Exhibit 10.2
NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of June 30, 2005
by and among
APOLLO RESOURCES INTERNATIONAL, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE
AGREEMENT dated as of June 30, 2005 this “Agreement”) by and among Apollo
Resources International, Inc., a Utah corporation (the “Company”),
and each of the purchasers of the secured convertible promissory notes of the
Company whose names are set forth on Exhibit A attached hereto
(each a “Purchaser” and collectively, the “Purchasers”).
The parties hereto agree
as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES AND WARRANTS
Section 1.1 Purchase
and Sale of Notes and Warrants.
(a) Upon
the following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall purchase from the Company, secured convertible
promissory notes in the aggregate principal amount of up to Three Million Five
Hundred Thousand Dollars ($3,500,000), convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”), in
substantially the form attached hereto as Exhibit B (the “Notes”).
The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the “Securities
Act”), including Regulation D (“Regulation D”), and/or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made
hereunder.
(b) Upon
the following terms and conditions, the Purchasers shall be issued Warrants, in
substantially the form attached hereto as Exhibit C (the “Warrants”),
to purchase a number of shares of Common Stock equal to one hundred percent (100%)
of the number of Conversion Shares (as defined in Section 1.3 hereof) issuable
upon conversion of such Purchaser’s Notes purchased pursuant to this Agreement
as set forth opposite such Purchaser’s name on Exhibit A attached
hereto. The Warrants shall expire five (5) years following the Closing
Date and shall have an exercise price per share equal to the Warrant Price (as
defined in the Warrants).
Section 1.2 Purchase
Price and Closing. Subject to the terms and conditions hereof, the Company
agrees to issue and sell to the Purchasers and, in consideration of and in
express reliance upon the representations, warranties, covenants, terms and
conditions of this Agreement, the Purchasers, severally but not jointly, agree
to purchase the Notes and Warrants for an aggregate purchase price of up to Three
Million Five Hundred Dollars ($3,500,000) (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 July 6, 2005;
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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 (a) the
aggregate number of shares of Common Stock to effect the conversion of the
Notes and any interest accrued and outstanding thereon and exercise of the
Warrants and (b) upon exercise of the Purchaser Option (as defined in Section 1.4
hereof), the aggregate number of shares of Common Stock to effect the
conversion of the Option Notes (as defined in Section 1.4 hereof) and any
interest accrued and outstanding thereon and exercise of the Additional
Warrants (as defined in Section 1.4 hereof). Any shares of Common Stock
issuable upon conversion of the Notes and the Option Notes and any interest
accrued and outstanding on the Notes and the Option Notes are herein referred
to as the “Conversion Shares”. Any shares of Common Stock issuable upon
exercise of the Warrants (and such shares when issued) are herein referred to
as the “Warrant Shares”. The Notes, the Option Notes, the Warrants, the
Additional Warrants (as defined in Section 1.4 hereof), the Conversion
Shares and the Warrant Shares are sometimes collectively referred to herein as
the “Securities”.
