Exhibit
10.10
NOTE AND WARRANT
PURCHASE
AGREEMENT
Dated as of September 30,
2005
by and among
SILVER STAR ENERGY,
INC.
and
THE PURCHASERS LISTED ON EXHIBIT
A
TABLE OF CONTENTS
Page
ARTICLE I
Purchase and Sale of Notes and
Warrants
1
Section 1.1
Purchase and Sale of Notes and
Warrants.
1
Section 1.2
Purchase Price and Closing
1
Section 1.3
Conversion Shares / Warrant
Shares
2
Section 1.4
Additional Investment Right
2
ARTICLE II
Representations and Warranties
3
Section 2.1
Representations and Warranties of the
Company
3
Section 2.2
Representations and Warranties of the
Purchasers
13
ARTICLE III
Covenants
16
Section 3.1
Securities Compliance
16
Section 3.2
Registration and Listing
16
Section 3.3
Inspection Rights
17
Section 3.4
Compliance with Laws
17
Section 3.5
Keeping of Records and Books of
Account
17
Section 3.6
Reporting Requirements
17
Section 3.7
Other Agreements
18
Section 3.8
Use of Proceeds
17
Section 3.9
Reporting Status
17
Section 3.10
Disclosure of Transaction
17
Section 3.11
Disclosure of Material
Information
18
Section 3.12
Pledge of Securities
18
Section 3.13
Amendments
18
Section 3.14
Distributions
18
Section 3.15
Reservation of Shares
18
Section 3.16
Transfer Agent Instructions
19
Section 3.17
Disposition of Assets
19
Section 3.18
Form SB-2 Eligibility
19
Section 3.19
Restrictions on Certain Issuances of
Securities
20
Section 3.20
Lock-Up Agreement
20
Section 3.21
Subsequent Financings
20
ARTICLE IV
Conditions
22
Section 4.1
Conditions Precedent to the Obligation of
the Company to Close and to Sell the Securities
22
Section 4.2
Conditions Precedent to the Obligation of
the Purchasers to Close and to Purchase the Securities22
Section 4.3
Conditions Precedent to the Obligation of
the Purchasers to Close and to Purchase the Option Notes
23
ARTICLE V
Certificate Legend
26
Section 5.1
Legend
25
ARTICLE VI
Indemnification
27
Section 6.1
General Indemnity.
27
TABLE OF CONTENTS
(continued)
Page
Section 6.2
Indemnification Procedure
27
ARTICLE VII
Miscellaneous
28
Section 7.1
Fees and Expenses
28
Section 7.2
Specific Performance; Consent to
Jurisdiction; Venue.
29
Section 7.3
Entire Agreement; Amendment
29
Section 7.4
Notices
29
Section 7.5
Waivers
30
Section 7.6
Headings
31
Section 7.7
Successors and Assigns
31
Section 7.8
No Third Party Beneficiaries
31
Section 7.9
Governing Law
31
Section 7.10
Survival
31
Section 7.11
Counterparts
31
Section 7.12
Publicity
31
Section 7.13
Severability
31
Section 7.14
Further Assurances
32
1
NOTE AND WARRANT PURCHASE
AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT
dated as of September 30, 2005 (this " Agreement ") by and
among Silver Star Energy, Inc., a Nevada corporation (the "
Company "), and each of the purchasers of the senior secured
convertible promissory notes of the Company whose names are set
forth on Exhibit A attached hereto (each a "
Purchaser " and collectively, the " Purchasers ").
The parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section
1.1
Purchase and Sale of Notes and
Warrants .
(a)
Upon the following terms and conditions,
the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, senior secured
convertible promissory notes in the aggregate principal amount of
up to Ten Million Dollars ($10,000,000), convertible into shares of
the Company's common stock, par value $0.001 per share (the "
Common Stock "), in substantially the form attached hereto
as Exhibit B (the " Notes "). The Company and
the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder (the " Securities Act "), including Regulation D
(" Regulation D "), and/or upon such other exemption from
the registration requirements of the Securities Act as may be
available with respect to any or all of the investments to be made
hereunder.
