Exhibit 10.10
AMENDED AND RESTATED
NOTE AND WARRANT PURCHASE
AGREEMENT
DATED AS OF NOVEMBER 9, 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..........................................................2
Section 1.3 Conversion Shares / Warrant Shares..................................................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..................................................................16
Section 3.4 Compliance with Laws...............................................................16
Section 3.5 Keeping of Records and Books of Account............................................17
Section 3.6 Reporting Requirements.............................................................17
Section 3.7 Other Agreements...................................................................17
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........................................................18
Section 3.17 Disposition of Assets..............................................................19
Section 3.18 Form SB-2 Eligibility..............................................................19
Section 3.19 Restrictions on Certain Issuances of Securities....................................19
Section 3.20 Lock-Up Agreement..................................................................19
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 Securities.....................................................22
ARTICLE V Certificate Legend...........................................................................24
Section 5.1 Legend.............................................................................24
ARTICLE VI Indemnification..............................................................................25
Section 6.1 General Indemnity..................................................................25
Section 6.2 Indemnification Procedure..........................................................26
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VII Miscellaneous................................................................................27
Section 7.1 Fees and Expenses..................................................................27
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue...............................27
Section 7.3 Entire Agreement; Amendment........................................................28
Section 7.4 Notices............................................................................28
Section 7.5 Waivers............................................................................29
Section 7.6 Headings...........................................................................29
Section 7.7 Successors and Assigns.............................................................29
Section 7.8 No Third Party Beneficiaries.......................................................29
Section 7.9 Governing Law......................................................................29
Section 7.10 Survival...........................................................................29
Section 7.11 Counterparts.......................................................................30
Section 7.12 Publicity..........................................................................30
Section 7.13 Severability.......................................................................30
Section 7.14 Further Assurances.................................................................30
AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT
This AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is entered into as of November 9, 2005, 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").
WHEREAS, on September 30, 2005, the Company and the Purchasers entered
into a Note and Warrant Purchase Agreement;
WHEREAS, the Company and the Purchasers desire to amend and restate the
Note and Warrant Purchase Agreement.
NOW, THEREFORE, 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).
1
(c) Upon the following terms and conditions, the Purchasers shall also
be issued (i) Series A Warrants, in substantially the form attached hereto as
Exhibit D (the "Series A 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 such Purchaser's Notes purchased pursuant to this
Agreement at an exercise price per share equal to $0.315 and a term of one (1)
year following the effective date of the registration statement providing for
the resale of the Conversion Shares and the Warrant Shares (as defined below);
and (ii) Series B Warrants, in substantially the form attached hereto as Exhibit
E (the "Series B 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 such Purchaser's Notes purchased pursuant to this Agreement
at an exercise price per share equal to $0.63 and a term of five (5) years. The
Series B Warrants may only be exercised for a number of shares of Common Stock
that is equal to the number of shares of Common Stock that are exercised
pursuant to the Series A Warrants. For purposes of this Agreement, all
references to Warrants shall also include the Series A Warrants and the Series B
Warrants. The number of shares of Common Stock issuable upon exercise of the
Warrants issuable to each Purchaser is set forth opposite such Purchaser's name
on Exhibit A attached hereto.
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 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 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. Any shares of Common Stock issuable upon
conversion of the Notes and any interest accrued and outstanding on the 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 Warrants, the Conversion
Shares and the Warrant Shares are sometimes collectively referred to herein as
the "Securities".
2
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 September 30, 2005, as amended and restated on the date
hereof, substantially in the form of Exhibit F 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 G 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 H, 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 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.
3
(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.
(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 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).
4
(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 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.
5
(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, 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.
6
(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 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.
7
(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 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.
8
(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.
(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.
9
(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 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;
10
(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 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.
11
(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. 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 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.
12
(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 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.
13
(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 Securities and (iii) has been given full access to such records of the
Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.
(e) Rule 144. Each Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Each Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
Commencing on the date that the Purchasers were initially contacted regarding an
investment in the Securities, none of the Purchasers has engaged in any short
sale of the Common Stock and will not engage in any short sale of the Common
Stock prior to the consummation of the transactions contemplated by this
Agreement.
