Exhibit
4.1
FIRST
AMENDMENT AND WAIVER AGREEMENT
This
First Amendment and Waiver Agreement (this “Agreement”),
is
made and entered into as of February 15, 2007, by and among Fellows
Energy Ltd.,
a Nevada corporation (along with its subsidiaries signatory hereto,
the
“Company”)
and
Palisades Master Fund (the “Holder”).
WHEREAS,
the Company and the Holder are parties to that certain Securities
Purchase
Agreement, dated June 17, 2005, by and among the Company and
the signatories
thereto (collectively, the “June
Purchase Agreements”),
pursuant to which the Company issued to the Holder a Convertible
Debenture, due
September 7, 2007, with an aggregate principal amount of $4,01,200,
of which
$1,046,438.23 currently remains outstanding (the “June
Debenture”);
and
WHEREAS,
the Company and the Holder are parties to that certain Securities
Purchase
Agreement, September 21, 2005, by and among the Company and the
signatories
thereto (collectively, the “September
Purchase Agreement”
and
together with the June Purchase Agreement, the “Purchase
Agreements”),
pursuant to which the Company issued to the Holder a Convertible
Debenture, due
September 7, 2007, with an aggregate principal amount of $2,858,000,
of which
$1,536,238.51 currently remains outstanding (the “September
Debenture”
and
together with the June Debenture, the “Debentures”);
and
WHEREAS,
on account of dilutive issuances of equity by the Company, the
conversion price
of the Debentures and the exercise prices of the common stock
purchase warrants
(collectively, the “Warrants”)
issued
pursuant to the Purchase Agreements have been reduced to equal
$0.1357, subject
to adjustment therein, with proportional increases in the number
of shares of
common stock issuable upon exercise of such Warrants, as set
forth therein;
and
WHEREAS,
certain events of default have occurred pursuant to the Debentures
and are
continuing to occur related to the Debentures and as a result
of such defaults
(“Existing
Defaults”),
Palisades is entitled, among other things, to enforce its rights
and remedies
against the Company, including without limitation, acceleration
and immediately
demand payment in full of all obligations under the Debentures;
and
WHEREAS,
the parties have reached an agreement with respect to the modification
and
amendment of certain terms of the Debentures relating to the
conversion and
terms of the Debentures and the waiver of the Existing Defaults;
and
WHEREAS,
capitalized terms used herein, but not otherwise defined, shall
have the
meanings ascribed to such terms as set forth in the September
Purchase
Agreement; and
NOW
THEREFORE, in consideration of the terms and conditions contained
in this
Agreement, and other good and valuable consideration, the receipt
and
sufficiency of which is hereby acknowledged, the parties, intending
to be
legally bound hereby, agree as follows:
1. Incorporation
of Preliminary Statements and Acknowledgement.
The
preliminary statements set forth above by this reference hereto
are hereby
incorporated into this Agreement. Without limiting the foregoing,
the Company
hereby acknowledges that the Existing Events have occurred and
are continuing
under the terms of the Purchase Agreement and Debentures and,
notwithstanding
anything to the contrary in this Agreement, the Purchase Agreements,
Debentures
or any of the other Transaction Documents, the Company acknowledges
and agrees
that upon a breach of this Agreement by the Company, such breach
shall be an
Event of Default under the Debentures.
2. Consent
to JGB/Crescent Transaction.
Simultaneously with the execution of this Agreement, the following
transactions
are also taking place: a) the Company and JGB Capital L.P. (“JGB”)
are
entering into a settlement agreement; b) JGB is entering into
an assignment
agreement with Crescent International Ltd. (“Crescent”)
for
the assignment of the Debenture (the “JGB
Assignment Agreement”);
c)
the Company is entering into an amendment agreement (the “Debenture
Amendments”
and
together with this Agreement and the JGB Assignment Agreement,
the “Assignment
Documents”)
with
Crescent for the amendment of the convertible debentures issued
pursuant to the
Purchase Agreements; and d) the Company and Holder are entering
into a
securities purchase agreement for the purchase of $714,500 in
secured
convertible debentures. The Holder hereby consents to the above-described
transactions.
3. Waiver
of Existing Defaults.
The
Holder agrees to forever waive its rights and remedies against
the Company,
including without limitation, acceleration of the Debentures,
solely in
connection with, and as they relate to, the prior occurrence
of the Existing
Defaults. Notwithstanding anything herein to the contrary, this
waiver is
limited only to the Existing Defaults and any future Events of
Default,
including a breach of this Agreement, shall not be deemed waived
hereunder.
4. Release
of all Claims.
THE
COMPANY (FOR ITSELF AND ITS AFFILIATES) HEREBY UNCONDITIONALLY
RELEASES AND
FOREVER DISCHARGES THE HOLDER AND ITS RESPECTIVE SUCCESSORS,
ASSIGNS, AGENTS,
DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, ACCOUNTANTS, CONSULTANTS,
CONTRACTORS, ADVISORS AND ATTORNEYS (COLLECTIVELY, THE "BENEFITED
PARTIES")
FROM
ALL CLAIMS (AS DEFINED BELOW) AND AGREES TO INDEMNIFY THE BENEFITED
PARTIES, AND
HOLD THEM HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF
ACTION, COSTS AND
EXPENSES OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS.