(b)
Upon the following terms and conditions,
the Purchasers shall be issued Warrants, in substantially the form
attached hereto as Exhibit C (the " Warrants "), to
purchase a number of shares of Common Stock equal to one hundred
percent (100%) of the number of Conversion Shares (as defined in
Section 1.3 hereof) issuable upon conversion of such Purchaser's
Notes purchased pursuant to this Agreement as set forth opposite
such Purchaser's name on Exhibit A attached hereto.
The Warrants shall expire five (5) years following the
Closing Date and shall have an exercise price per share equal to
the Warrant Price (as defined in the Warrants).
Section
1.2
Purchase Price and Closing
. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon
the representations, warranties, covenants, terms and conditions of
this Agreement, the Purchasers, severally but not jointly, agree to
purchase the Notes and Warrants for an aggregate purchase price of
up to Ten Million Dollars ($10,000,000) (the " Purchase
Price "). The closing of the purchase and sale of the
Notes and Warrants to be acquired by the Purchasers from the
Company under this Agreement shall take place at the offices of
Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the
Americas, New York, New York 10036 (the " Closing ") at
10:00 a.m., New York time (i) on or before October 21, 2005;
provided , that all of
2
the conditions set forth in Article IV
hereof and applicable to the Closing shall have been fulfilled or
waived in accordance herewith, or (ii) at such other time and place
or on such date as the Purchasers and the Company may agree upon
(the " Closing Date "). Subject to the terms and
conditions of this Agreement, at the Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) its Note for
the principal amount set forth opposite the name of such Purchaser
on Exhibit A hereto and (y) a Warrant to purchase such
number of shares of Common Stock as is set forth opposite the name
of such Purchaser on Exhibit A attached hereto. At the
Closing, each Purchaser shall deliver its Purchase Price by wire
transfer to an account designated by the Company.
Section 1.3
Conversion Shares / Warrant
Shares . The Company has
authorized and has reserved and covenants to continue to reserve,
free of preemptive rights and other similar contractual rights of
stockholders, a number of its authorized but unissued shares of
Common Stock equal to one hundred twenty percent (120%) of
(a) the aggregate number of shares of Common Stock to effect the
conversion of the Notes and any interest accrued and outstanding
thereon and exercise of the Warrants and (b) upon exercise of the
Purchaser Option (as defined in Section 1.4 hereof), the aggregate
number of shares of Common Stock to effect the conversion of the
Option Notes (as defined in Section 1.4 hereof) and any interest
accrued and outstanding thereon and exercise of the Additional
Warrants (as defined in Section 1.4 hereof). Any shares of
Common Stock issuable upon conversion of the Notes and the Option
Notes and any interest accrued and outstanding on the Notes and the
Option Notes are herein referred to as the " Conversion
Shares ". Any shares of Common Stock issuable upon
exercise of the Warrants (and such shares when issued) are herein
referred to as the " Warrant Shares ". The Notes, the
Option Notes, the Warrants, the Additional Warrants (as defined in
Section 1.4 hereof), the Conversion Shares and the Warrant Shares
are sometimes collectively referred to herein as the "
Securities ".
Section 1.4
Additional Investment Right
. Commencing on the Effective Date
(as defined below) of the Registration Statement (as defined in the
Registration Rights Agreement), each Purchaser shall have the
option to purchase from the Company, and the Company shall issue
and sell to each such Purchaser who exercises such option, a Note
for the principal amount of up to such Purchaser's pro rata portion
of the Purchase Price pursuant to the terms hereof (the "
Purchaser Option "). For purposes of this Agreement, "
Effective Date " means the date that the Commission declares
the Registration Statement effective. If any Purchaser elects
not to exercise its Purchase Option, each other Purchaser may
exercise its Purchaser Option on a pro-rata basis so long as such
participation in the aggregate does not exceed the aggregate
Purchase Price hereunder. For purposes of this Section 1.4,
all references to "pro rata" means, for any Purchaser electing to
exercise its Purchaser Option, the percentage obtained by dividing
(x) the principal amount of the Notes purchased by such Purchaser
at the Closing by (y) the total principal amount of all of the
Notes purchased by each Purchaser exercising its Purchaser Option.