(g) No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications. Each Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and has not
relied on any information or representations made by third parties.
14
(h) Accredited Investor. Each Purchaser is an "accredited investor" (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer. Each Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk.
(i) Certain Fees. The Purchasers have 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.
(j) Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.
(k) Short Sales and Confidentiality. Each Purchaser covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales (as defined below) during the
period after the date that such Purchaser first received a term sheet from the
Company or any other person or entity setting forth the material terms of the
transactions contemplated hereunder until the date that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 3.10. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company as described in Section
3.10, such Purchaser will maintain, the confidentiality of all disclosures made
to it in connection with this transaction (including the existence and terms of
this transaction). Each Purchaser understands and acknowledges, severally and
not jointly with any other Purchaser, that the Commission currently takes the
position that coverage of short sales of shares of the Common Stock "against the
box" prior to the date that the Commission declares the Registration Statement
(as defined in the Registration Rights Agreement) effective is a violation of
Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 3.10.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement. Each Purchaser covenants and agrees that it will (i) comply with
Regulation M under the Exchange Act, (ii) comply with all prospectus delivery
requirements and (iii) will not knowingly violate Regulation SHO under the
Exchange Act. The Company further understands and acknowledges that (a) each
Purchaser may engage in hedging activities at various times while the Securities
are outstanding, including, without limitation, during any amortization pricing
periods under the Notes in which the value of the Conversion Shares issuable
upon conversion of the Notes is being determined and (b) such hedging activities
(if any) could reduce the value of the existing stockholders' equity interests
in the Company at and after the time that the hedging activities are being
conducted. The Company acknowledges that such aforementioned hedging activities
do not constitute a breach of this Agreement or the other Transaction Documents.
For purposes hereof, "Short Sales" shall include all "short sales" as defined in
Rule 200 of Regulation SHO under the Exchange Act.
15
ARTICLE III
COVENANTS
The Company covenants with each Purchaser as follows, which covenants
are for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1 Securities Compliance. The Company shall notify the
Commission in accordance with its rules and regulations, of the transactions
contemplated by any of the Transaction Documents and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Purchasers, or their respective subsequent holders.
Section 3.2 Registration and Listing. The Company shall cause its
Common Stock to continue to be registered under Sections 12(b) or 12(g) of the
Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act, to comply with all requirements related to
any registration statement filed pursuant to this Agreement, and to not take any
action or file any document (whether or not permitted by the Securities Act or
the rules promulgated thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under the Exchange
Act or Securities Act, except as permitted herein. The Company will take all
action necessary to continue the listing or trading of its Common Stock on the
OTC Bulletin Board or other exchange or market on which the Common Stock is
trading. If required, the Company will promptly file the "Listing Application"
for, or in connection with, the issuance and delivery of the Shares and the
Warrant Shares. Subject to the terms of the Transaction Documents, the Company
further covenants that it will take such further action as the Purchasers may
reasonably request, all to the extent required from time to time to enable the
Purchasers to sell the Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under
the Securities Act. Upon the request of the Purchasers, the Company shall
deliver to the Purchasers a written certification of a duly authorized officer
as to whether it has complied with such requirements.
Section 3.3 Inspection Rights. Provided same would not be in violation
of Regulation FD, the Company shall permit, during normal business hours and
upon reasonable request and reasonable notice, each Purchaser or any employees,
agents or representatives thereof, so long as such Purchaser shall be obligated
hereunder to purchase the Notes or shall beneficially own any Conversion Shares
or Warrant Shares, for purposes reasonably related to such Purchaser's interests
as a stockholder, to examine the publicly available, non-confidential records
and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
publicly available, non-confidential affairs, finances and accounts of the
Company and any Subsidiary with any of its officers, consultants, directors, and
key employees.
16
Section 3.4 Compliance with Laws. The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would be reasonably likely to have a Material
Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Securities or shall beneficially own
Securities:
(a) Quarterly Reports filed with the Commission on Form 10-QSB as soon
as practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission;
(b) Annual Reports filed with the Commission on Form 10-KSB as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and
(c) Copies of all notices, information and proxy statements in
connection with any meetings, that are, in each case, provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.
