NOTES PURCHASE AGREEMENT

 

EXECUTION COPY

 

 

 

 

 

 

 

 

 

NOTES PURCHASE AGREEMENT

 

by and between

 

CHINA SHEN ZHOU MINING & RESOURCES, INC.

as the Company

 

and

 

CITADEL EQUITY FUND LTD.

as the Purchaser

 

 

Dated:  December 21, 2006

 

 

 

 

 

 

 

 

This Notes Purchase Agreement (this “ Agreement ”) is dated as of December 21, 2006, by and between China Shen Zhou Mining & Resources, Inc., a Nevada corporation (the “ Company ”) and Citadel Equity Fund Ltd. (the “ Purchaser ”).

WHEREAS, the Company proposes to issue, and the Purchaser proposes to purchase, US$28,000,000 6.75% Senior Convertible Notes due 2012 on the terms of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1.

Definitions

For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires the following terms shall have the meanings set forth below.  Defined terms used but not otherwise defined herein shall have the meanings given to such terms in the other Sections of this Agreement or the Indenture.

“ Act ” means the Securities Act of 1933, as amended.

“ AES ” means American Eastern Securities, Inc.

“ Affiliate ” of any specified Person means:

(a)

any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, or

(b)

any other Person who is a director or officer of:

(1)

such specified Person,

(2)

any Subsidiary of such specified Person, or

(3)

any Person described in clause (a) above.  

For the purposes of this definition, “control” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“ Agency Agreement ” means a paying and conversion agency agreement dated as of the Closing Date among the Company and the agents named therein, the form of which is attached hereto as Exhibit C .

“ Bridge Notes ” means, collectively, the Company’s (i) US$8,500,000 Senior Notes due 2007, purchased by the Purchaser pursuant to a notes purchase agreement between the Company and the Purchaser dated as of December 1, 2006, and (ii) US$1,700,000 Senior Notes due 2007, purchased by the Purchaser pursuant to a notes purchase agreement between the Company and the Purchaser dated as of December 21, 2006.

“ Clearstream ” means Clearstream Banking, société anonyme, and any successor thereto.

 

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“ Closing ” has the meaning given in Section 4.

“ Closing Date ” means the date of the Closing.

“ Collateral ” means the collateral described and pledged under the Share Pledge Agreement.

“ Collateral Agent ” means the Trustee, acting as collateral agent in respect of the Collateral.

“ Commission ” means the Securities and Exchange Commission.

“ Common Stock ” means shares of common stock of the Company with a par value of US$0.001 per share.

“ Conversion Shares ” means shares of Common Stock issuable upon the conversion of the Notes.

“ Disclosure Schedule ” means the disclosure schedule attached as Schedule I .

“ Euroclear ” means Euroclear Bank, S.A./N.V. and any successor thereto.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Indenture ” means an indenture dated as of the Closing Date between the Company and the Trustee, the form of which is attached hereto as Exhibit B .

“ Intellectual Property ” means any patent, patent right, license, invention, copyright, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademark, service mark and trade names

“ Lien ” means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

“ Material Adverse Effect ” means a material adverse effect on:

(a)

the business, operations, property or financial condition of the Company and its Subsidiaries taken as a whole;

(b)

the ability of the Company or any Shareholder to perform its material obligations under the Transaction Documents; or

(c)

the validity or enforceability of the Transaction Documents or the rights and remedies of any holder of the Notes under the Notes.

“ Non-competition Covenant and Agreement ” means a non-competition covenant and agreement dated as of the Closing Date among the Shareholders and the Purchaser, the form of which is attached hereto as Exhibit E .

“ Notes ” has the meaning given in Section 3.

“ OTC ” means the Over-The-Counter Bulletin Board on which the Common Stock has been traded.

 

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“ Outside Financing ” means any capital raising transaction or transactions by the Company or any of its Affiliates.

“ Person ” means any individual, corporation, company (including any limited liability company), association, partnership, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“ PRC ” means the People’s Republic of China, exclusive of Taiwan, Macau and Hong Kong.

