any
of such employees is now obligated. The Company does not believe
it is or will
be necessary to use any inventions of any of its employees (or
people it
currently intends to hire) made prior to their employment by the
Company or any
of its Subsidiaries, except for inventions that have been
assigned or licensed
to the Company as of the date hereof.
(k) Compliance with Other Instruments.
(i) To the best of the Company's Knowledge, (A) each of the
Company and its Subsidiaries is not in violation of or default
under any
provision of its Organizational Documents or of any instrument,
judgment, order,
writ, decree or contract to which it is a party or by which it
is bound, or of
any provision of any federal or state statute, rule or
regulation applicable to
the Company and its Subsidiaries, and (B) the execution,
delivery and
performance of the Transaction Documents to which the Company or
any of its
Subsidiaries is a party and the consummation of the transactions
contemplated
hereby or thereby will not result in any such violation, or be
in conflict with
or constitute, with or without the passage of time or giving of
notice, either a
default under any such provision, instrument, judgment, order,
writ, decree or
contract or an event that results in the creation of any
Encumbrance upon any
assets of the Company or any of its Subsidiaries or the
suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license,
authorization or
approval applicable to the Company or its Subsidiaries, their
respective
business or operations or any of their respective assets or
properties. No
default or Event of Default has occurred under any of the
Transaction Documents.
(ii) Each of the Mining Companies is not in violation of or
default under any provision of its Organizational Documents or
of any
instrument, judgment, order, writ, decree or contract to which
it is a party or
by which it is bound, or of any provision of any federal or
state statute, rule
or regulation applicable to the Mining Companies. The execution,
delivery and
performance of the Mine Security Agreement to which any of the
Mining Companies
is a party and the consummation of the transactions contemplated
hereby or
thereby will not result in any such violation, or be in conflict
with or
constitute, with or without the passage of time or giving of
notice, either a
default under any such provision, instrument, judgment, order,
writ, decree or
contract or an event that results in the creation of any
Encumbrance upon any
assets of the Mining Companies or the suspension, revocation,
impairment,
forfeiture or nonrenewal of any permit, license, authorization
or approval
applicable to Mining Companies, their respective business or
operations or any
of their respective assets or properties.
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(l) Agreements; Action.
(i) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or
decrees to which
the Company or any of its Subsidiaries is a party or by which it
is bound that
may involve (A) obligations (contingent or otherwise) of, or
payments to, the
Company or any of its Subsidiaries in excess of $100,000, other
than obligations
of, or payments to, the Company or any of its Subsidiaries
arising from purchase
or sale agreements entered into in the Ordinary Course of
Business, (B) the
license of any patent, copyright, trade secret or other
proprietary right to or
from the Company or any of its Subsidiaries, other than licenses
arising from
the purchase of "off the shelf" or other standard products, (C)
provisions
restricting or affecting the development, manufacture or
distribution of the
products of any of the Company or its Subsidiaries, (D) a
warranty with respect
to its products sold, other than in the Ordinary Course of
Business, or (E)
indemnification by the Company or any of its Subsidiaries with
respect to
infringements of proprietary rights.
(ii) Neither the Company nor any of its Subsidiaries has (A)
declared or paid any dividends or authorized or made any
distribution upon or
with respect to any class or series of its capital stock, (B)
incurred any
indebtedness for money borrowed or any other liabilities
individually in excess
of $50,000 (other than as specified in the Schedule of
Exceptions) or, in the
case of indebtedness and/or liabilities individually less than
$50,000, in
excess of $100,000 in the aggregate, (C) made any loans or
advances to any
Person, other than ordinary advances for travel expenses, or (D)
sold, exchanged
or otherwise disposed of any of its assets or rights, other than
the sale of its
inventory in the Ordinary Course of Business.
(iii) For the purposes of subsections (i) and (ii)
immediately
above, all indebtedness, liabilities, agreements,
understandings, instruments,
contracts and proposed transactions involving the same Person or
entity
(including Persons the Company or any of its Subsidiaries has
reason to believe
are affiliated therewith) shall be aggregated for the purpose of
meeting the
individual minimum dollar amounts of such subsections.