AS USED IN
THIS AMENDMENT, THE TERM "CLAIMS" MEANS ANY AND ALL POSSIBLE
CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTIONS, COSTS, EXPENSES AND LIABILITIES WHATSOEVER,
KNOWN OR
UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART,
WHICH THE
COMPANY, OR ANY OF ITS AGENTS, EMPLOYEES OR AFFILIATES MAY NOW
OR HEREAFTER HAVE
OR CLAIM AGAINST ANY OF THE BENEFITED PARTIES AND IRRESPECTIVE
OF WHETHER ANY
SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR
OTHERWISE IN
CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, INCLUDING ANY
CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE
MAXIMUM RATE ON INTEREST CHARGEABLE UNDER APPLICABLE LAW AND
ANY LOSS, COST OR
DAMAGE, OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH OR
IN ANY WAY RESULTING FROM THE ACTIONS OR OMISSIONS OF THE BENEFITED
PARTIES,
INCLUDING ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF
GOOD FAITH OR FAIR
DEALING, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT
OF INTEREST,
NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER
INFLUENCED AND
CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION
OF MENTAL
DISTRESS, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, TORTIOUS
INTERFERENCE WITH CORPORATE GOVERNANCE OR PROSPECTIVE BUSINESS
ADVANTAGE, BREACH
OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY
OR ANY CLAIM
FOR WRONGFULLY ACCELERATING ANY OBLIGATIONS OR WRONGFULLY ATTEMPTING
TO
FORECLOSE ON ANY COLLATERAL. THE COMPANY (FOR ITSELF AND ITS
AFFILIATES) AGREES
THAT NONE OF THE BENEFITED PARTIES HAS FIDUCIARY OR SIMILAR OBLIGATIONS
TO THE
COMPANY OR ANY AGENTS, EMPLOYEES OR AFFILIATES OF THE COMPANY
AND THAT THEIR
RELATIONSHIPS ARE STRICTLY THAT OF CREDITOR AND DEBTOR. THIS
RELEASE IS ACCEPTED
BY HOLDER PURSUANT TO THIS AMENDMENT AND SHALL NOT BE CONSTRUED
AS AN ADMISSION
OF LIABILITY BY HOLDER OR ANY OTHER BENEFITED PARTY.
5. Cashless
Exchange of Warrant.
In
consideration for the Holder immediately exercising the Warrants
pursuant to the
cashless exercise provisions thereof, the Company agrees to reduce
the exercise
price of the warrants (“Exercise
Price Adjustment”)
to
$0.0866 in connection with such exercise such that the Holder
shall receive
2,970,758 shares of Common Stock (the “Exercised
Shares”).
Within 3 Trading Days of the date hereof, the Company shall have
delivered the
Exercised Shares to the Depository Trust Account of the Holder
pursuant to the
instructions set forth on the Holder’s signature page hereto. The Exercised
Shares shall be registered for resale pursuant to the Registration
Statements,
File No. 333-127413 and 333-129627 (the “Registration
Statements”)
free
of any legends or restrictions on resale by the Holder. The Holder
waives any
anti-dilution adjustments that would otherwise occur to securities
held by
Holder solely as a result of the Exercise Price Adjustment; provided,
however,
that
such waiver does not extend to any adjustment to a third party
holder of the
Company’s securities that received an adjustment to their securities
to less
than $0.0866, subject to adjustment for reverse and forward stock
splits, stock
dividends, stock combinations and other similar transactions
of the Common Stock
that occur after the date of this Agreement, as a result of the
Exercise Price
Adjustment.
6. Conversion
of Debentures.
The
Company shall issue shares of common stock (the “Converted
Shares”)
to the
Holder pursuant to overdue monthly redemptions owed as of December
1, 2006,
January 1, 2007 and February 1, 2007, to the extent such Converted
Shares are
registered for resale pursuant to the Registration Statements.
The Company shall
issue 7,025,789 Converted Shares upon the monthly liquidation
of, in the
aggregate, $608,433.15 in principal amount of the Debentures,
as set forth on
Exhibit
A
hereto.
Within 3 Trading Days of the date hereof, the Company shall have
delivered the
Converted Shares to the Depository Trust Account of the Holder
pursuant to the
instructions set forth on the Holder’s signature page hereto. The Converted
Shares shall be registered for resale pursuant to the Registration
Statements
and free of any legends or restrictions on resale by the Holder.
The Holder
waives any anti-dilution adjustments that would otherwise occur
to securities
held by Holder as a result of the issuance of the Converted Shares;
provided,
however,
that
such waiver does not extend to any adjustment to a third party
holder of the
Company’s securities that received an adjustment to their securities
to less
than $0.0866, subject to adjustment for reverse and forward stock
splits, stock
dividends, stock combinations and other similar transactions
of the Common Stock
that occur after the date of this Agreement, as a result of the
issuance of the
Converted Shares. The Company shall keep the Registration Statements
effective
until the earlier of the date that the Holder no longer holds
any Exercised
Shares or Converted Shares or such shares may be sold pursuant
to Rule 144(k).
Upon the conversion of debentures, the remaining principal amount
due of the
Debentures is as set forth on Exhibit
A
hereto.
7. Forbearance
Fee and Issuance of Common Stock.
The
Company shall pay the Holder a Forbearance Fee of $150,000 a
month, for six
months, to be paid in shares of Common Stock of the Company at
a price of
$0.1375 per share, for a total of 5,454,546 shares which shares
shall bear the
restrictive legend set for in the Purchase Agreements (the “Forbearance
Shares”).
In
addition, on the date hereof, the Company shall issue to the
Holder 1,449,825
shares of Common Stock to the Holder which shares shall bear
the restrictive
legend set for in the Purchase Agreements (“Commitment
Shares”).
The
rights and obligations of the Company with respect to the Forbearance
Shares and
Commitment Shares shall be identical in all respects to the rights
and
obligations of the Company with respect to the Underlying Shares
issued and
issuable pursuant to the Agreements. The September Agreement
is hereby amended
so that the term the term “Underlying Shares” includes the Forbearance Shares
and Commitment Shares. The Forbearance Shares and Commitment
Shares shall be
delivered to the Holder within 5 Trading Days of the date hereof.
The
Forbearance Shares and Commitment Shares shall be registered
pursuant to the
terms of that certain Registration Rights Agreement, dated February
15, 2007, by
and among the Company, the Holder and the other holders thereto.
8. Amendment
to Debentures.
The
Debentures are amended as follows:
(a) All
definitions and references in the Debentures to “Forced Conversion”, “Forced
Conversion Notice”, “Forced Conversion Notice Date”, “Monthly Conversion
Period”, “Monthly Conversion Price”, Monthly Redemption”, “Monthly Redemption
Amount”, “Monthly Redemption Date”, “Monthly Redemption Notice”, “Monthly
Redemption Notice Date”, “Monthly Redemption Notice Period”, “Monthly Redemption
Share Amount”, “Optional Redemption”, Optional Redemption Amount”, Optional
Redemption Notice”, “Optional Redemption Notice Date”, “Pre-Redemption
Conversion Shares” and “Threshold Period” are hereby deleted and of no further
force or effect in the Debentures.
(b) Section
6(a) of the Debentures is hereby deleted in its entirely and
replaced as
follows: “Section
6.RESERVED.”
(c) Section
4(b) of the Debentures is hereby amended and restated as follows:
“Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal
to $0.1375
(subject
to adjustment herein)(the “Conversion
Price”).”