Section 3.7 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.8 Use of Proceeds. The net proceeds from the sale of the
Securities hereunder shall be used by the Company to repay $900,000 of an
outstanding promissory note issued by the Company and the balance shall be used
for working capital and general corporate purposes and not to redeem any Common
Stock or securities convertible, exercisable or exchangeable into Common Stock
or to settle any outstanding litigation.
17
Section 3.9 Reporting Status. So long as a Purchaser beneficially owns
any of the Securities, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.
Section 3.10 Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the "Press Release") on the day of the Closing but in no event later than one
hour after the Closing; provided, however, that if Closing occurs after 4:00
P.M. Eastern Time on any Trading Day, the Company shall issue the Press Release
no later than 9:00 A.M. Eastern Time on the first Trading Day following the
Closing Date. The Company shall also file with the Commission a Current Report
on Form 8-K (the "Form 8-K") describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the form
of Note, the Registration Rights Agreement, the Security Agreement, the Lock-Up
Agreement, the form of Warrant and the Press Release) as soon as practicable
following the Closing Date but in no event more than two (2) Trading Days
following the Closing Date, which Press Release and Form 8-K shall be subject to
prior review and comment by the Purchasers. "Trading Day" means any day during
which the principal exchange on which the Common Stock is traded shall be open
for trading.
Section 3.11 Disclosure of Material Information. The Company covenants
and agrees that neither it nor any other person acting on its behalf has
provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.
Section 3.12 Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by a Purchaser in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Purchaser effecting a pledge
of the Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. At the
Purchasers' expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Purchaser.
Section 3.13 Amendments. The Company shall not amend or waive any
provision of the Articles or Bylaws of the Company in any way that would
adversely affect exercise rights, voting rights, conversion rights, prepayment
rights or redemption rights of the holder of the Notes.
18
Section 3.14 Distributions. So long as any Notes or Warrants remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.
Section 3.15 Reservation of Shares. So long as any of the Notes or
Warrants remain outstanding, the Company shall take all action necessary to at
all times have authorized and reserved for the purpose of issuance, one hundred
twenty percent (120%) of the aggregate number of shares of Common Stock needed
to provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.16 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit I
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.16 will be given by the Company to its transfer agent and that
the Conversion Shares and Warrant Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement. Nothing in this Section 3.16
shall affect in any way each Purchaser's obligations and agreements set forth in
Section 5.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Conversion Shares and the Warrant Shares. If a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Conversion
Shares or Warrant Shares may be made without registration under the Securities
Act or the Purchaser provides the Company with reasonable assurances that the
Conversion Shares or Warrant Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.16 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.16 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.16, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Section 3.17 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except for
sales of obsolete assets and sales to customers in the ordinary course of
business or with the prior written consent of the holders of a majority of the
Notes then outstanding.
19
Section 3.18 Form SB-2 Eligibility. The Company currently meets, and
will take all necessary action to continue to meet, the "registrant eligibility"
and transaction requirements set forth in the general instructions to Form SB-2
applicable to "resale" registrations on Form SB-2 during the Effectiveness
Period (as defined in the Registration Rights Agreement) and the Company shall
file all reports required to be filed by the Company with the Commission in a
timely manner so as to maintain such eligibility for the use of Form SB-2.
Section 3.19 Restrictions on Certain Issuances of Securities. So long
as at least thirty-five percent (35%) of the principal amount of the Notes
remain outstanding, the Company shall not issue any securities that rank pari
passu or senior to the Notes without the prior written consent of at least
seventy-five percent (75%) of the principal amount of the Notes outstanding at
such time.
Section 3.20 Lock-Up Agreement. The persons listed on Schedule 3.20
attached hereto shall be subject to the terms and provisions of a lock-up
agreement in substantially the form as Exhibit H hereto (the "Lock-Up
Agreement"), which shall provide the manner in which such persons will sell,
transfer or dispose of their shares of Common Stock.
Section 3.21 Subsequent Financings.