(iv) All of the contracts, agreements and instruments set
forth on the Schedule of Exceptions are valid, binding and
enforceable in
accordance with their respective terms. Each of the Company and
its Subsidiaries
has performed all material obligations required to be performed
by it and is not
in default under or in breach of nor in receipt of any claim of
default or
breach under any contract, agreement or instrument and neither
the Company nor
any of its Subsidiaries has any present expectation or intention
of not fully
performing all such obligations. No event has occurred which
with the passage of
time or the giving of notice or both would result in a default,
breach or event
of noncompliance by the Company or any of its Subsidiaries under
any contract,
agreement or instrument. The Company has no knowledge of any
breach or
anticipated breach by the other parties to any contract,
agreement, instrument
or commitment.
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(v) The Company Records contain a true and correct copy of
each of the written instruments, plans, contracts and agreements
and an accurate
description of each of the oral arrangements, contracts and
agreements that are
referred to in the Company Records, together with all
amendments, waivers or
other changes thereto.
(vi) Neither the Company nor any of its Subsidiaries is a
party to and is not bound by any contract, agreement or
instrument, or subject
to any restriction under its Organizational Documents, that
adversely affects
its business as now conducted or as proposed to be conducted,
its properties or
its financial condition.
(vii) Neither the Company nor any of its Subsidiaries has
engaged in the past three (3) months in any discussion (i) with
any
representative of any corporation or corporations regarding the
consolidation or
merger of the Company or any of its Subsidiaries with or into
any such
corporation or corporations, (ii) with any corporation,
partnership, association
or other business entity or any individual regarding the sale,
conveyance or
disposition of all or substantially all of the assets of the
Company or any of
its Subsidiaries or a transaction or series of related
transactions in which
more than fifty percent (50%) of the voting power of the Company
or any of its
Subsidiaries is disposed of, or (iii) regarding any other form
of acquisition,
liquidation, dissolution or winding up of the Company or any of
its
Subsidiaries.
(m) Related-Party Transactions. No employee, stockholder,
officer or
director of the Company (or any of its Subsidiaries) or member
of his or her
Family is indebted to the Company (or any of its Subsidiaries),
nor is the
Company (or any of its Subsidiaries) indebted (or committed to
make loans or
extend or guarantee credit) to any of them. To the best of the
Company's
knowledge, none of such Persons has any direct or indirect
ownership interest in
any firm or corporation with which the Company (or any of its
Subsidiaries) is
affiliated or with which the Company (or any of its
Subsidiaries) has a business
relationship, or any firm or corporation that competes with the
Company (or any
of its Subsidiaries), except that employees, stockholders,
officers or directors
of the Company (or any of its Subsidiaries) and members of their
Families may
own stock in publicly traded companies that may compete with the
Company (or any
of its Subsidiaries). No officer, director, manager or member of
the Family of
any officer, director or manager of the Company (or any of its
Subsidiaries) is
directly or indirectly interested in any Material Contract with
the Company (or
any of its Subsidiaries).
(n) Financial Statements. The Company has delivered or caused to
be
delivered to the Investor audited consolidated balance sheets
and audited
consolidated statements of income and retained earnings and cash
flows of the
Company and each of its Subsidiaries, as applicable, as of
December 31, 2003
(the "DELIVERED FINANCIAL STATEMENTS"). The Schedule of
Exceptions sets forth an
unaudited consolidated balance sheet of the Company and its
Subsidiaries, as
applicable, as of September 30, 2004 and unaudited consolidated
statements of
income of the Company and its Subsidiaries, as applicable, for
the nine months
ended September 30, 2004 (the "FINANCIAL STATEMENTS"). The
Delivered Financial
Statements were prepared in conformity with GAAP applied
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<PAGE>
on a consistent basis (except as may be indicated in the notes
thereto) and
present fairly, in all material respects, the financial position
and the results
of operations of the Company and its Subsidiaries, as
applicable, as of the
dates, and for the periods, referred to therein. The Financial
Statements were
prepared in conformity with GAAP applied on a consistent basis
(except for the
lack of footnote disclosure) and present fairly, in all material
respects, the
financial position and the results of operations of the Company
and its
Subsidiaries, as applicable, as of the dates, and for the
periods, referred to
therein.