Upon the Purchaser Option being exercised, each Purchaser
exercising its Purchase Option shall receive a Warrant (the "
Additional Warrants ") to purchase a number of shares of
Common Stock equal to one hundred percent (100%) of the number of
Conversion Shares issuable upon conversion of the Note acquired by
such Purchaser pursuant to this Section 1.4. Each such
Additional Warrant shall expire five (5) years following the date
of issuance thereof and shall have an exercise price per share
equal to the Warrant Price. The Purchaser Option shall expire
six (6) months following the Effective Date. The Company may
cause each Purchaser to exercise its Purchaser Option or forfeit
its right to exercise such Purchaser Option in
3
the future upon five (5) business days
prior written notice in the event that (A) the average closing
price of the Common Stock exceeds $0.49 for a period of twenty (20)
consecutive Trading Days (as defined in Section 3.10 hereof), (B)
the Common Stock trades at least 500,000 shares for each Trading
Day during such twenty (20) consecutive Trading Day period and (C)
the Registration Statement has been declared effective by the
Commission. Each Purchaser exercising the Purchaser Option
shall deliver to the Company an Exercise Form in the form attached
hereto as Exhibit D . Within five (5) days of receipt
of such Exercise Form, the Company shall deliver to the Purchaser
exercising such Purchaser Option a Note representing the principal
amount purchased pursuant to the Purchaser Option (the " Option
Notes ") and the Purchaser's Additional Warrant.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section
2.1
Representations and Warranties of the
Company . The Company
hereby represents and warrants to the Purchasers, as of the date
hereof and the Closing Date (except as set forth on the Schedule of
Exceptions attached hereto with each numbered Schedule
corresponding to the section number herein), as follows:
(a)
Organization, Good Standing and
Power . The Company is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the
requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as
defined in Section 2.1(g)) or own securities of any kind in any
other entity except as set forth on Schedule 2.1(g) hereto.
The Company and each such Subsidiary (as defined in Section
2.1(g)) is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in
the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this
Agreement, " Material Adverse Effect " means any material
adverse effect on the business, operations, properties, prospects,
or financial condition of the Company and its Subsidiaries and/or
any condition, circumstance, or situation that would prohibit or
otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material
respect.
(b)
Authorization; Enforcement
. The Company has the requisite
corporate power and authority to enter into and perform this
Agreement, the Notes, the Warrants, the Registration Rights
Agreement by and among the Company and the Purchasers, dated as of
the date hereof, substantially in the form of Exhibit E
attached hereto (the " Registration Rights Agreement "), the
Security Agreement by and among the Company and the Purchasers,
dated as of the date hereof, substantially in the form of
Exhibit F attached hereto (the " Security Agreement
"), the Lock-Up Agreement (as defined in Section 3.20 hereof) a
form of which is attached hereto as Exhibit G , and the
Irrevocable Transfer Agent Instructions (as defined in Section 3.16
hereof) (collectively, the " Transaction Documents ") and to
issue and sell the Securities in accordance with the terms hereof.
The execution, delivery and performance of the
4
Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby
have been duly and validly authorized by all necessary corporate
action, and, except as set forth on Schedule 2.1(b) , no
further consent or authorization of the Company, its Board of
Directors or stockholders is required. When executed and
delivered by the Company, each of the Transaction Documents shall
constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor's rights and
remedies or by other equitable principles of general
application.
(c)
Capitalization . The authorized capital stock and the issued
and outstanding shares of capital stock of the Company as of the
Closing Date is set forth on Schedule 2.1(c) hereto.