9. Security
Interest.
As
security for the payment in full of principal, interest and performance
under
this Agreement and the Debentures and of all other liabilities
and obligations
of the Company to the Holder, the Company and its subsidiaries,
grant the Holder
a general security interest in all assets of the Company and
its subsidiaries
and all proceeds arising therefrom and any and all products of
such assets and
in certain real estate holdings as described below. In furtherance
thereof, the
Company shall:
a.
On the
date hereof enter into a Security Agreement simultaneously herewith
evidencing
the above-referenced security interest in all of the assets of
the Company and
its subsidiaries; and
b. Within
30
days of the date hereof, have granted the Holder a first lien
on real property
(except for the real property in Carbon county, which Holder
shall take a second
lien), in the form of a mortgage or deed of trust, in real property
owned by the
Company and its subsidiaries and located in Baca and Broomfield
counties,
Colorado, and Rich, Carbon and Emery counties, Utah. The Company
shall use best
efforts to secure such liens in favor of the Holder, including
but not limited
to, paying reasonable attorneys’ fees in connection therewith and securing title
insurance reports.
10. Representations
and Warranties of the Company.
The
Company hereby makes to the Holder the following representations
and
warranties:
i. Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter
into and to
consummate the transactions contemplated by this Agreement and
otherwise to
carry out its obligations hereunder and thereunder. The execution
and delivery
of this Agreement by the Company and the consummation by it of
the transactions
contemplated hereby have been duly authorized by all necessary
action on the
part of the Company and no further action is required by the
Company, its board
of directors or its stockholders in connection therewith other
than in
connection with the Required Approvals. This Agreement has been
duly executed by
the Company and, when delivered in accordance with the terms
hereof will
constitute the valid and binding obligation of the Company enforceable
against
the Company in accordance with its terms except (i) as limited
by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable
remedies and (iii) insofar as indemnification and contribution
provisions may be
limited by applicable law.
ii. No
Conflicts.
The
execution, delivery and performance of this Agreement by the
Company and the
consummation by the Company of the transactions contemplated
hereby do not and
will not: (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a
default (or an event that with notice or lapse of time or both
would become a
default) under, result in the creation of any Lien (except as
contemplated by
the Security Documents) upon any of the properties or assets
of the Company or
any Subsidiary, or give to others any rights of termination,
amendment,
acceleration or cancellation (with or without notice, lapse of
time or both) of,
any material agreement, credit facility, debt or other material
instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
material
understanding to which the Company or any Subsidiary is a party
or by which any
property or asset of the Company or any Subsidiary is bound or
affected, or
(iii) subject to the Required Approvals, conflict with or result
in a violation
of any law, rule, regulation, order, judgment, injunction, decree
or other
restriction of any court or governmental authority to which the
Company or a
Subsidiary is subject (including federal and state securities
laws and
regulations), or by which any property or asset of the Company
or a Subsidiary
is bound or affected; except in the case of each of clauses (ii)
and (iii), such
as could not have or reasonably be expected to result in a Material
Adverse
Effect.
iii. Issuance
of the Commitment Shares.
The
Commitment Shares are duly authorized and, upon the execution
of this Agreement
by a Holder, will be duly and validly issued, fully paid and
nonassessable, free
and clear of all Liens imposed by the Company other than restrictions
on
transfer provided for in the Transaction Documents.
11. Representations
and Warranties of the Holder.
The
Holder represents and warrants as of the date hereof to the Company
as
follows:
i. Authority.
The
execution, delivery and performance by such Holder of the transactions
contemplated by this Agreement have been duly authorized by all
necessary
corporate or similar action on the part of such Holder. This
Agreement has been
duly executed by such Holder, and when delivered by such Holder
in accordance
with the terms hereof, will constitute the valid and legally
binding obligation
of such Holder, enforceable against it in accordance with its
terms, except (i)
as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
ii. Own
Account.
Such
Holder understands that the Commitment Shares are “restricted securities” and
have not been registered under the Securities Act or any applicable
state
securities law and is acquiring the Commitment Share as principal
for its own
account and not with a view to or for distributing or reselling
the Commitment
Shares or any part thereof in violation of the Securities Act
or any applicable
state securities law, has no present intention of distributing
any of such
Securities in violation of the Securities Act or any applicable
state securities
law and has no arrangement or understanding with any other persons
regarding the
distribution of the Commitment Shares (this representation and
warranty not
limiting such Holder’s right to sell the Commitment Shares pursuant to the
Registration Statement or otherwise in compliance with applicable
federal and
state securities laws) in violation of the Securities Act or
any applicable
state securities law. Such Holder is acquiring the Commitment
Shares hereunder
in the ordinary course of its business. Such Holder does not
have any agreement
or understanding, directly or indirectly, with any Person to
distribute any of
the Commitment Shares.
iii. Holder
Status.
Such
Holder is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act. Such Holder is not
required to be
registered as a broker-dealer under Section 15 of the Exchange
Act.
12. Effect
on Transaction Documents. Except
as
expressly set forth above, all of the terms and conditions of
the Transaction
Documents shall continue in full force and effect after the execution
of this
Agreement and shall not be in any way changed, modified or superseded
by the
terms set forth herein, including but not limited to, any other
obligations the
Company may have to the Holder under the Transaction Documents.
13. Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this
sentence, may not
be amended, modified or supplemented, and waivers or consents
to departures from
the provisions hereof may not be given, unless the same shall
be in writing and
signed by the Company and the Holder.
14. Notices.
Any and
all notices or other communications or deliveries required or
permitted to be
provided hereunder shall be delivered as set forth in the applicable
Transaction
Document.
15. Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the
successors and
permitted assigns of each of the parties and shall inure to the
benefit of the
Holder. The Company may not assign (except by merger) its rights
or obligations
hereunder without the prior written consent of the Holder. The
Holder may assign
their respective rights hereunder in the manner and to the Persons
as permitted
under the applicable Transaction Document.
16. Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of
which when taken
together shall be considered one and the same agreement and shall
become
effective when counterparts have been signed by each party and
delivered to the
other party, it being understood that both parties need not sign
the same
counterpart. In the event that any signature is delivered by
facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing
(or on whose
behalf such signature is executed) with the same force and effect
as if such
facsimile or “.pdf” signature page were an original thereof.