“ Preferred Stock ” means shares of preferred stock of the Company with a par value of US$0.001 per share.

“ Purchaser ” has the meaning given in the recitals.

“ Shareholders ” means Ms. Yu Xiao Jing and Mr. Xu Xue Ming, or either of them as the context may so require.

“ Share Pledge Agreement ” means the share pledge agreement dated as of the Closing Date among the Shareholders, the Purchaser and the Collateral Agent, the form of which is attached hereto as Exhibit D .

“ Subsidiary ” means, in respect of any Person, any corporation, company (including any limited liability company), association, partnership, joint venture or other business entity of which at least a majority of the total voting power of the voting stock is at the time owned or controlled, directly or indirectly, by:

(a)

such Person,

(b)

such Person and one or more Subsidiaries of such Person, or

(c)

one or more Subsidiaries of such Person.

“ Trading Market ” means Clearstream and Euroclear.

“ Transaction Document ” means this Agreement, the Indenture, the Agency Agreement, the Notes, the Share Pledge Agreement, the Non-competition Covenant and Agreement and the Voting Agreement, or any of them as the context may so require.

“ Trustee ” means The Bank of New York, a New York banking corporation, acting as trustee under the Indenture.

“ US$ ” means the lawful currency of the United States from time to time.

“ Voting Agreement ” means a voting agreement dated as of the Closing Date among the Shareholders and the Purchaser, the form of which is attached hereto as Exhibit F .

2.

Rules of Construction .

Unless the context otherwise requires:

(a)

a term has the meaning assigned to it;

 

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(b)

“or” is not exclusive;

(c)

words in the singular include the plural, and in the plural include the singular;

(d)

all references in this Agreement to “Sections”, “Exhibits” and other subdivisions are to the designated Sections, Exhibits and subdivisions of this Agreement as originally executed;

(e)

a reference to any person is, where relevant, deemed to be a reference to or to include, as appropriate, that person’s successors and permitted assignees or transferees;

(f)

a reference to (or to any specified provision of) any agreement or document (including any Transaction Document) is to be construed as a reference to that agreement or document as it may be amended from time to time;

(g)

the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision.

(h)

“including” means “including without limitation”;

(i)

provisions apply to successive events and transactions; and

(j)

references to a statute or statutory provision is to be construed as a reference to that statute or statutory provision as it may be amended from time to time.

3.

Issuance of Notes .  

Subject to the terms and conditions of this Agreement, the Company will issue and sell to the Purchaser, and the Purchaser will purchase from the Company, at the Closing, an aggregate principal amount of US$28,000,000 of the Company’s 6.75% Senior Convertible Notes due 2012 (the “ Notes ”). The Notes will be issued pursuant to the provisions of the Indenture. The Notes will be secured by a perfected first priority Lien on all the equity interests of the Shareholders in the Company granted pursuant to the Share Pledge Agreement.

The Notes will be offered and sold to the Purchaser pursuant to Regulation S or other exemption from the registration requirements under the Act.  Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Notes shall bear the legends relating to the offer and the sale of the Notes as required by (i) Regulation S under the Act or (ii) any other applicable laws or regulations relating to the issuance of the Notes.

4.

Purchase, Sale and Delivery .

The sale and purchase of the Notes to be purchased by the Purchaser shall occur at the Hong Kong office of Simpson Thacher & Bartlett LLP, on or about 10:00 a.m., Chicago time, at a closing (the “ Closing ”) on December 27, 2006 or on such other time or Business Day thereafter on or prior to January 12, 2007 as may be agreed upon by the Company and the Purchaser.  At the Closing, the Company shall deliver to the Purchaser one or more global certificates representing the Notes in registered form, duly executed and registered in such names and denominations as the Purchaser may request, against payment by the Purchaser of US$28,000,000, the purchase price for the Notes, less an aggregate of US$10,200,000 plus interest accrued up to (but excluding) the Closing Date on the Bridge Notes for the repayment in full of the amounts due and payable with respect to such Bridge Notes, by

 

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immediately available Federal funds bank wire transfer to such bank account or accounts as the Company shall have beforehand designated to the Purchaser.  The Notes to be represented by one or more global certificates in registered, book-entry form will be deposited on the Closing Date, by or on behalf of the Company, with The Bank of New York, as common depositary for Clearstream and Euroclear, or its designated custodian, and registered in the name of The Bank of New York.