All of the outstanding shares of the Common Stock and any
other outstanding security of the Company have been duly and
validly authorized. Except as set forth in this Agreement,
the Commission Documents (as defined in Section 2.1(f)) or as set
forth on Schedule 2.1(c) hereto, no shares of Common Stock
or any other security of the Company are entitled to preemptive
rights or registration rights and there are no outstanding options,
warrants, scrip, rights to subscribe to, call or commitments of any
character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and as set
forth on Schedule 2.1(c) hereto, there are no contracts,
commitments, understandings, or arrangements by which the Company
is or may become bound to issue additional shares of the capital
stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except for
customary transfer restrictions contained in agreements entered
into by the Company in order to sell restricted securities or as
provided on Schedule 2.1(c) hereto, the Company is not a
party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to
any of its equity or debt securities. Except as set forth on
Schedule 2.1(c) , the Company is not a party to, and it has
no knowledge of, any agreement or understanding restricting the
voting or transfer of any shares of the capital stock of the
Company.
(d)
Issuance of Securities
. The Notes and the Warrants to be
issued at the Closing have been duly authorized by all necessary
corporate action and, when paid for or issued in accordance with
the terms hereof, the Notes shall be validly issued and
outstanding, free and clear of all liens, encumbrances and rights
of refusal of any kind. When the Conversion Shares and
Warrant Shares are issued and paid for in accordance with the terms
of this Agreement and as set forth in the Notes and Warrants, such
shares will be duly authorized by all necessary corporate action
and validly issued and outstanding, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of refusal of
any kind and the holders shall be entitled to all rights accorded
to a holder of Common Stock. When the Option Notes are issued
in accordance with the terms of this Agreement, such Option Notes
will be duly authorized by all necessary corporate action and
validly issued and outstanding, free and clear of all liens,
encumbrances and rights of refusal of any kind.
(e)
No Conflicts . The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the
Company of its obligations under the Notes and the consummation by
the Company of the transactions contemplated hereby and thereby,
and the issuance of the Securities as contemplated hereby, do not
and will not (i) violate or conflict
5
with any provision of the Company's
Articles of Incorporation (the " Articles ") or Bylaws (the
" Bylaws "), each as amended to date, or any Subsidiary's
comparable charter documents, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries' respective properties or assets are bound, or
(iii) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to
the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries are bound or
affected, except, in all cases, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect (other than violations pursuant to clauses
(i) or (iii) (with respect to federal and state securities laws)).
Neither the Company nor any of its Subsidiaries is required
under federal, state, foreign or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for
it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Securities in
accordance with the terms hereof (other than any filings, consents
and approvals which may be required to be made by the Company under
applicable state and federal securities laws, rules or regulations
or any registration provisions provided in the Registration Rights
Agreement).
(f)
Commission Documents, Financial
Statements . The Common
Stock of the Company is registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the "
Exchange Act "), and the Company has timely filed all
reports, schedules, forms, statements and other documents required
to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein
as the " Commission Documents "). At the times of
their respective filings, the Form 10-QSB for the fiscal quarters
ended June 30, 2005, March 31, 2005 and September 30, 2004
(collectively, the " Form 10-QSB ") and the Form 10-KSB for
the fiscal year ended December 31, 2004 (the " Form 10-KSB
") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such documents, and the Form
10-QSB and Form 10-KSB did not 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. As of their respective dates, the financial
statements of the Company included in the Commission Documents
complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of
the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("
GAAP ") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly
present in all material respects the financial position of the
Company and its Subsidiaries as of the dates thereof and the
results of operations and cash flows
6
for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit
adjustments).