17. Governing
Law.
All
questions concerning the construction, validity, enforcement
and interpretation
of this Agreement shall be determined in accordance with the
provisions of the
September Purchase Agreement.
18. Severability.
If any
term, provision, covenant or restriction of this Agreement is
held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions
set forth herein
shall remain in full force and effect and shall in no way be
affected, impaired
or invalidated, and the parties hereto shall use their commercially
reasonable
efforts to find and employ an alternative means to achieve the
same or
substantially the same result as that contemplated by such term,
provision,
covenant or restriction. It is hereby stipulated and declared
to be the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any
of such that may be
hereafter declared invalid, illegal, void or unenforceable.
19. Headings.
The
headings in this Agreement are for convenience only, do not constitute
a part of
the Agreement and shall not be deemed to limit or affect any
of the provisions
hereof.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have
executed this Agreement as of the date first set forth above.
| |
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FELLOWS
ENERGY LTD.
|
|
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By: |
/s/ GEORGE
S.
YOUNG |
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Name:
George S. Young |
| |
Title:
Chief Executive Officer
|
[SIGNATURE
PAGE OF HOLDER TO FLWE AMENDMENT AND WAIVER]
Name
of
Holder: PALISADES MASTER FUND, L.P.
| |
|
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| /s/ Arlene
DeCastro |
|
|
/s/ Peter
Cooper |
Arlene
DeCastro |
|
|
Peter
Cooper |
| Authorized
Signatory |
|
|
Authorized
Signatory |
DTC
Instructions:
Exhibit
4.2
FIRST
AMENDMENT AND WAIVER AGREEMENT
This
First Amendment and Waiver Agreement (this “Agreement”),
is
made and entered into as of February 15, 2007, by and among Fellows
Energy Ltd.,
a Nevada corporation (along with its subsidiaries signatory hereto,
the
“Company”)
and
Crescent International Ltd. (the “Holder”).
WHEREAS,
the Company and the Holder are parties to that certain Securities
Purchase
Agreement, dated June 17, 2005, by and among the Company and the
signatories
thereto (collectively, the “June
Purchase Agreements”),
pursuant to which the Company issued to the Holder Convertible
Debentures, due
September 7, 2007, including those Convertible Debentures originally
issued to
JGB Capital L.P., which JGB is assigning to Holder simultaneously
with this
Agreement, with an aggregate principal amount of $1,500,000, of
which $______
currently remains outstanding (the “June
Debenture”);
and
WHEREAS,
the Company and the Holder are parties to that certain Securities
Purchase
Agreement, September 21, 2005, by and among the Company and the
signatories
thereto (collectively, the “September
Purchase Agreement”
and
together with the June Purchase Agreement, the “Purchase
Agreements”),
pursuant to which the Company issued to the Holder a Convertible
Debenture, due
September 7, 2007, with an aggregate principal amount of $250,000,
of which
$____ currently remains outstanding (the “September
Debenture”
and
together with the June Debenture, the “Debentures”);
and
WHEREAS,
on account of dilutive issuances of equity by the Company, the
conversion price
of the Debentures and the exercise prices of the common stock purchase
warrants
(collectively, the “Warrants”)
issued
pursuant to the Purchase Agreements have been reduced to equal
$0.1357, subject
to adjustment therein, with proportional increases in the number
of shares of
common stock issuable upon exercise of such Warrants, as set forth
therein;
and
WHEREAS,
certain events of default have occurred pursuant to the Debentures
and are
continuing to occur related to the Debentures and as a result of
such defaults
(“Existing
Defaults”),
Palisades is entitled, among other things, to enforce its rights
and remedies
against the Company, including without limitation, acceleration
and immediately
demand payment in full of all obligations under the Debentures;
and
WHEREAS,
the parties have reached an agreement with respect to the modification
and
amendment of certain terms of the Debentures relating to the conversion
and
terms of the Debentures and the waiver of the Existing Defaults;
and
WHEREAS,
capitalized terms used herein, but not otherwise defined, shall
have the
meanings ascribed to such terms as set forth in the September Purchase
Agreement; and
NOW
THEREFORE, in consideration of the terms and conditions contained
in this
Agreement, and other good and valuable consideration, the receipt
and
sufficiency of which is hereby acknowledged, the parties, intending
to be
legally bound hereby, agree as follows:
1. Incorporation
of Preliminary Statements and Acknowledgement.
The
preliminary statements set forth above by this reference hereto
are hereby
incorporated into this Agreement. Without limiting the foregoing,
the Company
hereby acknowledges that the Existing Events have occurred and
are continuing
under the terms of the Purchase Agreement and Debentures and, notwithstanding
anything to the contrary in this Agreement, the Purchase Agreements,
Debentures
or any of the other Transaction Documents, the Company acknowledges
and agrees
that upon a breach of this Agreement by the Company, such breach
shall be an
Event of Default under the Debentures.
2. Consent
to Palisades Transaction.
Simultaneously with the execution of this Agreement, the following
transactions
are also taking place: b) JGB is entering into an assignment agreement
with
Crescent International Ltd. (“Crescent”)
for
the assignment of the Debentures (the “JGB
Assignment Agreement”);
b)
the Company is entering into an amendment and waiver agreement
(the
“Debenture
Amendments”
and
together with this Agreement and the JGB Assignment Agreement,
the “Assignment
Documents”)
with
Palisades for the amendment of the convertible debentures issued
pursuant to the
Purchase Agreements; and c) the Company and Palisades are entering
into a
securities purchase agreement for the purchase of $714,500 in secured
convertible debentures. The Holder hereby consents to the above-described
transactions.
3. Waiver
of Existing Defaults.
The
Holder agrees to forever waive its rights and remedies against
the Company,
including without limitation, acceleration of the Debentures, solely
in
connection with, and as they relate to, the prior occurrence of
the Existing
Defaults. Notwithstanding anything herein to the contrary, this
waiver is
limited only to the Existing Defaults and any future Events of
Default,
including a breach of this Agreement, shall not be deemed waived
hereunder.
4. Release
of all Claims.