Section 1.4 Additional
Investment Right. Commencing thirty (30) days following the Effective Date
(as defined below) of the Registration Statement (as defined in the
Registration Rights Agreement), each Purchaser shall have the option to
purchase from the Company, and the Company shall issue and sell to each such
Purchaser who exercises such option, a Note for the principal amount of up to such
Purchaser’s pro rata portion of the Purchase Price pursuant to the terms hereof
(the “Purchaser Option”). For purposes of this Agreement, “Effective
Date” means the date that the Commission declares the Registration Statement
effective. If any Purchaser elects not to
exercise its Purchase Option, each other Purchaser may exercise its Purchaser
Option on a pro-rata basis so long as such participation in the aggregate does
not exceed the aggregate Purchase Price hereunder. For purposes of this Section 1.4,
all references to “pro rata” means, for any Purchaser electing to exercise its
Purchaser Option, the percentage obtained by dividing (x) the principal amount
of the Notes purchased by such Purchaser at the Closing by (y) the total
principal amount of all of the Notes purchased by each Purchaser exercising its
Purchaser Option. Upon the Purchaser Option being exercised, each Purchaser exercising
its Purchase Option shall receive a Warrant (the “Additional Warrants”)
to purchase a number of shares of Common Stock equal to one hundred percent
(100%) of the number of Conversion Shares issuable upon conversion of the Note
acquired by such Purchaser pursuant to this Section 1.4. Each such
Additional Warrant shall expire five (5) years following the date of
issuance thereof and shall have an exercise price per share equal to the
Warrant Price. The Purchaser Option shall expire six (6) months following
the Effective Date. The Company may cause each Purchaser to exercise its
Purchaser Option or forfeit its right to exercise such
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Purchaser Option in the future upon five (5) business
days prior written notice in the event that (A) the average closing price
of the Common Stock exceeds $1.00 for a period of twenty (20) consecutive Trading
Days (as defined in Section 3.10 hereof), (B) the Common Stock trades
at least 100,000 shares for each Trading Day during such twenty (20)
consecutive Trading Day period and (C) the Registration Statement has been
declared effective by the Commission. Each Purchaser exercising the Purchaser
Option shall deliver to the Company an Exercise Form in the form attached
hereto as Exhibit D. Within five (5) days of receipt of such
Exercise Form, the Company shall deliver to the Purchaser exercising such
Purchaser Option a Note representing the principal amount purchased pursuant to
the Purchaser Option (the “Option Notes”) and the Purchaser’s Additional
Warrant.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations
and Warranties of the Company. The Company hereby represents and warrants
to the Purchasers, as of the date hereof and the Closing Date (except as set
forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding
to the section number herein), as follows:
(a) Organization,
Good Standing and Power. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Utah and
has the requisite corporate power to own, lease and operate its properties and
assets and to conduct its business as it is now being conducted. The Company
does not have any Subsidiaries (as defined in Section 2.1(g)) or own
securities of any kind in any other entity except as set forth on Schedule 2.1(g) hereto.
The Company and each such Subsidiary (as defined in Section 2.1(g)) is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified will not
have a Material Adverse Effect. For the purposes of this Agreement, “Material
Adverse Effect” means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and
its Subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.
(b) Authorization;
Enforcement. The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Notes, the Warrants, the Registration
Rights Agreement by and among the Company and the Purchasers, dated as of the
date hereof, substantially in the form of Exhibit E attached hereto
(the “Registration Rights Agreement”), the Security Agreement by and
among the Company and the Purchasers, dated as of the date hereof,
substantially in the form of Exhibit F attached hereto (the “Security
Agreement”), 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
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duly and validly authorized by all necessary corporate
action, and, except as set forth on Schedule 2.1(b), no further
consent or authorization of the Company, its Board of Directors or stockholders
is required. When executed and delivered by the Company, each of the
Transaction Documents shall constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor’s rights and remedies
or by other equitable principles of general application.
(c) Capitalization.
The authorized capital stock and the issued and outstanding shares of capital
stock of the Company as of the Closing Date is set forth on Schedule 2.1(c) hereto.
All of the outstanding shares of the Common Stock and any other outstanding
security of the Company have been duly and validly authorized. Except as set
forth in this Agreement, the Commission Documents (as defined in Section 2.1(f))
or as set forth on Schedule 2.1(c) hereto, no shares of Common
Stock or any other security of the Company are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth on Schedule 2.1(c) hereto, there are no contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of the capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company. Except for customary transfer restrictions contained in agreements
entered into by the Company in order to sell restricted securities or as
provided on Schedule 2.1(c) hereto, the Company is not a party
to or bound by any agreement or understanding granting registration or
anti-dilution rights to any person with respect to any of its equity or debt
securities. Except as set forth on Schedule 2.1(c), the Company is
not a party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock of the
Company.