(g)
Subsidiaries . Schedule 2.1(g) hereto sets forth each
Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each
person's ownership of the outstanding stock or other interests of
such Subsidiary. For the purposes of this Agreement, "
Subsidiary " shall mean any corporation or other entity of
which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently)
for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the
Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, and are fully paid and
nonassessable. Except as set forth on Schedule 2.1(g)
hereto, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or
binding upon any Subsidiary for the purchase or acquisition of any
shares of capital stock of any Subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the
Company nor any Subsidiary is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any Subsidiary or any convertible
securities, rights, warrants or options of the type described in
the preceding sentence except as set forth on Schedule
2.1(g) hereto. Neither the Company nor any Subsidiary is
party to, nor has any knowledge of, any agreement restricting the
voting or transfer of any shares of the capital stock of any
Subsidiary.
(h)
No Material Adverse Change
. Since December 31, 2004, the
Company has not experienced or suffered any Material Adverse
Effect, except as disclosed on Schedule 2.1(h)
hereto.
(i)
No Undisclosed Liabilities
. Except as disclosed on
Schedule 2.1(i) hereto, neither the Company nor any of its
Subsidiaries has incurred any liabilities, obligations, claims or
losses (whether liquidated or unliquidated, secured or unsecured,
absolute, accrued, contingent or otherwise) other than those
incurred in the ordinary course of the Company's or its
Subsidiaries respective businesses or which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse
Effect.
(j)
No Undisclosed Events or
Circumstances . Since
December 31, 2004, except as disclosed on Schedule 2.1(j)
hereto, no event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.
(k)
Indebtedness . Schedule 2.1(k) hereto sets forth as
of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes
of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $100,000 (other
than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others,
7
whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business; and (c) the present value of any lease payments
in excess of $25,000 due under leases required to be capitalized in
accordance with GAAP. Neither the Company nor any Subsidiary
is in default with respect to any Indebtedness.
(l)
Title to Assets
. Each of the Company and the
Subsidiaries has good and valid title to all of its real and
personal property reflected in the Commission Documents, free and
clear of any mortgages, pledges, charges, liens, security interests
or other encumbrances, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate,
do not cause a Material Adverse Effect. Any leases of the
Company and each of its Subsidiaries are valid and subsisting and
in full force and effect.
(m)
Actions Pending
. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding
or other proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary which questions
the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto.
Except as set forth in the Commission Documents or on
Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding
or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any
of their respective properties or assets, which individually or in
the aggregate, would reasonably be expected, if adversely
determined, to have a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of
any court, arbitrator or governmental or regulatory body against
the Company or any Subsidiary or any officers or directors of the
Company or Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(n)
Compliance with Law
. The business of the Company and
the Subsidiaries has been and is presently being conducted in
accordance with all applicable federal, state and local
governmental laws, rules, regulations and ordinances, except as set
forth in the Commission Documents or on Schedule
2.1(n) hereto or such that, individually or in the aggregate,
the noncompliance therewith could not reasonably be expected to
have a Material Adverse Effect. The Company and each of its
Subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by
it unless the failure to possess such franchises, permits,
licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse
Effect.
(o)
Taxes . The Company and each of the Subsidiaries has
accurately prepared and filed all federal, state and other tax
returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are
reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the
Company or any Subsidiary is subject and which are not currently
due and payable. Except as disclosed on Schedule
2.1(o) hereto or in the Commission Documents, none of the
federal income tax returns of the Company
8
or any Subsidiary have been audited by
the Internal Revenue Service. The Company has no knowledge of
any additional assessments, adjustments or contingent tax liability
(whether federal or state) of any nature whatsoever, whether
pending or threatened against the Company or any Subsidiary for any
period, nor of any basis for any such assessment, adjustment or
contingency.
(p)
Certain Fees . Except as set forth on Schedule 2.1(p)
hereto, the Company has not employed any broker or finder or
incurred any liability for any brokerage or investment banking
fees, commissions, finders' structuring fees, financial advisory
fees or other similar fees in connection with the Transaction
Documents.