(a) For a period of one (1) year following the Closing Date, the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
Notice") the Purchasers of the terms and conditions of any proposed offer or
sale to, or exchange with (or other type of distribution to) any third party (a
"Subsequent Financing"), of Common Stock or any securities convertible,
exercisable or exchangeable into Common Stock, including convertible debt
securities (collectively, the "Financing Securities"). The Rights Notice shall
describe, in reasonable detail, the proposed Subsequent Financing, the names and
investment amounts of all investors participating in the Subsequent Financing,
the proposed closing date of the Subsequent Financing, which shall be within
twenty (20) calendar days from the date of the Rights Notice, and all of the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith. The Rights Notice shall provide each Purchaser an
option (the "Rights Option") during the ten (10) Trading Days following delivery
of the Rights Notice (the "Option Period") to inform the Company whether such
Purchaser will purchase up to its pro rata portion of the securities being
offered in such Subsequent Financing on the same, absolute terms and conditions
as contemplated by such Subsequent Financing. If any Purchaser elects not to
participate in such Subsequent Financing, the other Purchasers may participate
on a pro-rata basis so long as such participation in the aggregate does not
exceed the total Purchase Price hereunder. For purposes of this Section, all
references to "pro rata" means, for any Purchaser electing to participate in
such Subsequent Financing, 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 all of the participating
Purchasers at the Closing. Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party;
provided that all of the material terms and conditions of the closing are the
same as those provided to the Purchasers in the Rights Notice. If the closing of
the proposed Subsequent Financing does not occur on that date, any closing of
the contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.21(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.21(a) shall not apply to issuances of securities in a Permitted Financing.
20
(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to this Agreement and the Notes, (iv) the Warrant Shares, (v)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company's stock option plans as they now exist
and employee stock purchase plans as they now exist, (vii) Common Stock issued
or options to purchase Common Stock granted or issued to employees, officers and
directors of the Company pursuant to any stock option plan duly adopted by a
majority of the non-employee members of the Company's board of directors or a
majority of the members of a committee of non-employee directors established for
such purpose so long as such issuances in the aggregate do not exceed ten
percent (10%) of the issued and outstanding shares of Common Stock as of the
Closing Date, (viii) any warrants issued to the placement agent and its
designees for the transactions contemplated by this Agreement, and (ix) the
payment of any principal and accrued interest in shares of Common Stock pursuant
to the Notes.
(c) For a period of two (2) years following the Closing Date, if the
Company enters into any Subsequent Financing on terms more favorable than the
terms governing the Notes, then the Purchasers in their sole discretion may
exchange the Notes, valued at their stated value, together with accrued but
unpaid interest (which interest payments shall be payable, at the sole option of
the Purchasers, in cash or in the form of the new securities to be issued in the
Subsequent Financing), for the securities issued or to be issued in the
Subsequent Financing. The Company covenants and agrees to promptly notify in
writing the Purchasers of the terms and conditions of any such proposed
Subsequent Financing.
21
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Close and to Sell the Securities. The obligation hereunder of the Company to
close and issue and sell the Securities to the Purchasers at the Closing is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Securities
shall have been delivered to the Company on the Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents shall
have been duly executed and delivered by the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Securities. The obligation hereunder of the Purchasers
to purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Purchasers'
sole benefit and may be waived by the Purchasers at any time in their sole
discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
as of the Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date.
22
(c) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission or the OTC Bulletin Board (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity or crisis of such magnitude in its effect on,
or any material adverse change in any financial market which, in each case, in
the judgment of such Purchaser, makes it impracticable or inadvisable to
purchase the Securities.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel. The Purchasers shall have received an opinion
of counsel to the Company, dated the date of such Closing, substantially in the
form of Exhibit J hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchasers.
(g) Notes and Warrants. At or prior to the Closing, the Company shall
have delivered to the Purchasers the Notes (in such denominations as each
Purchaser may request) and the Warrants (in such denominations as each Purchaser
may request).
(h) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
(i) Officer's Certificate. On the Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of the Closing Date, confirming the accuracy of
the Company's representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in paragraphs (b)-(e) and (l) of this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this
Section 4.2, such confirmation shall be based on the knowledge of the executive
officer after due inquiry).
23
(j) Registration Rights Agreement. As of the Closing Date, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.