(d) Issuance
of Securities. The Notes and the Warrants to be issued at the Closing have
been duly authorized by all necessary corporate action and, when paid for or
issued in accordance with the terms hereof, the Notes shall be validly issued
and outstanding, free and clear of all liens, encumbrances and rights of refusal
of any kind. When the Conversion Shares and Warrant Shares are issued and paid
for in accordance with the terms of this Agreement and as set forth in the
Notes and Warrants, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a
holder of Common Stock. When the Option Notes are issued in accordance with the
terms of this Agreement, such Option Notes will be duly authorized by all
necessary corporate action and validly issued and outstanding, free and clear
of all liens, encumbrances and rights of refusal of any kind.
(e) No
Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the performance by the Company of its obligations
under the Notes and the consummation by the Company of the transactions contemplated
hereby and thereby, and the issuance of the Securities as contemplated hereby, do
not and will not (i) violate or conflict with any provision of the Company’s
Articles of Incorporation (the “Articles”) or Bylaws (the
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“Bylaws”), each as amended to date, or any
Subsidiary’s comparable charter documents, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries’ respective properties or assets
are bound, or (iii) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries are bound or affected, except, in all cases, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
(other than violations pursuant to clauses (i) or (iii) (with respect
to federal and state securities laws)). Neither the Company nor any of its
Subsidiaries is required under federal, state, foreign or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction Documents
or issue and sell the Securities in accordance with the terms hereof (other
than any filings, consents and approvals which may be required to be made by
the Company under applicable state and federal securities laws, rules or
regulations or any registration provisions provided in the Registration Rights
Agreement).
(f) Commission
Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings incorporated
by reference therein being referred to herein as the “Commission Documents”).
At the times of their respective filings, the Form 10-QSB for the fiscal
quarters ended March 31, 2005, September 30, 2004 and June 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).
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(g) Subsidiaries.
Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person’s ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement, “Subsidiary”
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other Subsidiaries. All of the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable. Except as set forth on Schedule 2.1(g) hereto,
there are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any Subsidiary for
the purchase or acquisition of any shares of capital stock of any Subsidiary or
any other securities convertible into, exchangeable for or evidencing the
rights to subscribe for any shares of such capital stock. Neither the Company
nor any Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of the capital stock of any
Subsidiary or any convertible securities, rights, warrants or options of the
type described in the preceding sentence except as set forth on Schedule 2.1(g) hereto.
Neither the Company nor any Subsidiary is party to, nor has any knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of any Subsidiary.
(h) No
Material Adverse Change. Since March 31, 2005, 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 March 31, 2005, 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
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payments in excess of $25,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.
(l) Title
to Assets. Each of the Company and the Subsidiaries has good and valid
title to all of its real and personal property reflected in the Commission
Documents, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated on Schedule 2.1(l)
hereto or such that, individually or in the aggregate, do not cause a Material
Adverse Effect. Any leases of the Company and each of its Subsidiaries are
valid and subsisting and in full force and effect.
(m) Actions
Pending. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
which questions the validity of this Agreement or any of the other Transaction
Documents or any of the transactions contemplated hereby or thereby or any
action taken or to be taken pursuant hereto or thereto. Except as set forth in
the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, would
reasonably be expected, if adversely determined, to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(n) Compliance
with Law. The business of the Company and the Subsidiaries has been and is
presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except as set forth
in the Commission Documents or on Schedule 2.1(n) hereto or such
that, individually or in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes.
The Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has
paid or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto or in the Commission Documents, none of the federal income tax returns
of the Company 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
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or state) of any nature whatsoever, whether pending or
threatened against the Company or any Subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) Certain
Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders’ structuring fees,
financial advisory fees or other similar fees in connection with the
Transaction Documents.
(q) Disclosure.
Except for the transactions contemplated by this Agreement, the Company
confirms that neither it nor any other person acting on its behalf has provided
any of the Purchasers or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information. To the best of
the Company’s knowledge, neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.
(r) Operation
of Business. Except as set forth on Schedule 2.1(r) hereto, the
Company and each of the Subsidiaries owns or possesses the rights to all
patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.