(o) SEC Documents. Within the 18-month period immediately
preceding
the date hereof, the Company has made all filings with the SEC
required under
the Exchange Act or the Securities Act. The Company has
previously made
available to Investor complete and accurate copies, as amended
or supplemented
through the date hereof, of the following forms filed with the
SEC: (i) Form
10-QSB under the Exchange Act for the period ended September 30,
2004, (ii) Form
10-KSB under the Exchange Act for the fiscal year ended December
31, 2003, and
(iii) each Form 8-K filed by the Company during fiscal years
2003 and 2004 (such
reports are collectively referred to herein as the "COMPANY
REPORTS"). As of
their respective dates, the Company Reports did not contain any
untrue statement
of a material fact or omit to state a material fact required to
be stated
therein or necessary to make the statements therein, in light of
the
circumstances under which they were made, not misleading. The
audited financial
statements and unaudited interim financial statements of the
Company included in
the Company Reports (i) comply as to form in all material
respects with
applicable accounting requirements and published rules and
regulations of the
SEC with respect thereto, (ii) have been prepared in accordance
with GAAP
applied on a consistent basis throughout the periods covered
thereby (except as
may be indicated therein or in the notes thereto, and in the
case of quarterly
financial statements, as permitted by Form 10-QSB under the
Exchange Act), and
(iii) fairly presented in all material respects (subject, in the
case of the
unaudited interim financial statements, to normal, year-end
audit adjustments,
none of which will be material) the consolidated financial
condition, results of
operations and cash flows of the Company as of the respective
dates thereof and
for the periods referred to therein.
(p) Changes. Since September 30, 2004, there has not been:
(i) any adverse change in the assets, liabilities, financial
condition or operating results of the Company and/or its
Subsidiaries from that
reflected in the Company's Form 10-QSB under the Exchange Act
for the period
ended September 30, 2004;
(ii) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets,
properties,
financial condition, operating results or business of the
Company or any of its
Subsidiaries;
(iii) any waiver by the Company or any of its Subsidiaries
of
a valuable right or of a debt owed to it;
(iv) any satisfaction or discharge of any Encumbrance or
payment of any obligation by the Company or any of its
Subsidiaries;
10
<PAGE>
(v) any change or amendment to a Material Contract or
arrangement by which the Company or any of its Subsidiaries or
any of their
respective assets or properties is bound or subject;
(vi) any change in any compensation arrangement or agreement
with any employee of the Company or Subsidiaries;
(vii) any sale, assignment or transfer of any patents or
patent applications, trademarks or trademark applications,
service marks, trade
names, corporate names, copyrights or copyright registrations,
trade secrets or
other intangible assets, or disclosure of any proprietary
confidential
information to any Person;
(viii) any resignation or termination of employment of any
key
officer of the Company or any of its Subsidiaries; and the
Company, to the best
of its knowledge, does not know of the impending resignation or
termination of
employment of any such officer;
(ix) any declaration, payment, setting aside or other
distribution of cash or other property to its stockholders with
respect to its
capital stock or other equity securities (including without
limitation, any
warrants, options or other rights to acquire its capital stock
or other equity
securities);
(x) any Encumbrance created by, or transfer of a security
interest in, the Company or any of its Subsidiaries, with
respect to any of its
properties or assets, except liens for taxes not yet due or
payable;
(xi) receipt of notice that there has been a loss of, or
order
cancellation by, any major customer of the Company or any of its
Subsidiaries;
(xii) made capital expenditures or commitments therefor that
aggregate in excess of $50,000;
(xiii) made any loans or advances to, guarantees for the
benefit of, or any investments in, any Person (including but not
limited to any
of the Company's or any of its Subsidiaries' employees, officers
or directors,
or any members of their immediate families), corporation,
partnership, joint
venture or other entity;
(xiv) to the best of the Company's knowledge, any other
event
or condition of any character that might materially and
adversely affect the
assets, properties, financial condition, operating results or
business of the
Company or any of its Subsidiaries; or
(xv) any agreement or commitment by the Company or any of
its
Subsidiaries to do any of the things described in this Section
(p).