THE
COMPANY (FOR ITSELF AND ITS AFFILIATES) HEREBY UNCONDITIONALLY
RELEASES AND
FOREVER DISCHARGES THE HOLDER AND ITS RESPECTIVE SUCCESSORS, ASSIGNS,
AGENTS,
DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, ACCOUNTANTS, CONSULTANTS,
CONTRACTORS, ADVISORS AND ATTORNEYS (COLLECTIVELY, THE "BENEFITED
PARTIES")
FROM
ALL CLAIMS (AS DEFINED BELOW) AND AGREES TO INDEMNIFY THE BENEFITED
PARTIES, AND
HOLD THEM HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF ACTION,
COSTS AND
EXPENSES OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS.
AS USED IN
THIS AMENDMENT, THE TERM "CLAIMS" MEANS ANY AND ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTIONS, COSTS, EXPENSES AND LIABILITIES WHATSOEVER,
KNOWN OR
UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART,
WHICH THE
COMPANY, OR ANY OF ITS AGENTS, EMPLOYEES OR AFFILIATES MAY NOW
OR HEREAFTER HAVE
OR CLAIM AGAINST ANY OF THE BENEFITED PARTIES AND IRRESPECTIVE
OF WHETHER ANY
SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR OTHERWISE
IN
CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS, INCLUDING ANY
CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN
EXCESS OF THE
MAXIMUM RATE ON INTEREST CHARGEABLE UNDER APPLICABLE LAW AND ANY
LOSS, COST OR
DAMAGE, OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH OR
IN ANY WAY RESULTING FROM THE ACTIONS OR OMISSIONS OF THE BENEFITED
PARTIES,
INCLUDING ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF GOOD
FAITH OR FAIR
DEALING, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF
INTEREST,
NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER
INFLUENCED AND
CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION
OF MENTAL
DISTRESS, TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS, TORTIOUS
INTERFERENCE WITH CORPORATE GOVERNANCE OR PROSPECTIVE BUSINESS
ADVANTAGE, BREACH
OF CONTRACT, DECEPTIVE TRADE PRACTICES, LIBEL, SLANDER, CONSPIRACY
OR ANY CLAIM
FOR WRONGFULLY ACCELERATING ANY OBLIGATIONS OR WRONGFULLY ATTEMPTING
TO
FORECLOSE ON ANY COLLATERAL. THE COMPANY (FOR ITSELF AND ITS AFFILIATES)
AGREES
THAT NONE OF THE BENEFITED PARTIES HAS FIDUCIARY OR SIMILAR OBLIGATIONS
TO THE
COMPANY OR ANY AGENTS, EMPLOYEES OR AFFILIATES OF THE COMPANY AND
THAT THEIR
RELATIONSHIPS ARE STRICTLY THAT OF CREDITOR AND DEBTOR. THIS RELEASE
IS ACCEPTED
BY HOLDER PURSUANT TO THIS AMENDMENT AND SHALL NOT BE CONSTRUED
AS AN ADMISSION
OF LIABILITY BY HOLDER OR ANY OTHER BENEFITED PARTY.
5. Amendment
to Debentures.
The
Debentures are amended as follows:
(a) All
definitions and references in the Debentures to “Forced Conversion”, “Forced
Conversion Notice”, “Forced Conversion Notice Date”, “Monthly Conversion
Period”, “Monthly Conversion Price”, Monthly Redemption”, “Monthly Redemption
Amount”, “Monthly Redemption Date”, “Monthly Redemption Notice”, “Monthly
Redemption Notice Date”, “Monthly Redemption Notice Period”, “Monthly Redemption
Share Amount”, “Optional Redemption”, Optional Redemption Amount”, Optional
Redemption Notice”, “Optional Redemption Notice Date”, “Pre-Redemption
Conversion Shares” and “Threshold Period” are hereby deleted and of no further
force or effect in the Debentures.
(b) Section
6(a) of the Debentures is hereby deleted in its entirely and replaced
as
follows: “Section
6.RESERVED.”
(c) Section
4(b) of the Debentures is hereby amended and restated as follows:
“Conversion
Price.
The
conversion price in effect on any Conversion Date shall be equal
to $0.1375
(subject
to adjustment herein)(the “Conversion
Price”).”
6. Security
Interest.
As
security for the payment in full of principal, interest and performance
under
this Agreement and the Debentures and of all other liabilities
and obligations
of the Company to the Holder, the Company and its subsidiaries,
grant the Holder
a general security interest in all assets of the Company and its
subsidiaries
and all proceeds arising therefrom and any and all products of
such assets and
in certain real estate holdings as described below. In furtherance
thereof, the
Company shall:
a.
On the
date hereof enter into a Security Agreement simultaneously herewith
evidencing
the above-referenced security interest in all of the assets of
the Company and
its subsidiaries; and
b. Within
30
days of the date hereof, have granted the Holder a first lien on
real property
(except for the real property in Carbon county, which Holder shall
take a second
lien), in the form of a mortgage or deed of trust, in real property
owned by the
Company and its subsidiaries and located in Baca and Broomfield
counties,
Colorado, and Rich, Carbon and Emery counties, Utah. The Company
shall use best
efforts to secure such liens in favor of the Holder, including
but not limited
to, paying reasonable attorneys’ fees in connection therewith and securing title
insurance reports.
7. Representations
and Warranties of the Company.
The
Company hereby makes to the Holder the following representations
and
warranties:
i. Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter
into and to
consummate the transactions contemplated by this Agreement and
otherwise to
carry out its obligations hereunder and thereunder. The execution
and delivery
of this Agreement by the Company and the consummation by it of
the transactions
contemplated hereby have been duly authorized by all necessary
action on the
part of the Company and no further action is required by the Company,
its board
of directors or its stockholders in connection therewith other
than in
connection with the Required Approvals. This Agreement has been
duly executed by
the Company and, when delivered in accordance with the terms hereof
will
constitute the valid and binding obligation of the Company enforceable
against
the Company in accordance with its terms except (i) as limited
by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement
of
creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable
remedies and (iii) insofar as indemnification and contribution
provisions may be
limited by applicable law.
ii. No
Conflicts.