(s) Environmental
Compliance. To the best knowledge of the Company, except as set forth on Schedule 2.1(s)
hereto or in the Commission Documents, the Company and each of its Subsidiaries
have obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. “Environmental Laws” shall mean all applicable laws
relating to the protection of the environment including, without limitation,
all requirements pertaining to reporting, licensing, permitting, controlling,
investigating or remediating emissions, discharges, releases or threatened
releases of hazardous substances, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. To the best of the Company’s knowledge, the Company has all
necessary governmental approvals required under all Environmental Laws as
necessary for the Company’s business or the business of any of its subsidiaries.
To the best of the Company’s knowledge, the Company and each of its
subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
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
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liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under
any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
(t) Books
and Records; Internal Accounting Controls. The records and documents of the
Company and its Subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the Subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company’s board
of directors, to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any differences.
(u) Material
Agreements. Except for the Transaction Documents (with respect to clause (i) only),
as disclosed in the Commission Documents or as set forth on Schedule 2.1(u)
hereto, or as would not be reasonably likely to have a Material Adverse Effect,
(i) the Company and each of its Subsidiaries have performed all
obligations required to be performed by them to date under any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement,
filed or required to be filed with the Commission (the “Material Agreements”),
(ii) neither the Company nor any of its Subsidiaries has received any
notice of default under any Material Agreement and, (iii) to the best of
the Company’s knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.
(v) Transactions
with Affiliates. Except as set forth on Schedule 2.1(v) hereto
and in the Commission Documents, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or any of
their respective customers or suppliers on the one hand, and (b) on the
other hand, any officer, employee, consultant or director of the Company, or
any of its Subsidiaries, or any person owning at least 5% of the outstanding capital
stock of the Company or any Subsidiary or any member of the immediate family of
such officer, employee, consultant, director or stockholder or any corporation
or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the Commission Documents or in the Company’s most recently filed
definitive proxy statement on Schedule 14A, that is not so disclosed in
the Commission Documents or in such proxy statement.
(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
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and state securities laws in connection with the
offer, issuance and sale of the Securities hereunder. Neither the Company nor
anyone acting on its behalf, directly or indirectly, has or will sell, offer to
sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any negotiations
relating thereto with, any person, or has taken or will take any action so as
to bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws, and
neither the Company nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.
(x) Employees.
Neither the Company nor any Subsidiary has any collective bargaining
arrangements or agreements covering any of its employees, except as set forth
on Schedule 2.1(x) hereto. Except as set forth on Schedule 2.1(x)
hereto, neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
Subsidiary required to be disclosed in the Commission Documents that is not so
disclosed. No officer, consultant or key employee of the Company or any
Subsidiary whose termination, either individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any Subsidiary.
(y) Absence
of Certain Developments. Except as set forth in the Commission Documents or
provided on Schedule 2.1(y) hereto, since March 31, 2005, 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;
10
(v) sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, in each case in excess of $250,000, except in the ordinary course of
business;
(vi) sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in
excess of $250,000, or disclosed any proprietary confidential information to
any person except to customers in the ordinary course of business or to the
Purchasers or their representatives;
(vii) suffered any material losses
or waived any rights of material value, whether or not in the ordinary course
of business, or suffered the loss of any material amount of prospective
business;
(viii) made any changes in employee
compensation except in the ordinary course of business and consistent with past
practices;
(ix) made
capital expenditures or commitments therefor that aggregate in excess of
$500,000;
(x) entered
into any material transaction, whether or not in the ordinary course of
business;
(xi) made
charitable contributions or pledges in excess of $25,000;
(xii) suffered any material
damage, destruction or casualty loss, whether or not covered by insurance;
(xiii) experienced any material
problems with labor or management in connection with the terms and conditions
of their employment; or
(xiv) entered into an agreement,
written or otherwise, to take any of the foregoing actions.