(k) Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit I attached hereto, shall have been
delivered to the Company's transfer agent.
(m) Security Agreement. At the Closing, the Company shall have executed
and delivered the Security Agreement to each Purchaser.
(n) UCC Financing Statements. The Company shall have filed all UCC
financing statements in form and substance satisfactory to the Purchasers at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreement).
(o) Lock-Up Agreement. As of the Closing Date, the persons listed on
Schedule 3.20 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of Exhibit H attached hereto.
ARTICLE V
CERTIFICATE LEGEND
Section 5.1 Legend. Each certificate representing the Securities shall
be stamped or otherwise imprinted with a legend substantially in the following
form (in addition to any legend required by applicable state securities or "blue
sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR SILVER
STAR ENERGY, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
24
The Company agrees to issue or reissue certificates representing any of
the Conversion Shares and the Warrant Shares, without the legend set forth above
if at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer and removal will not be effected
until: (a) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that the registration of the
Conversion Shares or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the Securities Act, (iii) the
Company has received other evidence reasonably satisfactory to the Company that
such registration and qualification under the Securities Act and state
securities laws are not required, or (iv) the holder provides the Company with
reasonable assurances that such security can be sold pursuant to Rule 144 under
the Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, (ii) compliance with
applicable state securities or "blue sky" laws has been effected, or (iii) the
holder provides the Company with reasonable assurances that a valid exemption
exists with respect thereto. The Company will respond to any such notice from a
holder within three (3) business days. In the case of any proposed transfer
under this Section 5.1, the Company will use reasonable efforts to comply with
any such applicable state securities or "blue sky" laws, but shall in no event
be required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or "blue sky" laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Conversion Shares or
Warrant Shares is required to be issued to a Purchaser without a legend, in lieu
of delivering physical certificates representing the Conversion Shares or
Warrant Shares, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, the
Company shall use its reasonable best efforts to cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system (to the extent not
inconsistent with any provisions of this Agreement).
ARTICLE VI
INDEMNIFICATION
Section 6.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.
25
Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matter giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this Article VI shall be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party shall refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law. No indemnifying party will be liable to the indemnified party under this
Agreement to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to the indemnified party's breach of any of the
representations, warranties or covenants made by such party in this Agreement or
in the other Transaction Documents.
26
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fees and Expenses. Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided,
however, that the Company shall pay all actual attorneys' fees and expenses
(including disbursements and out-of-pocket expenses) incurred by the Purchasers
in connection with (i) the preparation, negotiation, execution and delivery of
the Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $27,500 (plus
disbursements and out-of-pocket expenses), of which $7,500 has been paid prior
to the Closing Date, and (ii) any amendments, modifications or waivers of this
Agreement or any of the other Transaction Documents. In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchasers in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees and expenses.
Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the other Transaction Documents were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the other Transaction
Documents and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.
27
Section 7.3 Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of the principal amount of the Notes then held by the Purchasers. Any amendment
or waiver effected in accordance with this Section 7.3 shall be binding upon
each Purchaser (and their permitted assigns) and the Company.
Section 7.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Silver Star Energy, Inc.
11300 W. Olympic Boulevard, Suite 800
Los Angeles, California 90064
Attention: Chief Executive Officer
Tel. No.: (310) 477-2211
Fax No.: (310) 445-8800
with copies (which copies
shall not constitute notice
to the Company) to: Law Offices of Dieterich & Associates
11300 W. Olympic Boulevard, Suite 800
Los Angeles, California 90064
Attention: Christopher H. Dieterich
Tel. No.: (310) 312-6888
Fax No.: (310) 312-6680
If to any Purchaser: At the address of such Purchaser set forth
on Exhibit A to this Agreement, with copies
to Purchaser's counsel as set forth on
Exhibit A or as specified in writing by such
Purchaser with copies to:
28
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
Any party hereto may from time to time change its address for notices
by giving written notice of such changed address to the other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. No consideration shall be offered or
paid to any Purchaser to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. This provision
constitutes a separate right granted to each Purchaser by the Company and shall
not in any way be construed as the Purchasers acting in concert or as a group
with respect to the purchase, disposition or voting of Securities or otherwise.