(q)
Disclosure . Except for the transactions contemplated by
this Agreement, the Company confirms that neither it nor any other
person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or
might constitute material, nonpublic information. To the best
of the Company's knowledge, neither this Agreement or the Schedules
hereto nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this
Agreement contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under
which they were made herein or therein, not misleading.
(r)
Operation of Business
. Except as set forth on
Schedule 2.1(r) hereto, the Company and each of the
Subsidiaries owns or possesses the rights to all patents,
trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof,
websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations which
are necessary for the conduct of its business as now conducted
without any conflict with the rights of others.
(s)
Environmental Compliance
. To the best knowledge of the
Company, except as set forth on Schedule 2.1(s) hereto or in
the Commission Documents, the Company and each of its Subsidiaries
have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws.
"Environmental Laws" shall mean all applicable laws relating
to the protection of the environment including, without limitation,
all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials
or wastes, whether solid, liquid or gaseous in nature, into the
air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material
or wastes, whether solid, liquid or gaseous in nature. To the
best of the Company's knowledge, the Company has all necessary
governmental approvals required under all Environmental Laws as
necessary for the Company's business or the business of any of its
subsidiaries. To the best of the Company's knowledge, the
Company and each of its subsidiaries are also in compliance with
all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under
all Environmental Laws. Except for such instances as would
not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions,
circumstances, incidents, actions or
9
omissions relating to or in any way
affecting the Company or its Subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may
give rise to any environmental liability, or otherwise form the
basis of any claim, action, demand, suit, proceeding, hearing,
study or investigation (i) under any Environmental Law, or (ii)
based on or related to the manufacture, processing, distribution,
use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous
substance.
(t)
Books and Records; Internal Accounting
Controls . The records
and documents of the Company and its Subsidiaries accurately
reflect in all material respects the information relating to the
business of the Company and the Subsidiaries, the location and
collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect
to any differences.
(u)
Material Agreements
. Except for the Transaction
Documents (with respect to clause (i) only), as disclosed in the
Commission Documents or as set forth on Schedule 2.1(u)
hereto, or as would not be reasonably likely to have a Material
Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date
under any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, filed or required to
be filed with the Commission (the " Material Agreements "),
(ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to
the best of the Company's knowledge, neither the Company nor any of
its Subsidiaries is in default under any Material Agreement now in
effect.
(v)
Transactions with
Affiliates . Except as
set forth on Schedule 2.1(v) hereto and in the Commission
Documents, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or
any of their respective customers or suppliers on the one hand, and
(b) on the other hand, any officer, employee, consultant or
director of the Company, or any of its Subsidiaries, or any person
owning at least 5% of the outstanding capital stock of the Company
or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or
stockholder which, in each case, is required to be disclosed in the
Commission Documents or in the Company's most recently filed
definitive proxy statement on Schedule 14A, that is not so
disclosed in the Commission Documents or in such proxy
statement.
10
(w)
Securities Act of 1933
. Based in material part upon the
representations herein of the Purchasers, the Company has complied
and will comply with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Company nor anyone acting
on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy any of the Securities or similar
securities to, or solicit offers with respect thereto from, or
enter into any negotiations relating thereto with, any person, or
has taken or will take any action so as to bring the issuance and
sale of any of the Securities under the registration provisions of
the Securities Act and applicable state securities laws, and
neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer
or sale of any of the Securities.
(x)
Employees . Neither the Company nor any Subsidiary has
any collective bargaining arrangements or agreements covering any
of its employees, except as set forth on Schedule 2.1(x)
hereto. Except as set forth on Schedule 2.1(x) hereto,
neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement,
or any other similar contract or restrictive covenant, relating to
the right of any officer, employee or consultant to be employed or
engaged by the Company or such Subsidiary required to be disclosed
in the Commission Documents that is not so disclosed. No
officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the
aggregate, would be reasonably likely to have a Material Adverse
Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or
engagement with the Company or any Subsidiary.