(z) Public
Utility Holding Company Act and Investment Company Act Status. The Company
is not a “holding company” or a “public utility company” as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended. The
Company is not, and as a result of and immediately upon the Closing will not
be, an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.
(aa) ERISA.
No liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan by the Company or any of its Subsidiaries which is or would
be materially adverse to the Company and its Subsidiaries. The execution and
delivery of 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
11
Section 4975 of the Internal Revenue Code of
1986, as amended, provided that, if any of the Purchasers, or any person or
entity that owns a beneficial interest in any of the Purchasers, is an “employee
pension benefit plan” (within the meaning of Section 3(2) of ERISA)
with respect to which the Company is a “party in interest” (within the meaning
of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met. As used in this Section 2.1(aa),
the term “Plan” shall mean an “employee pension benefit plan” (as defined in Section 3
of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any Subsidiary or by any
trade or business, whether or not incorporated, which, together with the
Company or any Subsidiary, is under common control, as described in Section 414(b) or
(c) of the Code.
(bb) Independent
Nature of Purchasers. The Company acknowledges that the obligations of each
Purchaser under the Transaction Documents are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under the
Transaction Documents. The Company acknowledges that the decision of each
Purchaser to purchase Securities pursuant to this Agreement has been made by
such Purchaser independently of any other purchase and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees
shall have any liability to any Purchaser (or any other person) relating to or
arising from any such information, materials, statements or opinions. The
Company acknowledges that nothing contained herein, or in any Transaction
Document, and no action taken by any Purchaser pursuant hereto or thereto,
shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
Company acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a
group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.
(cc) No
Integrated Offering. 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
12
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 December 1, 2004, the Company has not offered or sold any of
its equity securities or debt securities convertible into shares of Common
Stock.
(dd) Sarbanes-Oxley
Act. The Company is in compliance with the applicable provisions of
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and
regulations promulgated thereunder, that are effective and intends to comply
with other applicable provisions of the Sarbanes-Oxley Act, and the rules and
regulations promulgated thereunder, upon the effectiveness of such provisions.
(ee) Dilutive
Effect. The Company understands and acknowledges that the number of
Conversion Shares issuable upon conversion of the Notes and the Warrant Shares
issuable upon exercise of the Warrants will increase in certain circumstances. The
Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Notes in accordance with this Agreement and the Notes
and its obligations to issue the Warrant Shares upon the exercise of the
Warrants in accordance with this Agreement and the Warrants, is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interest of other stockholders of the Company.
Section 2.2 Representations
and Warranties of the Purchasers. Each of the Purchasers hereby represents
and warrants to the Company with respect solely to itself and not with respect
to any other Purchaser as follows as of the date hereof and as of the Closing
Date:
(a) Organization and Standing of the Purchasers. If the Purchaser is an entity, such Purchaser
is a corporation, limited liability company or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authorization
and Power. Each Purchaser has the requisite power and authority to enter
into and perform the Transaction Documents and to purchase the Securities being
sold to it hereunder. The execution, delivery and performance of the
Transaction Documents by each Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of
such Purchaser or its Board of Directors, stockholders, or partners, as the
case may be, is required. When executed and delivered by the Purchasers, the
other Transaction Documents shall constitute valid and binding obligations of
each Purchaser enforceable against such Purchaser in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the
enforcement of, creditor’s rights and remedies or by other equitable principles
of general application.
(c) No
Conflict. The execution, delivery and performance of the Transaction Documents
by the Purchaser and the consummation by the Purchaser of the transactions
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
13
of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Purchaser is a
party or by which the Purchaser’s respective properties or assets are bound, or
(iii) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Purchaser or by which
any property or asset of the Purchaser are bound or affected, except, in all
cases, other than violations pursuant to clauses (i) or (iii) (with
respect to federal and state securities laws) above, except, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, materially and
adversely affect the Purchaser’s ability to perform its obligations under the
Transaction Documents.
(d) Acquisition
for Investment. Each Purchaser is purchasing the Securities solely for its
own account and not with a view to or for sale in connection with distribution.