5.

Representations and Warranties of the Company .

The Company represents and warrants to the Purchaser the following ( provided that the exceptions set forth in the Disclosure Schedule shall be deemed to part of the representations and warranties made hereunder):

(a)

SEC Reports; Financial Statements .  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Act and the Exchange Act (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports ”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of the date of filing, in the case of SEC Reports filed pursuant to the Exchange Act (and to the extent such SEC Report was amended, then as of the date of filing of such amendment), and as of the date of effectiveness in the case of SEC Reports filed pursuant to the Act (and to the extent such SEC Report was amended, then as of the date of effectiveness of such amendment), the SEC Reports complied in all material respects with the requirements of the Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, as of the date of filing, in the case of SEC Reports filed pursuant to the Exchange Act (and to the extent such SEC Report was amended, then as to the date of filing of such amendment), and as of the date of effectiveness in the case of SEC Reports filed pursuant to the Act (and to the extent such SEC Report was amended, then as of the date of effectiveness of such amendment), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The financial statements of the Company included in the SEC Reports have been prepared in accordance with the applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial condition, results of operations and cash flows of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.  All other financial, statistical, and market and industry-related data included in the SEC Reports are based on or derived from sources that the Company reasonably believes to be reliable and accurate.

(b)

Ownership of Shares of Subsidiaries; Affiliates .

(i)

Schedule 5(b)(i) of the Disclosure Schedule contains complete and correct lists of each Person in which the Company owns, directly or indirectly, any capital stock or similar equity interests, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary.

 

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(ii)

All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5(b)(i) of the Disclosure Schedule as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by the Company or another Subsidiary free and clear of any Lien.

(iii)

No Subsidiary is a party to, or otherwise subject to any legal or regulatory restriction or any agreement (other than this Agreement) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary.

(c)

Organization .  Each of the Company and its Subsidiaries (i) has been duly organized, is validly existing and is in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power and authority to carry on its business and to own, lease and operate its properties and assets, and (iii) is duly qualified or licensed to do business and is in good standing as a domestic or foreign corporation or limited liability company, as the case may be, authorized to do business in each jurisdiction in which the nature of such business or the ownership or leasing of such properties requires such qualification, save where, for the purposes of (ii) or (iii) only, the failure to have all such requisite power and authority or to be so duly qualified or licensed does not, and could not be reasonably expected to have, a Material Adverse Effect.

(d)

Capitalization and Voting Rights .

(i)

Capital Stock .  The authorized capital of the Company consists, immediately prior to the Closing, of (A) 50,000,000 shares of Common Stock, of which 21,296,794 shares are currently issued and outstanding and (B) 5,000,000 shares of Preferred Stock, of which no shares are currently issued and outstanding, and there are no other capital stock.

(ii)

Issued and Issuable Shares .  As at the date hereof and immediately prior to the Closing, there is no Common Stock issued or issuable pursuant to any exercise, conversion, exchange, subscription or otherwise in connection with any warrants, options (including pursuant to the Company’s stock option plan), convertible securities or any agreement to sell or issue Common Stock or securities which may be exercised, converted or exchanged for Common Stock (collectively, “ Fully-Diluted ”).  The Conversion Shares issuable upon conversion of the Notes have been duly reserved for issuance.  All of the issued and outstanding shares of the Company’s Common Stock as of the Closing are duly authorized, validly issued, fully paid and non-assessable, were issued in accordance with the registration or qualification provisions of the Act and any relevant blue sky laws of the United States or pursuant to valid exemptions therefrom and were issued in compliance with other applicable laws (including, without limitation, applicable PRC laws, rules and regulations) of and are not subject to any rescission right or put right on the part of the holder thereof nor does any holder thereof have the right to require the Company to repurchase such share capital.