Section 7.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 7.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
After the Closing, the assignment by a party to this Agreement of any rights
hereunder shall not affect the obligations of such party under this Agreement.
Subject to Section 5.1 hereof, the Purchasers may assign the Securities and its
rights under this Agreement and the other Transaction Documents and any other
rights hereto and thereto without the consent of the Company.
Section 7.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 7.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.
Section 7.10 Survival. The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closing until the second anniversary of the Closing Date, except the
agreements and covenants set forth in Articles I, III, V, VI and VII of this
Agreement shall survive the execution and delivery hereof and the Closing
hereunder.
29
Section 7.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 7.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the names of the Purchasers
without the consent of the Purchasers, which consent shall not be unreasonably
withheld or delayed, or unless and until such disclosure is required by law,
rule or applicable regulation, including without limitation any disclosure
pursuant to the Registration Statement, and then only to the extent of such
requirement.
Section 7.13 Severability. The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.
Section 7.14 Further Assurances. From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Note and Warrant Purchase Agreement to be duly executed by their
respective authorized officers as of the date first above written.
SILVER STAR ENERGY, INC.
By: /s/ David Naylor
---------------------------------------
Name: David Naylor
Title: Chief Financial Officer
PURCHASER:
By: _____________________________________
Name:
Title:
EXHIBIT A
LIST OF PURCHASERS
NAMES AND ADDRESSES INVESTMENT AMOUNT AND NUMBER OF
OF PURCHASERS WARRANTS PURCHASED
- ------------- ------------------
i
EXHIBIT B
FORM OF NOTE
ii
EXHIBIT C
FORM OF WARRANT
iii
EXHIBIT D
FORM OF SERIES A WARRANT
iv
EXHIBIT E
FORM OF SERIES B WARRANT
v
EXHIBIT F
FORM OF REGISTRATION RIGHTS AGREEMENT
vi
EXHIBIT G
FORM OF SECURITY AGREEMENT
vii
EXHIBIT H
FORM OF LOCK-UP AGREEMENT
viii
EXHIBIT I
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
SILVER STAR ENERGY, INC.
as of September 30, 2005
[Name and address of Transfer Agent]
Attn: _____________
LADIES AND GENTLEMEN:
Reference is made to that certain Note and Warrant Purchase Agreement
(the "PURCHASE AGREEMENT"), dated as of September 30, 2005, by and among Silver
Star Energy, Inc., a Nevada corporation (the "COMPANY"), and the purchasers
named therein (collectively, the "PURCHASERS") pursuant to which the Company is
issuing to the Purchasers senior secured convertible promissory notes (the
"NOTES") and warrants (the "WARRANTS") to purchase shares of the Company's
common stock, par value $0.001 per share (the "COMMON STOCK"). This letter shall
serve as our irrevocable authorization and direction to you (provided that you
are the transfer agent of the Company at such time) to issue shares of Common
Stock upon conversion of the Notes (the "CONVERSION SHARES") and exercise of the
Warrants (the "WARRANT SHARES") to or upon the order of a Purchaser from time to
time upon (i) surrender to you of a properly completed and duly executed
Conversion Notice or Exercise Notice, as the case may be, in the form attached
hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the
conversion of Notes, a copy of the Note (with the original delivered to the
Company) representing the Notes being converted or, in the case of Warrants
being exercised, a copy of the Warrants (with the original Warrants delivered to
the Company) being exercised (or, in each case, an indemnification undertaking
with respect to such Notes or the Warrants in the case of their loss, theft or
destruction), and (iii) delivery of a treasury order or other appropriate order
duly executed by a duly authorized officer of the Company. So long as you have
previously received (x) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT"), and no subsequent notice by the Company or its counsel of the
suspension or termination of its effectiveness and (y) a copy of such
registration statement, and if the Purchaser represents in writing that the
prospectus delivery requirements have been or will be met, the Conversion Shares
or the Warrant Shares, as the case may be, were sold pursuant to the
Registration Statement, then certificates representing the Conversion Shares and
the Warrant Shares, as the case may be, shall not bear any legend restricting
transfer of the Conversion Shares and the Warrant Shares, as the case may be,
thereby and should not be subject to any stop-transfer restriction. Provided,
however, that if you have not previously received (i) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the SEC under the 1933 Act, and (ii) a copy of such registration statement,
then the certificates for the Conversion Shares and the Warrant Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS,
OR SILVER STAR ENERGY, INC. SHALL HAVE RECEIVED AN OPINION OF
ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED."
ix
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Purchase Agreement and, accordingly, each
Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
SILVER STAR ENERGY, INC.