(q) Tax Returns. Except as set forth on the Schedule of
Exceptions,
(i) each of the Company and its Subsidiaries has timely filed
all Tax returns
(federal, state and local) required to be filed by it and all
Taxes, assessments
and other government charges imposed upon the Company or any of
its
Subsidiaries, or upon any of the assets, income or franchises of
the Company or
any of
11
<PAGE>
its Subsidiaries, have been timely paid or, if not yet payable,
are adequately
accrued on each of the Company's and its Subsidiaries' books and
records; (ii)
there are no actual or proposed Tax deficiencies, assessments or
adjustments
with respect to the Company or any of its Subsidiaries or any
assets or
operations of the Company or any of its Subsidiaries; (iii) no
consent has been
given with respect to the Company or any of its Subsidiaries to
extend the time
in which any Tax may be assessed or collected by any taxing
authority; (iv)
there are no ongoing or pending Tax audits by any taxing
authority against the
Company or any of its Subsidiaries; (v) the Company has never
filed a consent
relating to any assets or property pursuant to Section 341(f) of
the Code,
relating to collapsible corporations; and (vi) none of the
assets or income
items of the Company or any of its Subsidiaries has been or
potentially is
subject to Tax under Code Section 1374 (or any corresponding
provision of state,
local or foreign law).
(r) Permits. Each of the Company and its Subsidiaries has
all
franchises, permits, licenses and any similar authority
necessary for the
conduct of its business, and the Company believes it can obtain,
without undue
burden or expense, any similar authority for the conduct of its
or any of the
Subsidiaries' business as planned to be conducted. Neither the
Company nor any
of the Subsidiaries is in default in any material respect under
any of such
franchises, permits, licenses or other similar authority.
(s) Environmental and Safety Laws. Each of the Company and
its
Subsidiaries, the operation of their respective businesses and
any real property
that the Company or any of the Subsidiaries owns or has owned,
leases or has
leased or otherwise occupies or uses or has occupied or used
(the "PREMISES")
are, to the best of the Company's knowledge, in compliance with
all applicable
Environmental Laws and orders or directives of any governmental
authorities
having jurisdiction under such Environmental Laws. The Company
has not received
any citation, directive, letter or other communication, written
or oral, or any
notice of any proceeding, claim or lawsuit, from any Person
arising out of the
ownership or occupation of the Premises, or the conduct of its
operations, and
the Company is not aware of any basis therefor. To the best of
the Company's
knowledge, no material expenditures are or will be required to
comply with any
Environmental Laws.
(t) Registration Rights. Except as provided in the Schedule
of
Exceptions, the Company has not granted or agreed to grant any
registration
rights, including piggyback rights, to any Person or entity.
(u) Title to Property and Assets. The Company and its
Subsidiaries
have good and marketable title to their respective properties
and assets,
including the properties and assets reflected in the most recent
audited balance
sheet of the Company or purported to have been acquired by the
Company or any
Subsidiary after said date (except as sold or otherwise disposed
of in the
Ordinary Course of Business), in each case free and clear of
Encumbrances. All
leases of the Company and its Subsidiaries are valid and
subsisting and are in
full force and effect in all material respects. Neither the
Company nor any of
its Subsidiaries owns any real property and none of them is in
material breach
of any real property lease.
(v) Insurance. Each of the Company and its Subsidiaries has in
full
force and effect fire and casualty insurance policies, with
extended coverage,
sufficient in amount (subject to
12
<PAGE>
reasonable deductibles) to allow it to replace any of its
properties that might
be damaged or destroyed. Each of the Company and its
Subsidiaries has in full
force and effect products liability and errors and omissions
insurance in
amounts customary for companies similarly situated. Neither the
Company nor any
of its Subsidiaries is in default with respect to its
obligations under any
insurance policy maintained by it, and neither the Company nor
any of the
Subsidiaries has been denied insurance coverage. The Company and
its
Subsidiaries shall pay all insurance premiums payable by them.