Each Purchaser does not have a present intention to sell any of the Securities,
nor a present arrangement (whether or not legally binding) or intention to
effect any distribution of any of the Securities to or through any person or
entity; provided, however, that by making the representations
herein, such Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with Federal and state securities laws applicable to such
disposition. Each Purchaser acknowledges that it (i) has such knowledge
and experience in financial and business matters such that Purchaser is capable
of evaluating the merits and risks of Purchaser’s investment in the Company, (ii) is
able to bear the financial risks associated with an investment in the 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
14
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.
(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 Effective
Date 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
15
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.
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
16
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.
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.
17
Section 3.8 Use
of Proceeds. The net proceeds from
the sale of the Securities hereunder shall be used by the Company to repay up
to $1,500,000 to satisfy the Koch pipeline indebtedness 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.
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 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.
18
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.
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 G 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
19
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.
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 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
20
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 3.20(a), including,
without limitation, the delivery of a new Rights Notice. The provisions of this
Section 3.20(a) shall not apply to issuances of securities in a
Permitted Financing.
(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) any warrants issued to the placement agent
and its designees for the transactions contemplated by this Agreement, (viii) the
payment of any principal and accrued interest in shares of Common Stock
pursuant to the Notes, and (ix) the issuance of up to 6,000,000 shares of
Common Stock to the Company’s officers, directors and employees so long as such
shares of Common Stock are not offered, sold, assigned, transferred or pledged,
directly or indirectly, for a period of one (1) year following the
Effective Date.
(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.
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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
22
required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
(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 H
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,
23
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).
(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 G 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).
Section 4.3 Conditions
Precedent to the Obligation of the Purchasers to Purchase the Option Notes.
The obligation hereunder of each Purchaser to acquire and pay for the Option Notes
is subject to the satisfaction or waiver, at or before the closing and sale of
such Option Notes (the “Subsequent Closing Date”), of each of the
conditions set forth below. These conditions are for each Purchaser’s sole
benefit and may be waived by such Purchaser at any time in its 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.
(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 Subsequent 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
24
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 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 Option Notes.
(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, Etc. At the Subsequent Closing Date, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of the Subsequent
Closing Date, in the form of Exhibit H hereto, and such other
certificates and documents as the Purchasers or its counsel shall reasonably
require incident to the Subsequent Closing.
(g) Option
Notes and Warrants. At or prior to the Subsequent Closing Date, the Company
shall have delivered to the Purchasers the Option Notes (in such denominations
as each Purchaser may request) and the Warrants, in each case, being acquired
by the Purchasers at the Subsequent Closing Date.
(h) Officer’s
Certificate. The Company shall have delivered to the Purchasers a
certificate of an executive officer of the Company, dated as of the Closing
Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.3 as of the
Subsequent Closing Date.
(i) Material
Adverse Effect. No Material Adverse Effect shall have occurred at or before
the Subsequent Closing Date.
(j) Effective
Registration Statement. The Registration Statement shall have been declared
effective by the Commission.
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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 APOLLO RESOURCES INTERNATIONAL, 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.
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
26
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.
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
27
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.
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
28
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.
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
29
such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
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If to the
Company:
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Apollo Resources
International, Inc.
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3001 Knox
Street, Suite 403
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Dallas, Texas
75205
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Attention: Chief
Executive Officer
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Tel. No.: (214) 389-9800
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Fax No.: (214) 389-9806
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with copies
(which copies
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shall not
constitute notice
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to the Company)
to:
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Scheef &
Stone, LLP
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5956 Sherry
Lane, Suite 1400
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Dallas, Texas
75225
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Attention: Roger
A. Crabb
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Tel. No.: (214)
706-4224
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Fax No.: (214)
706-4242
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If to any
Purchaser:
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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:
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Kramer Levin
Naftalis & Frankel LLP
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1177 Avenue of
the Americas
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New York, New
York 10036
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Attention:
Christopher S. Auguste
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Tel. No.: (212)
715-9100
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Fax No.: (212)
715-8000
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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.