(iii)

Voting and Other Agreements .  Except as set forth on Schedule 5(d)(iii) of the Disclosure Schedule, there are no outstanding (A) options, warrants or other rights to purchase from the Company or any of the Subsidiaries, (B) agreements, contracts, arrangements or other obligations of the Company or any of its Subsidiaries to issue, or (C) other rights to convert any obligation into or exchange any securities for, in the case of each of clauses (A) through (C), shares of capital stock of, or other ownership or equity interests in, the Company or any of its Subsidiaries.  Except as otherwise contemplated by the Voting Agreement, the Company is not a party or subject to any agreement or understanding and there is no agreement or understanding with any Person that affects or

 

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relates to (x) the voting or giving of written consents with respect to any security of the Company (including, without limitation, any voting agreements, voting trust agreements, shareholder agreements or similar agreements) or the voting by a director of the Company or (y) the sale, transfer or other disposition with respect to any security of the Company.

(iv)

SEC Filings and OTC Trading . The Company files periodic reports with the Securities and Exchange Commission pursuant to and in compliance with Section 15 of the Exchange Act.  The Company has not, in the 12 months preceding the date hereof, received notice from the OTC on which the Common Stock has been traded to the effect that the Company is not in compliance with the OTC requirements.  The Company is, and upon consummation of the transactions contemplated hereby expects to be, in compliance with all of the OTC listing requirements.

(e)

No Registration Rights .  No holder of securities of the Company or any of its Subsidiaries is or currently will be entitled to have any registration rights with respect to such securities.

(f)

Authorization .  (i) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under each of the Transaction Documents to which it is a party and to consummate the transactions contemplated thereby, (ii) each Transaction Document to which the Company is a party has been duly authorized, executed and delivered by the Company and (iii) each Transaction Document to which the Company is a party shall constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.

(g)

Valid Issuance of Notes .  The Notes, when issued, sold and delivered in accordance with the terms and for the consideration set forth herein, will be free of restrictions on transfer, other than restrictions on transfer under applicable state and federal securities laws.  Assuming the accuracy of the Purchaser’s representations in Section 7 below, the Notes will be issued in compliance with applicable state and federal securities laws.  The Notes, when issued, will be in the form contemplated by the Indenture.  The Notes have each been duly authorized by the Company and, when executed by the Company, delivered to the Purchaser and authenticated by the Trustee, in accordance with the terms of this Agreement and the Indenture, the Notes will have been duly executed, issued and delivered by the Company and will constitute legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.

(h)

Valid Issuance of Conversion Shares . The conversion rights attached to the Notes, when the Notes are issued on the Closing Date, will provide for the right to convert the Notes into up to 8,750,000 shares of Common Stock of the Company as of the Closing Date (as calculated immediately following the Closing and assuming the conversion of all the Notes), determined in accordance with GAAP.  The Conversion Shares have been duly and validly authorized for issuance by the Company, and when issued pursuant to the terms of the Notes, the Indenture and the Agency Agreement, will be validly issued, fully paid and non-assessable, not subject to any preemptive or similar rights, free from all taxes, Liens, charges and security interests with respect to the issuance thereof and free of restrictions on transfer other than as expressly contemplated by the Transaction Documents.  

(i)

Compliance with Instruments .  Neither the Company nor any of its Subsidiaries is in violation of its respective certificate of incorporation, by-laws or other organizational documents (the “ Charter Documents ”).  Neither the Company nor any of its Subsidiaries is, nor does any condition exist

 

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(with the passage of time or otherwise) that could reasonably be expected to cause the Company or any of its Subsidiaries to be, (i) in violation of any statute, rule, regulation, law or ordinance, or any judgment, decree or order applicable to the Company, any of its Subsidiaries or any of their properties (collectively, “ Applicable Law ”) of any federal, state, national, provincial, local or other governmental authority, governmental or regulatory agency or body, court, arbitrator or self-regulatory organization of applicable jurisdictions (each, a “ Governmental Authority ”), or (ii) in breach of or in default under any bond, debenture, note or other evidence of indebtedness, indenture, mortgage, deed of trust, lease or any other agreement or instrument to which any of them is a party or by which any of them or their respective property is bound (collectively, “ Applicable Agreements ”), other than in each of clause (i) and (ii) such violations, breaches or defaults that are not material.