The Company has
directors' and officers' liability insurance policies (primary
and excess) that
are in full force and effect for an aggregate of $10 million of
coverage.
(w) Employee Benefit Plans. (i) neither the Company nor any
Subsidiary has employee benefit plans (as defined in Section
3(3) of ERISA);
(ii) the Company and each Subsidiary does not now, or has it
ever, maintained,
established, sponsored, participated in, or contributed to, any
pension plan
within the meaning of Section 3(2) of ERISA which is subject to
Title IV of
ERISA or Section 412 of the Internal Revenue Code of 1986, as
amended; and (iii)
at no time has the Company or any Subsidiary contributed to or
been requested to
contribute to any multiemployer plan as defined in Section 3(37)
of ERISA.
(x) Employee Relations.
(i) All material bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock
ownership, stock
bonus, stock purchase, restricted stock plan, stock option or
award plan, health
and medical insurance plans, life insurance and disability
insurance plans,
other material employee benefit plans, contracts or arrangements
which cover
multiple employees of the Company or the Subsidiaries including,
but not limited
to, "employee benefit plans" within the meaning of ERISA
(collectively, the
"Employee Benefit Plans"), are listed in paragraph 2(x)(i) of
the Schedule of
Exceptions. No Employee Benefit Plans are or were collectively
bargained for or
have terms requiring assumption of any guarantee by the
Investor.
(ii) There have been no violations of ERISA or the Code by
the
Company or any of the Subsidiaries relating to any Employee
Benefit Plan. Each
of the Company and its Subsidiaries has timely filed all
documents, notes and
reports (including IRS Form 5500) for each such Employee Benefit
Plan with all
applicable governmental authorities and has timely furnished all
required
documents to the participants or beneficiaries of each such
Employee Benefit
Plans.
(iii) The Company and its Subsidiaries have operated and
administered all plans, programs and arrangements providing
compensation and
benefits to employees materially in accordance with their terms
and applicable
laws.
(iv) The Company and its Subsidiaries are not delinquent in
payments to any of their employees for any wages, salaries,
commissions, bonuses
or other direct compensation for any services performed through
the date hereof.
The Company and its Subsidiaries are in compliance with all
applicable federal
and state laws, rules and regulations respecting employment,
employment
practices, labor, terms and conditions of employment and wages
and hours, except
for either immaterial instances of noncompliance or instances of
noncompliance
of which the Company is unaware. Neither the Company nor any
Subsidiary is party
to any collective bargaining agreement. There is no labor
strike, dispute,
slowdown or stoppage actually pending or, to the knowledge of
the Company,
threatened against or involving the Company or any
Subsidiary.
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<PAGE>
(v) No director, officer or other employee of the Company or
any Subsidiary will become entitled to any retirement, severance
or similar
benefit or enhanced or accelerated benefit (including any
acceleration of
vesting or lapse of repurchase rights or obligations with
respect to any
Employee Benefit Plan) solely as a result of the transactions
contemplated in
this Agreement; and no payment made or to be made to any current
or former
employee or director of the Company or any of its Affiliates by
reason of the
transactions contemplated hereby (whether alone or in connection
with any other
event, including, but not limited to, a termination of
employment) will
constitute an "excess parachute payment" within the meaning of
Section 280G of
the Code.
(vi) The Company and each of its Subsidiaries (A) has
withheld
all amounts required by law or agreement to be withheld from
wages, salaries and
other payments to its employees and former employees or has
remedied any failure
to do so, (B) is not liable for any arrearages of wages and
(iii) is not liable
for Taxes or penalties for failure to withhold or pay wages when
due. There are
no complaints pending or, to the Company's knowledge, threatened
before any
governmental authority alleging unfair labor practices or
unlawful
discrimination nor, to the Company's knowledge, is there any
basis for any such
claim. There are no existing or, to the Company's knowledge,
threatened labor
strikes, disputes, grievances, controversies or other labor
troubles affecting
the Company or any of its Subsidiaries.