(y)
Absence of Certain
Developments . Except as
set forth in the Commission Documents or provided on Schedule
2.1(y) hereto, since December 31, 2004, neither the Company nor
any Subsidiary has:
(i)
issued any stock, bonds or other
corporate securities or any right, options or warrants with respect
thereto;
(ii)
borrowed any amount in excess of $300,000
or incurred or become subject to any other liabilities in excess of
$100,000 (absolute or contingent) except current liabilities
incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and
volume of the business of the Company and its
Subsidiaries;
(iii)
discharged or satisfied any lien or
encumbrance in excess of $250,000 or paid any obligation or
liability (absolute or contingent) in excess of $250,000, other
than current liabilities paid in the ordinary course of
business;
(iv)
declared or made any payment or
distribution of cash or other property to stockholders with respect
to its stock, or purchased or redeemed, or made any
11
agreements so to purchase or redeem, any
shares of its capital stock, in each case in excess of $50,000
individually or $100,000 in the aggregate;
(v)
sold, assigned or transferred any other
tangible assets, or canceled any debts or claims, in each case in
excess of $250,000, except in the ordinary course of
business;
(vi)
sold, assigned or transferred any patent
rights, trademarks, trade names, copyrights, trade secrets or other
intangible assets or intellectual property rights in excess of
$250,000, or disclosed any proprietary confidential information to
any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;
(vii)
suffered any material losses or waived
any rights of material value, whether or not in the ordinary course
of business, or suffered the loss of any material amount of
prospective business;
(viii)
made any changes in employee compensation
except in the ordinary course of business and consistent with past
practices;
(ix)
made capital expenditures or commitments
therefor that aggregate in excess of $500,000;
(x)
entered into any material transaction,
whether or not in the ordinary course of business;
(xi)
made charitable contributions or pledges
in excess of $25,000;
(xii)
suffered any material damage, destruction
or casualty loss, whether or not covered by insurance;
(xiii)
experienced any material problems with
labor or management in connection with the terms and conditions of
their employment; or
(xiv)
entered into an agreement, written or
otherwise, to take any of the foregoing actions.
(z)
Public Utility Holding Company Act and
Investment Company Act Status . The Company is not a "holding company" or a
"public utility company" as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended. The Company
is not, and as a result of and immediately upon the Closing will
not be, an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company
Act of 1940, as amended.
(aa)
ERISA . No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the
Company or any of its Subsidiaries which is or would be materially
adverse to the Company and its Subsidiaries. The execution
and delivery of
12
this Agreement and the issuance and sale
of the Securities will not involve any transaction which is subject
to the prohibitions of Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or in connection
with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code of 1986, as amended, provided that, if any of
the Purchasers, or any person or entity that owns a beneficial
interest in any of the Purchasers, is an "employee pension benefit
plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of
Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(aa), the term "Plan" shall mean an "employee pension
benefit plan" (as defined in Section 3 of ERISA) which is or has
been established or maintained, or to which contributions are or
have been made, by the Company or any Subsidiary or by any trade or
business, whether or not incorporated, which, together with the
Company or any Subsidiary, is under common control, as described in
Section 414(b) or (c) of the Code.
(bb)
Independent Nature of
Purchasers . The Company
acknowledges that the obligations of each Purchaser under the
Transaction Documents are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of
any other Purchaser under the Transaction Documents. The
Company acknowledges that the decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by
such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions
as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which
may have made or given by any other Purchaser or by any agent or
employee of any other Purchaser, and no Purchaser or any of its
agents or employees shall have any liability to any Purchaser (or
any other person) relating to or arising from any such information,
materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and
no action taken by any Purchaser pursuant hereto or thereto, shall
be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create
a presumption that the Purchasers are in any way acting in concert
or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Company
acknowledges that for reasons of administrative convenience only,
the Transaction Documents have been prepared by counsel for one of
the Purchasers and such counsel does not represent all of the
Purchasers but only such Purchaser and the other Purchasers have
retained their own individual counsel with respect to the
transactions contemplated hereby. The Company acknowledges
that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and
not because it was required or requested to do so by the
Purchasers. The Company acknowledges that such procedure with
respect to the Transaction Documents in no way creates a
presumption that the Purchasers are in any way acting in concert or
as a group with respect to the Transaction Documents or the
transactions contemplated hereby or thereby.