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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.
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.
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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]
32
IN WITNESS WHEREOF, the
parties hereto have caused this Note and Warrant Purchase Agreement to be duly
executed by their respective authorized officers as of the date first above
written.
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APOLLO
RESOURCES INTERNATIONAL, INC.
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By:
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Name:
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Title:
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PURCHASER:
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By:
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Name:
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Title:
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EXHIBIT A
LIST OF PURCHASERS
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Names and Addresses
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Investment Amount and Number of
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of Purchasers
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Warrants Purchased
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i
EXHIBIT B
FORM OF NOTE
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EXHIBIT C
FORM OF WARRANT
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EXHIBIT D
PURCHASER OPTION EXERCISE FORM
To: Apollo Resources International, Inc.
The
undersigned hereby exercises its Purchaser Option to purchase $
of secured convertible promissory notes of Apollo Resources International, Inc.,
pursuant to and subject to the terms of that certain Note and Warrant Purchase
Agreement by and among the Company and the purchasers named therein dated as of
June 30, 2005, the terms of which are incorporated herein by reference.
The
undersigned is paying the option exercise price as follows:
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EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
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EXHIBIT F
FORM OF SECURITY AGREEMENT
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EXHIBIT G
FORM OF IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS
APOLLO RESOURCES INTERNATIONAL, INC.
as of June 30,
2005
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[Name and
address of Transfer Agent]
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Attn:
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Ladies
and Gentlemen:
Reference
is made to that certain Note and Warrant Purchase Agreement (the “Purchase Agreement”), dated as of June 30, 2005, by and
among Apollo Resources International, Inc., a Utah corporation (the “Company”), and the purchasers named therein (collectively,
the “Purchasers”) pursuant to which the
Company is issuing to the Purchasers 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,
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OR APOLLO RESOURCES
INTERNATIONAL, 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.”
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 .
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Very truly
yours,
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APOLLO
RESOURCES INTERNATIONAL, INC.
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By:
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Name:
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Title:
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ACKNOWLEDGED AND AGREED:
[TRANSFER
AGENT]
viii
EXHIBIT I
APOLLO RESOURCES INTERNATIONAL, 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 APOLLO RESOURCES INTERNATIONAL, INC. (the “Maker”)
according to the conditions hereof, as of the date written below.
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Date of
Conversion
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Applicable
Conversion Price
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Number of shares of Common Stock beneficially
owned or deemed beneficially owned by the Holder on
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the Date of Conversion:
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Signature
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[Name]
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Address:
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ix
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
APOLLO RESOURCES INTERNATIONAL, INC.
The undersigned ,
pursuant to the provisions of the within Warrant, hereby elects to purchase
shares of Common Stock of Apollo Resources International, Inc. covered by
the within Warrant.
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Number of shares of Common Stock beneficially owned or deemed
beneficially owned by the Holder on
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the date of Exercise:
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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.
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.
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-
canceled (or transferred or exchanged) this
day of ,
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shares of Common Stock issued therefor in the name of ,
Warrant No. W-
issued for shares of
Common Stock in the name of .
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EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
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[Name and
address of Transfer Agent]
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Attn:
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Re: Apollo Resources International, Inc.
Ladies and Gentlemen:
We are
counsel to Apollo Resources International, Inc., a Utah corporation (the “Company”), and have represented the Company in connection
with that certain Note and Warrant Purchase Agreement (the “Purchase Agreement”), dated as of June 30, 2005, by and
among the Company and the purchasers named therein (collectively, the “Purchasers”) pursuant to which the Company issued to the
Purchasers 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 a Registration Rights Agreement with the
Purchasers (the “Registration Rights Agreement”),
dated as of June 30, 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.
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Very truly
yours,
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[COMPANY
COUNSEL]
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By:
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cc:
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[LIST
NAMES OF PURCHASERS]
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xi
EXHIBIT H
FORM OF OPINION
1. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Utah 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.
xii
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.
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