(vii) Each employee and consultant or independent contractor
of the Company or any of its Subsidiaries whose material duties
include the
development of products or Intellectual Property Rights, and
each former
employee and consultant or independent contractor whose material
duties included
the development of products or Intellectual Property Rights, has
entered into
and executed an invention assignment and confidentiality
agreement or an
employment or consulting agreement containing terms with respect
to invention
assignments and confidentiality.
(y) Brokers. There is no investment banker, broker, finder,
financial advisor or other Person which has been retained by or
is authorized to
act on behalf of the Company or any of its Subsidiaries who
might be entitled to
any fee or commission in connection with the transactions
contemplated by this
Agreement or the other Transaction Documents.
(z) Foreign Corrupt Practices Act. Neither the Company nor
any
Subsidiary, director, officer, agent, employee or other Person
acting on behalf
of the Company or any Subsidiary has, in the course of his, her
or its actions
for, or on behalf of, the Company or any Subsidiary, offered or
made, directly
or indirectly through any other Person, any payments of anything
of value (in
the form of a contribution, gift, entertainment or other
expense), to (a) any
Person employed by, or acting in an official capacity on behalf
of, any
governmental agency, department or instrumentality, or (b) any
foreign or
domestic government official, political party or official of
such party, or any
candidate for political office or employee thereof. Neither the
Company, any
Subsidiary, nor any director, officer, agent, employee or other
Person acting on
behalf of the Company or any Subsidiary has violated or is in
violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or made
any bribe, rebate, payoff, influence payment, kickback or
unlawful payment to
any foreign or domestic government or political party official,
employee,
appointee or candidate.
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<PAGE>
(aa) Manufacturing and Marketing Rights. Neither the Company nor
any
of its Subsidiaries has granted rights to manufacture, produce,
assemble,
license, market or sell its products to any Person and is not
bound by any
agreement that affects the Company's or its Subsidiaries'
exclusive right to
develop, manufacture, assemble, distribute, market or sell its
products.
(bb) Returns and Complaints. Neither the Company nor any of
its
Subsidiaries has received any customer complaints concerning its
products, nor
has it had its products returned by a purchaser thereof, that
taken together
would constitute a Material Adverse Effect.
(cc) Status under Certain Statutes. Neither the Company nor
any
Subsidiary is subject to regulation under the Investment Company
Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as
amended, the
Interstate Commerce Act, as amended, or the Federal Power Act,
as amended.
(dd) Existing Indebtedness. The Schedule of Exceptions sets
forth a
complete and correct list of all outstanding Indebtedness of the
Company and its
Subsidiaries as of the Initial Closing Date (and as of each
subsequent Closing,
as applicable), since which date there has been no material
change in the
amounts, interest rates, sinking funds, installment payments or
maturities of
the Indebtedness of the Company or its Subsidiaries. Neither the
Company nor any
Subsidiary is in default and no waiver of default is currently
in effect, in the
payment of any principal or interest on any Indebtedness of the
Company or such
Subsidiary and no event or condition exists with respect to any
Indebtedness of
the Company or any Subsidiary that would permit (or that with
notice or the
lapse of time, or both, would permit) one or more Persons to
cause such
Indebtedness to become due and payable before its stated
maturity or before its
regularly scheduled dates of payment. Except as set forth on the
Schedule of
Exceptions, since September 30, 2004, neither the Company nor
any of the
Subsidiaries has incurred any liabilities of any kind, character
and
description, whether accrued, absolute, secured or unsecured,
contingent or
otherwise of a kind that would have been required to be
disclosed on the
Financial Statements if they were dated as of the date hereof
other than (i)
liabilities incurred in the Ordinary Course of Business
subsequent to the date
of the Financial Statements and (ii) obligations under contracts
and commitments
incurred in the ordinary course of business and not required
under GAAP to be
reflected in the Financial Statements. (ee) No Material Adverse
Effect. No event
has occurred and no condition exists which could reasonably be
expected to have
a Material Adverse Effect since September 30, 2004.