The
execution, delivery and performance of this Agreement by the Company
and the
consummation by the Company of the transactions contemplated hereby
do not and
will not: (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a
default (or an event that with notice or lapse of time or both
would become a
default) under, result in the creation of any Lien (except as contemplated
by
the Security Documents) upon any of the properties or assets of
the Company or
any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of
time or both) of,
any material agreement, credit facility, debt or other material
instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
material
understanding to which the Company or any Subsidiary is a party
or by which any
property or asset of the Company or any Subsidiary is bound or
affected, or
(iii) subject to the Required Approvals, conflict with or result
in a violation
of any law, rule, regulation, order, judgment, injunction, decree
or other
restriction of any court or governmental authority to which the
Company or a
Subsidiary is subject (including federal and state securities laws
and
regulations), or by which any property or asset of the Company
or a Subsidiary
is bound or affected; except in the case of each of clauses (ii)
and (iii), such
as could not have or reasonably be expected to result in a Material
Adverse
Effect.
8. Representations
and Warranties of the Holder.
The
Holder represents and warrants as of the date hereof to the Company
as
follows:
i. Authority.
The
execution, delivery and performance by such Holder of the transactions
contemplated by this Agreement have been duly authorized by all
necessary
corporate or similar action on the part of such Holder. This Agreement
has been
duly executed by such Holder, and when delivered by such Holder
in accordance
with the terms hereof, will constitute the valid and legally binding
obligation
of such Holder, enforceable against it in accordance with its terms,
except (i)
as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive
relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
ii. Holder
Status.
Such
Holder is an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act. Such Holder is not required
to be
registered as a broker-dealer under Section 15 of the Exchange
Act.
9. Effect
on Transaction Documents. Except
as
expressly set forth above, all of the terms and conditions of the
Transaction
Documents shall continue in full force and effect after the execution
of this
Agreement and shall not be in any way changed, modified or superseded
by the
terms set forth herein, including but not limited to, any other
obligations the
Company may have to the Holder under the Transaction Documents.
10. Amendments
and Waivers.
The
provisions of this Agreement, including the provisions of this
sentence, may not
be amended, modified or supplemented, and waivers or consents to
departures from
the provisions hereof may not be given, unless the same shall be
in writing and
signed by the Company and the Holder.
11. Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be delivered as set forth in the applicable
Transaction
Document.
12. Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the
successors and
permitted assigns of each of the parties and shall inure to the
benefit of the
Holder. The Company may not assign (except by merger) its rights
or obligations
hereunder without the prior written consent of the Holder. The
Holder may assign
their respective rights hereunder in the manner and to the Persons
as permitted
under the applicable Transaction Document.
13. Execution
and Counterparts.
This
Agreement may be executed in two or more counterparts, all of which
when taken
together shall be considered one and the same agreement and shall
become
effective when counterparts have been signed by each party and
delivered to the
other party, it being understood that both parties need not sign
the same
counterpart. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing
(or on whose
behalf such signature is executed) with the same force and effect
as if such
facsimile or “.pdf” signature page were an original thereof.
14. Governing
Law.
All
questions concerning the construction, validity, enforcement and
interpretation
of this Agreement shall be determined in accordance with the provisions
of the
September Purchase Agreement.
15. Severability.
If any
term, provision, covenant or restriction of this Agreement is held
by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions
set forth herein
shall remain in full force and effect and shall in no way be affected,
impaired
or invalidated, and the parties hereto shall use their commercially
reasonable
efforts to find and employ an alternative means to achieve the
same or
substantially the same result as that contemplated by such term,
provision,
covenant or restriction. It is hereby stipulated and declared to
be the
intention of the parties that they would have executed the remaining
terms,
provisions, covenants and restrictions without including any of
such that may be
hereafter declared invalid, illegal, void or unenforceable.
16. Headings.
The
headings in this Agreement are for convenience only, do not constitute
a part of
the Agreement and shall not be deemed to limit or affect any of
the provisions
hereof.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have
executed this Agreement as of the date first set forth above.
| |
|
|
| |
FELLOWS
ENERGY LTD.
|
|
|
|
| |
By: |
/s/ GEORGE
S.
YOUNG |
| |
Name:
George S. Young |
| |
Title:
Chief Executive Officer |
[SIGNATURE
PAGE OF HOLDER TO FLWE AMENDMENT AND WAIVER]
Name
of
Holder: CRESCENT INTERNATIONAL LTD.
Signature
of Authorized Signatory of Holder:
/s/
MAXI BREZZI
Name
of
Authorized Signatory: Maxi Brezzi
Title
of
Authorized Signatory: Authorized Signatory
DTC
Instructions:
8
Exhibit
4.3
SECURITIES
PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of February 15, 2007 among Fellows Energy Ltd., a Nevada
corporation
(the “Company”),
and
each purchaser identified on the signature pages hereto (each, including
its
successors and assigns, a “Purchaser”
and
collectively the “Purchasers”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement and
pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”)
and
Rule 506 promulgated thereunder, the Company desires to issue and
sell to each
Purchaser, and each Purchaser, severally and not jointly, desires
to purchase
from the Company, securities of the Company as more fully described
in this
Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement,
and for other good and valuable consideration the receipt and adequacy
of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to
such terms in
the Debentures (as defined herein), and (b) the following terms have
the
meanings indicated in this Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(j).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person,
as such
terms are used in and construed under Rule 144 under the Securities
Act.
With
respect to a Purchaser, any investment fund or managed account that
is managed
on a discretionary basis by the same investment manager as such Purchaser
will
be deemed to be an Affiliate of such Purchaser.
“Closing”
means
the closing of the purchase and sale of the Securities pursuant to
Section
2.1.
“Closing
Date”
means
the Trading Day when all of the Transaction Documents have been executed
and
delivered by the applicable parties thereto, and all conditions precedent
to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.
“Closing
Price”
means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg
L.P.
at 4:15 PM (New York time), or (b) if there is no such price on such
date, then
the closing bid price on the Trading Market on the date nearest preceding
such
date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for
the closing
bid price for regular session trading on such day), or (c) if the Common
Stock is not then listed or quoted on the Trading Market and if prices
for the
Common Stock are then reported in the “pink sheets” published by the Pink
Sheets, LLC (or a similar organization or agency succeeding to its
functions of
reporting prices), the most recent bid price per share of the Common
Stock so
reported, or (d) if the shares of Common Stock are not then publicly traded
the fair market value of a share of Common Stock as determined by
a qualified
independent appraiser selected in good faith by the Purchasers of
a majority in
interest of the outstanding principal amount of the Debentures.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock of the Company, par value $0.001 per share, and
any other class
of securities into which such securities may hereafter have been
reclassified or
changed into.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle
the holder
thereof to acquire at any time Common Stock, including, without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument
that is at
any time convertible into or exercisable or exchangeable for, or
otherwise
entitles the holder thereof to receive, Common Stock.