(cc)
No Integrated Offering
No Integrated Offering" \f C \l "2" .
Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly
made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering
of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act
which would prevent the Company from selling the
13
Securities pursuant to Regulation D and
Rule 506 thereof under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be
integrated with other offerings. The Company does not have
any registration statement pending before the Commission or
currently under the Commission's review and except as set forth on
Schedule 2.1(cc) hereto, since February 1, 2005, the Company
has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.
(dd)
Sarbanes-Oxley Act
. The Company is in compliance with
the applicable provisions of the Sarbanes-Oxley Act of 2002 (the "
Sarbanes-Oxley Act "), and the rules and regulations
promulgated thereunder, that are effective and intends to comply
with other applicable provisions of the Sarbanes-Oxley Act, and the
rules and regulations promulgated thereunder, upon the
effectiveness of such provisions.
(ee)
Dilutive Effect
. The Company understands and
acknowledges that the number of Conversion Shares issuable upon
conversion of the Notes and the Warrant Shares issuable upon
exercise of the Warrants will increase in certain circumstances.
The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with
this Agreement and the Notes and its obligations to issue the
Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance
may have on the ownership interest of other stockholders of the
Company.
Section
2.2
Representations and Warranties of the
Purchasers . Each of the
Purchasers hereby represents and warrants to the Company with
respect solely to itself and not with respect to any other
Purchaser as follows as of the date hereof and as of the Closing
Date:
(a)
Organization and Standing of the
Purchasers . If the
Purchaser is an entity, such Purchaser is a corporation, limited
liability company or partnership duly incorporated or organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b)
Authorization and Power
. Each Purchaser has the requisite
power and authority to enter into and perform the Transaction
Documents and to purchase the Securities being sold to it
hereunder. The execution, delivery and performance of the
Transaction Documents by each Purchaser and the consummation by it
of the transactions contemplated hereby have been duly authorized
by all necessary corporate or partnership action, and no further
consent or authorization of such Purchaser or its Board of
Directors, stockholders, or partners, as the case may be, is
required. When executed and delivered by the Purchasers, the
other Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in
accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation, conservatorship, receivership or similar
laws relating to, or affecting generally the enforcement of,
creditor's rights and remedies or by other equitable principles of
general application.
(c)
No Conflict . The execution, delivery and performance of
the Transaction Documents by the Purchaser and the consummation by
the Purchaser of the transactions
14
contemplated thereby and hereby do not
and will not (i) violate any provision of the Purchaser's charter
or organizational documents, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Purchaser is
a party or by which the Purchaser's respective properties or assets
are bound, or (iii) result in a violation of any federal, state,
local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and
regulations) applicable to the Purchaser or by which any property
or asset of the Purchaser are bound or affected, except, in all
cases, other than violations pursuant to clauses (i) or (iii) (with
respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration,
cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect the Purchaser's ability
to perform its obligations under the Transaction Documents.
(d)
Acquisition for Investment
. Each Purchaser is purchasing the
Securities solely for its own account and not with a view to or for
sale in connection with distribution. Each Purchaser does not
have a present intention to sell any of the Securities, nor a
present arrangement (whether or not legally binding) or intention
to effect any distribution of any of the Securities to or through
any person or entity; provided , however , that by
making the representations herein, such Purchaser does not agree to
hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with Federal and state securities laws applicable to
such disposition. Each Purchaser acknowledges that it (i) has
such knowledge and experience in financial and business matters
such that Purchaser is capable of evaluating the merits and risks
of Purchaser's investment in the Company, (ii) is able to bear the
financial risks associated with an investment in the Se