(ff) Registration Rights. Except as set forth in the
Registration
Rights Agreement and those registration rights specified on the
Schedule of
Exceptions, the Company has not agreed to grant to any Person
any rights
(including piggyback registration rights) to have any securities
of the Company
registered with the SEC under the Securities Act or with any
other governmental
authority.
15
<PAGE>
(gg) Anti-Dilution and Other Shares(i) . The issuance of the
Note,
Warrant or any of the other securities contemplated by the
Transaction Documents
will not result in the triggering of any anti-dilution or
similar rights
contained in any options, warrants, debentures or other
securities or agreements
of the Company.
(hh) Poison Pill Provisions. Neither the Company nor its
Subsidiaries has a stockholder rights plan. None of the
acquisition of the Note,
the Warrant or any of the of the other securities contemplated
by the
Transaction Documents nor the deemed beneficial ownership of
shares of any of
the securities contemplated by the Transaction Documents prior
to, or the
acquisition of such shares pursuant to, the conversion of Note
or the exercise
of the Warrant will in any event under any circumstance trigger
the poison pill
provisions of any other or subsequently adopted plan or
agreement, or a
substantially similar occurrence under any successor or similar
plan.
(ii) No Preemptive Rights . Except as set forth in this
Agreement,
no Person has any right of first refusal, any right of first
offer, any right of
co-sale, any preemptive right or any similar rights in
connection with the
issuance of any of the Notes or Warrant (or any securities
issued in connection
with the conversion of any of the Notes or exercise of the
Warrant), or the
issuance of any other securities by the Company, other than
pursuant to the
Transaction Documents.
(jj) No Voting Rights. There are no agreements to which the
Company
is a party with respect to the voting or transfer of any
securities of the
Company other than the Transaction Documents or as set forth in
the Company's
articles of incorporation, as amended or restated.
(kk) Acknowledgment Regarding the Purchase of the Securities.
The
Company acknowledges and agrees that the Investor and its
agents, employees,
attorneys and affiliates are not acting as a financial advisor
or fiduciary of
the Company (or in any similar capacity) with respect to this
Agreement or the
transactions contemplated hereby, and the relationship between
the Company and
the Investor is "arms length" and that, except for the
representations and
warranties of the Investor under this Agreement, any statement
made by the
Investor or any of its representatives, employees, attorneys,
affiliates or
agents in connection with this Agreement and the transactions
contemplated
hereby is not advice or a recommendation and is merely
incidental to the
Investor's purchase of Securities and has not been relied upon
by the Company,
its officers or directors in any way. The Company further
represents to the
Investor that the Company's decision to enter into this
Agreement has been based
solely on an independent evaluation by the Company and its
representatives.
(ll) Representations and Warranties Incorporated from the
Security
Documents. As of the Applicable Closing Date, each of the
representations and
warranties made in the Security Documents by the Company or any
of its
Subsidiaries or, to the best of the Company's Knowledge, any of
the Mining
Companies is true and correct in all material respects, and such
representations
and warranties are hereby incorporated herein by reference with
the same effect
as though set forth in their entirety herein, as qualified
therein.
(mm) No Default. No Event of Default has occurred and is
continuing
and neither the Company nor any of its Subsidiaries is in
default under or with
respect to any Material Contract, agreement, lease or other
instrument to which
it is a party or by which its property is bound or affected.
16
<PAGE>
(nn) Absence of Certain Changes. Except as set forth in the
Company
Reports, since September 30, 2004, the businesses and operations
of the Company
and each of its Subsidiaries have been conducted in the Ordinary
Course of
Business consistent with past practice and there has not been or
occurred any
event or condition which, individually or in the aggregate, has
had or is
reasonably likely to have a Material Adverse Effect.
(oo) Disclosure. The Company has fully provided Investor with
all
the information that Investor has requested for deciding whether
to purchase the
Notes and Warrant and all information that the Company believes
is reasonably
necessary to enable Investor to make such decision. Neither this
Agreement
(including all the exhibits and schedules hereto) nor any other
statements or
certificates made or deli
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