“Company
Counsel”
means
Sichenzia Ross Friedman Ference LLP.
“Conversion
Price”
shall
have the meaning ascribed to such term in the Debentures.
“Debentures”
means,
the Convertible Debentures due, subject to the terms therein, September
7, 2007,
issued by the Company to the Purchasers hereunder, in the form of
Exhibit
A.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1.
“Effective
Date”
means
the date that the initial Registration Statement filed by the Company
pursuant
to the Registration Rights Agreement is first declared effective
by the
Commission.
“Evaluation
Date”
shall
have the meaning ascribed to such term in Section 3.1(r).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations
promulgated thereunder.
“Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees,
officers or
directors of the Company pursuant to any stock or option plan duly
adopted by
the Board of Directors of the Company, (b) securities upon the exercise
or
exchange of or conversion of any Securities issued hereunder and/or
securities
exercisable or exchangeable for or convertible into shares of Common
Stock
issued and outstanding on the date of this Agreement, provided that
such
securities have not been amended since the date of this Agreement
to increase
the number of such securities or to decrease the exercise, exchange
or
conversion price of any such securities, and (c) securities issued
pursuant to
acquisitions or strategic transactions, provided any such issuance
shall only be
to a Person which is, itself or through its subsidiaries, an operating
company
in a business synergistic with the business of the Company and in
which the
Company receives benefits in addition to the investment of funds,
but shall not
include a transaction in which the Company is issuing securities
primarily for
the purpose of raising capital or to an entity whose primary business
is
investing in securities.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Intellectual
Property Rights”
shall
have the meaning ascribed to such term in Section 3.1(o).
“Legend
Removal Date”
shall
have the meaning ascribed to such term in Section 4.1(c).
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal,
preemptive
right or other restriction.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(b).
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(m).
“Maximum
Rate”
shall
have the meaning ascribed to such term in Section 5.17.
“Participation
Maximum”
shall
have the meaning ascribed to such term in Section 4.13.
“Person”
means
an individual or corporation, partnership, trust, incorporated or
unincorporated
association, joint venture, limited liability company, joint stock
company,
government (or an agency or subdivision thereof) or other entity
of any
kind.
“Pre-Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Principal
Amount”
shall
mean, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature pages hereto and next to the heading
“Principal
Amount”, in United States Dollars, which shall equal such Purchaser’s
Subscription Amount multiplied by 1.429.
“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchaser
Party”
shall
have the meaning ascribed to such term in Section 4.11.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated the date hereof, among the
Company and
the Purchasers, in the form of Exhibit
B
attached
hereto.
“Registration
Statement”
means
a
registration statement meeting the requirements set forth in the
Registration
Rights Agreement and covering the resale of the Underlying Shares
by each
Purchaser as provided for in the Registration Rights Agreement.
“Required
Approvals”
shall
have the meaning ascribed to such term in Section 3.1(e).
“Required
Minimum”
means,
as of any date, the maximum aggregate number of shares of Common
Stock then
issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise
or conversion
in full of all Warrants and Debentures, ignoring any conversion or
exercise
limits set forth therein, and assuming that the Conversion Price
is at all times
on and after the date of determination 75% of the then Conversion
Price on the
Trading Day immediately prior to the date of determination.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same
effect as such
Rule.
“SEC
Reports”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Securities”
means
the Debentures and the Underlying Shares.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Security
Agreement”
shall
mean the Security Agreement in substantially the form of Exhibit
D
hereto
executed and delivered contemporaneously with this Agreement.
“Security
Documents”
shall
mean the Security Agreement and any other documents and filing required
thereunder in order to grant the Purchasers a first priority security
interest
in the assets of the Company and the Subsidiaries as provided in
the Security
Agreement, including all UCC-1 filing receipts.
“Short
Sales”
shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.
“Subscription
Amount”
means,
as
to each Purchaser, the aggregate amount
to be
paid for Debentures purchased hereunder as specified below such Purchaser’s name
on the signature page of this Agreement and next to the heading “Subscription
Amount”, in United States Dollars and in immediately available
funds.
“Subsequent
Financing”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsequent
Financing Notice”
shall
have the meaning ascribed to such term in Section 4.13.
“Subsidiary”
means
any subsidiary of the Company as set forth on Schedule
3.1(a).
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed
or quoted
for trading on the date in question: the Nasdaq SmallCap Market,
the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market or the
OTC Bulletin Board.
“Transaction
Documents”
means
this Agreement, the Debentures, the Warrants, the Escrow Agreement,
the Security
Agreement, the Registration Rights Agreement and any other documents
or
agreements executed in connection with the transactions contemplated
hereunder.
“Underlying
Shares”
means
the shares of Common Stock issued and issuable upon conversion of
the
Debentures.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth
herein,
concurrent with the execution and delivery of this Agreement by the
parties
hereto, the Company agrees to sell, and each Purchaser agrees to
purchase in the
aggregate, severally and not jointly, up to $714,500 principal amount
of the
Debentures. Each Purchaser shall deliver to the Company via wire
transfer or a
certified check immediately available funds equal to their Subscription
Amount
and the Company shall deliver to each Purchaser their respective
Debenture and
Warrants as determined pursuant to Section 2.2(a) and the other items
set forth
in Section 2.2 issuable at the Closing. Upon satisfaction of the
conditions set
forth in Sections 2.2 and 2.3, the Closing shall occur at the offices
of the
Escrow Agent, or such other location as the parties shall mutually
agree.