By: /s/ David Naylor
-----------------------------------------
Name: David Naylor
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
Date: ______________________________________
x
EXHIBIT I
SILVER STAR ENERGY, INC.
CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of SILVER
STAR ENERGY, INC. (the "Maker") according to the conditions hereof, as of the
date written below.
Date of Conversion ___________________________________________________________
Applicable Conversion Price __________________________________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________
Signature_____________________________________________________________________
[Name]
Address:______________________________________________________________________
______________________________________________________________________
xi
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
SILVER STAR ENERGY, INC.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Silver Star
Energy, Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________________
_____________________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________________
_____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________________
_____________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.
xii
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: SILVER STAR ENERGY, INC.
Ladies and Gentlemen:
We are counsel to Silver Star Energy, Inc., a Nevada corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Amended and Restated Note and Warrant Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of November 9, 2005, by and among the Company and the
purchasers named therein (collectively, the "PURCHASERS") pursuant to which the
Company issued to the Purchasers senior secured convertible promissory notes
(the "NOTES") and warrants (the "WARRANTS") to purchase shares of the Company's
common stock, par value $0.001 per share (the "COMMON STOCK"). Pursuant to the
Purchase Agreement, the Company has also entered into an Amended and Restated
Registration Rights Agreement with the Purchasers (the "REGISTRATION RIGHTS
AGREEMENT"), dated as of November 9, 2005, pursuant to which the Company agreed,
among other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Notes and exercise of the Warrants, under the Securities
Act of 1933, as amended (the "1933 ACT"). In connection with the Company's
obligations under the Registration Rights Agreement, on ________________, 2005,
the Company filed a Registration Statement on Form SB-2 (File No. 333-________)
(the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the resale of the Registrable Securities which names each of
the present Purchasers as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By: ______________________________________
cc: [LIST NAMES OF PURCHASERS]
xiii
EXHIBIT J
FORM OF OPINION
1. 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
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Notes, the Warrants and the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants. The execution, delivery and performance of
each of the 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 no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered, and the Notes and
the Warrants have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms. The Common Stock issuable upon conversion of the Notes and
exercise of the Warrants are not subject to any preemptive rights under the
Articles of Incorporation or the Bylaws.
3. The Notes and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants have been
duly authorized and reserved for issuance, and when delivered upon conversion or
against payment in full as provided in the Notes and the Warrants, as
applicable, will be validly issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Notes, the Warrants
and the Common Stock issuable upon conversion of the Notes and exercise of the
Warrants do not (a) violate any provision of the Articles of Incorporation or
Bylaws, (b) 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
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party and
which is set forth on Schedule I, (c) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
which is set forth on Schedule I to which the Company is a party or by which the
Company is bound or by which any of its respective properties or assets are
bound, or (d) result in a violation of any Federal, state, local or foreign
statute, rule, regulation, order, judgment, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clauses (a) and (d) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
xiv
5. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Notes, the Warrants and the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants other than filings as
may be required by applicable Federal and state securities laws and regulations
and any applicable stock exchange rules and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Purchase Agreement or the transactions contemplated thereby or
any action taken or to be taken pursuant thereto. There is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the Company
in their capacities as such.
7. Assuming that all of the Purchasers' representations and warranties
in the Purchase Agreement are complete and accurate, the offer, issuance and
sale of the Notes and the Warrants and the offer, issuance and sale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
are exempt from the registration requirements of the Securities Act of 1933, as
amended.
8. The Company is not, and as a result of and immediately upon 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.
9. The Security Agreement will create a valid security interest in
favor of the Purchasers in such assets of the Company that is subject to such
Security Agreement.
xv