(j)

No Conflicts .  Neither the execution, delivery or performance of any of the Transaction Documents nor the consummation of any of the transactions contemplated therein will conflict with, violate, constitute a breach of or a default (with the passage of time or otherwise) under, require the consent of any Person or a Governmental Authority (other than consents already obtained) or result in the imposition of a Lien on any assets of the Company or any of its Subsidiaries under or pursuant to (i) the Charter Documents, (ii) any Applicable Agreement, or (iii) any Applicable Law, other than in each of clause (ii) and (iii) such violations, breaches or defaults that are not material.  Immediately following consummation of the transactions contemplated in the Transaction Documents, no Default will exist under the Indenture.

(k)

Governmental Filings .  No filing with, consent, approval, authorization or order of, any Governmental Authority is required to be made by the Company or any of its Subsidiaries for the consummation of the transactions contemplated by the Transaction Documents, except as have been obtained or will have been obtained on or before the Closing Date.  

(l)

Proceedings .  There is no action, claim, suit, demand, hearing, notice of violation or deficiency, or proceeding, domestic or foreign (collectively, “ Proceedings ”), pending or, to the knowledge of the Company, threatened, that seeks to restrain, enjoin, prevent the consummation of, or otherwise challenges any of the Transaction Documents or any of the transactions contemplated therein.

(m)

Permits .  Each of the Company and its Subsidiaries possesses all material licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all Governmental Authorities, presently required or necessary to own or lease, as the case may be, and to operate their respective properties and to carry on their respective businesses as now conducted (“ Permits ”).  All of the Permits are valid and in full force and effect.  The Company and its Subsidiaries have fulfilled and performed all of their respective obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time could allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such Permit.  None of the Company or its Subsidiaries has received actual notice of any proceeding relating to revocation or modification of any such Permit.

(n)

Title to Property .  Each of the Company and its Subsidiaries has good and marketable title to all real property and personal property owned by it, in each case free and clear of any Liens as of the Closing Date, except such Liens as are permitted under the Indenture.  For unowned real property of the Company or its Subsidiaries that is currently used or currently planned to be used for the business operations of the Company or its Subsidiaries, each of the Company and its Subsidiary has good and marketable title to all leasehold estates in real and personal property being leased by it and, in each case free and clear of all Liens as of the Closing Date.

 

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(o)

Insurance .  Each of the Company and its Subsidiaries maintains reasonably adequate insurance covering its material properties, operations, personnel and business, and is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged.  All policies of insurance insuring the Company and any of its Subsidiaries and their respective businesses, assets, employees, officers and directors are in full force and effect.  Each of the Company and its Subsidiaries is in compliance with the terms of such policies and instruments in all material respects, and there are no claims by the Company or any of its Subsidiaries under any such policy or instrument as to which, to the Company’s knowledge, any insurance company is denying liability or defending under a reservation of rights clause.  Neither the Company nor any Subsidiary has been refused any insurance coverage sought or applied for, and neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not, individually or in the aggregate, have a Material Adverse Effect.

(p)

Taxes .  All Tax returns required to be filed by the Company or any of its Subsidiaries have been filed (taking into account all extensions of due dates), and all such returns are true, complete and correct in all material respects.  All material Taxes that are due from the Company or any of its Subsidiaries have been paid other than those (i) currently payable without penalty or interest or (ii) being diligently contested in good faith and by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP.  To the knowledge of the Company, there are no proposed Tax assessments against the Company or any of its Subsidiaries.  The accruals and reserves on the books and records of the Company and its Subsidiaries in respect of any Tax liability for any Taxable period not finally determined are adequate to meet any assessments of Tax for any such period.  For purposes of this Agreement, the term “ Tax ” and “ Taxes ” shall mean all Federal, state, national, provincial, local and foreign taxes, and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto.

(q)

Intellectual Property .  

(i)

Each of the Company and its Subsidiaries owns, or is validly licensed under, or has the right to use, all Intellectual Property necessary for the conduct of its business.  As of the Closing Date, such Intellectual Property is or will be free and clear of all Liens, except where the failure to own, possess, or have the right to use such Intellectual Property could not be reasonably expected to have a Material Adverse Effect.  To the Company’s knowledge, no claims or notices of any potential claim have been asserted by any Person challenging the use of any such Intellectual Property by the Company or any of its Subsidiaries or questioning the validity or effectiveness of the Intellectual Property or any license or agreement related thereto, and, to the Company’s knowledge, there are no facts which would form a valid basis for any such claim.  To the Company’s knowledge, the use of such Intellectual Property by the Company or any of its Subsidiaries will not infringe on the Intellectual Property rights of any other Person.  

(ii)

There is no Registered IP owned by or licensed to the Company or any of its Subsidiaries, nor is there any other material Intellectual Property licensed to the Company or any of its Subsidiaries.  “ Registered IP ” means Intellectual Property that is registered, filed, or issued under the authority of any governmental authority, including all patents, registered copyrights, registered mask works, and registered trademarks and all applications for any of the foregoing.  All Intellectual Properties owned by the Company and its Subsidiaries necessary for the conduct of their businesses are valid and in full force and effect.

 

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(iii)

Each of the Company and its Subsidiaries has taken reasonable steps and measures to establish and preserve ownership of or right to use all Intellectual Property material to the operation of its business, including any Intellectual Property that was jointly developed with any third-parties, or any Intellectual Property for which improper or unauthorized disclosure would impair its value or validity, and has had executed appropriate nondisclosure and confidentiality agreements and made all appropriate filings, registrations and payments of fees in connection with the foregoing.  To the Company’s knowledge, there is no infringement or misappropriation by any other Person of any Intellectual Property of the Company or its Subsidiaries.  No proceedings or claims in which the Company or any of its Subsidiaries alleges that any Person is infringing upon, or otherwise violating, any Intellectual Property of the Company or its Subsidiaries are pending, and none has been served, instituted or asserted by the Company or its Subsidiaries.

(iv)

No former or current employee, no former or current consultant, and no third-party joint developer of the Company or its Subsidiaries has any rights in any Intellectual Property made, developed, conceived, created or written by the aforesaid employee or consultant during the period of his or her retention by the Company and its Subsidiaries which can be asserted against the Company and its Subsidiaries.

(v)

No Intellectual Property owned by the Company or its Subsidiaries necessary for the conduct of their business is the subject of any security interest, Lien, license or other contract granting rights therein to any other Person.  Each of the Company and its Subsidiaries has not (A) transferred or assigned, (B) granted an exclusive license to or (C) provided or licensed, any Intellectual Property owned by the Company or its Subsidiaries and necessary for the conduct of their business to any Person.

(r)

Internal Controls .  The Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences.

(s)

Financial Statements .  Subsequent to the date of the Company’s audited financial statements filed for the year ended December 31, 2005, except as disclosed therein or in any subsequent SEC Report, (A) neither the Company nor any of its Subsidiaries has incurred any liabilities, direct or contingent, that are material, individually or in the aggregate, to the Company, or has entered into any material transactions not in the ordinary course of business, (B) there has not been any material decrease in the capital stock or any material increase in long-term indebtedness or any material increase in short-term indebtedness of the Company or any Subsidiary, or any payment of or declaration to pay any dividends or any other distribution with respect to the Company or any of its Subsidiaries, and (C) there has not been any material adverse change in the properties, business, prospects, operations, earnings, assets, liabilities or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole; excluding any changes caused by (x) the condition of the industry of the Company that do not disproportionately affect the Company, (y) the failure of the Company to meet its financial projections or (z) the execution and delivery of this Agreement and consummation of the transactions contemplated hereby (each of clauses (A), (B) and (C), a “ Material Adverse Change ”).  To the knowledge of the Company, there is no event that is reasonably likely to occur in the foreseeable future, which if it were to occur, coul