2.2 Deliveries
| a) |
On
the Closing Date, the Company shall deliver or cause to
be delivered to
the Escrow Agent with respect to each Purchaser the
following:
|
| (i) |
this
Agreement duly executed by the
Company;
|
| (ii) |
a
legal opinion of Company Counsel, in the form of Exhibit
C
attached hereto;
|
| (iii) |
a
Debenture with a principal amount equal to such Purchaser’s Principal
Amount, registered in the name of such
Purchaser;
|
| (iv) |
the
Security Agreement, duly executed by the Company;
and
|
| (v) |
the
Registration Rights Agreement duly executed by the
Company.
|
| b) |
On
the Closing Date, each Purchaser shall deliver or cause
to be delivered to
the Escrow Agent the following:
|
| (i) |
this
Agreement duly executed by such
Purchaser;
|
| (ii) |
such
Purchaser’s Subscription Amount by wire transfer to the account of
the
Escrow Agent;
|
| (iii) |
the
Escrow Agreement duly executed by such
Purchaser;
|
| (iv) |
the
Security Agreement duly executed by such Purchaser;
and
|
| (v) |
the
Registration Rights Agreement duly executed by such
Purchaser.
|
2.3 Closing
Conditions.
| a) |
The
obligations of the Company hereunder in connection with
the Closing are
subject to the following conditions being
met:
|
| (i) |
the
accuracy in all material respects when made and on the
Closing Date of the
representations and warranties of the Purchasers contained
herein;
|
| (ii) |
all
obligations, covenants and agreements of the Purchasers
required to be
performed at or prior to the Closing Date shall have been
performed;
and
|
| (iii) |
the
delivery by the Purchasers of the items set forth in Section
2.2(b) of
this Agreement.
|
| b) |
The
respective obligations of the Purchasers hereunder in connection
with the
Closing are subject to the following conditions being
met:
|
| (i) |
the
accuracy in all material respects on the Closing Date of
the
representations and warranties of the Company contained
herein;
|
| (ii) |
all
obligations, covenants and agreements of the Company required
to be
performed at or prior to the Closing Date shall have been
performed;
|
| (iii) |
the
delivery by the Company of the items set forth in Section
2.2(a) of this
Agreement;
|
| (iv) |
there
shall have been no Material Adverse Effect with respect
to the Company
since the date hereof;
|
| (v) |
the
Company and each of the Purchasers shall have entered into
amendment and
waiver agreements with respect to outstanding convertible
debentures of
the Company held by the Purchasers;
|
| (vi) |
the
Company shall have instructed, out of the closing proceeds
raised
hereunder, that $100,000 be paid to HPC Capital Management
in connection
with services provided by HPC Capital
Management;
|
| (vii) |
the
Company shall have issued 7,500,000 shares of Common Stock
to HPC Capital
Management, or their designees, for services provided by
HPC Capital
Management, of which 6,458,063 shares will be delivered
at Closing and
1,041,937 shares will be issued upon obtaining the Stockholder
Approval
and February 15, 2007 shall be considered the date of acquisition
of such
shares for Rule 144 purposes; and
|
| (viii) |
from
the date hereof to the Closing Date, trading in the Common
Stock shall not
have been suspended by the Commission (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 shall not have been suspended or limited,
or minimum
prices shall not have been established on securities whose
trades are
reported by such service, or on any Trading Market, 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 of
such magnitude in its effect on, or any material adverse
change in, any
financial market which, in each case, in the reasonable
judgment of each
Purchaser, makes it impracticable or inadvisable to purchase
the
Debentures at the Closing.
|
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as set forth under the corresponding section of the disclosure schedules
delivered to the Purchasers concurrently herewith (the “Disclosure
Schedules”)
which
Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the
representations and warranties set forth below to each Purchaser.
(a) Subsidiaries.
All of
the direct and indirect subsidiaries of the Company are set forth
on
Schedule
3.1(a).
The
Company owns, directly or indirectly, all of the capital stock or
other equity
interests of each Subsidiary free and clear of any Liens, and all
the issued and
outstanding shares of capital stock of each Subsidiary are validly
issued and
are fully paid, non-assessable and free of preemptive and similar
rights to
subscribe for or purchase securities. If the Company has no subsidiaries,
then
references in the Transaction Documents to the Subsidiaries will
be
disregarded.
(b) Organization
and Qualification.
The
Company and each of the Subsidiaries is an entity duly incorporated
or otherwise
organized, validly existing and in good standing under the laws of
the
jurisdiction of its incorporation or organization (as applicable),
with the
requisite power and authority to own and use its properties and assets
and to
carry on its business as currently conducted. Neither the Company
nor any
Subsidiary is in violation or default of any of the provisions of
its respective
certificate or articles of incorporation, bylaws or other organizational
or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to
conduct business and is in good standing as a foreign corporation
or other
entity in each jurisdiction in which the nature of the business conducted
or
property owned by it makes such qualification necessary, except where
the
failure to be so qualified or in good standing, as the case may be,
could not
have or reasonably be expected to result in (i) a material adverse
effect on the
legality, validity or enforceability of any Transaction Document,
(ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and
the
Subsidiaries, taken as a whole, or (iii) a material adverse effect
on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii),
a
“Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking,
limiting or
curtailing or seeking to revoke, limit or curtail such power and
authority or
qualification.
(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter
into and to
consummate the transactions contemplated by each of the Transaction
Documents
and otherwise to carry out its obligations hereunder and thereunder.
The
execution and delivery of each of the Transaction Documents by the
Company and
the consummation by it of the transactions contemplated thereby have
been duly
authorized by all necessary action on the part of the Company and
no further
action is required by the Company, its board of directors or its
stockholders in
connection therewith other than in connection with the Required Approvals.
Each
Transaction Document has been (or upon delivery will have been) duly
executed by
the Company and, when delivered in accordance with the terms hereof
and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited
by
applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of
general application affecting enforcement of creditors’ rights generally and
(ii) as limited by laws relating to the availability of specific
performance,
injunctive relief or other equitable remedies.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents
by the Company
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not: (i) conflict with or violate
any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents,
or (ii)
conflict with, or constitute a default (or an event that with notice
or lapse of
time or both would become a default) under, result in the creation
of any Lien
upon any of the properties or assets of the Company or any Subsidiary,
or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement,
credit
facility, debt or other instrument (evidencing a Company or Subsidiary
debt or
otherwise) or other understanding to which the Company or any Subsidiary
is a
party or by which any property or asset of the Company or any Subsidiary
is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or
result in a violation of any law, rule, regulation, order, judgment,
injunction,
decree or other restriction of any court or governmental authority
to which the
Company or a Subsidiary is subject (including federal and state securities
laws
and regulations), or by which any property or asset of the Company
or a
Subsidiary is bound or affected; except in the case of each of clauses
(ii) and
(iii), such as could not have or reasonably be expected to result
in a Material
Adverse Effect.
(e) Filings,
Consents and Approvals.
Subject
to Stockholder Approval (as defined in Section 4.13), the Company
is not
required to obtain any consent, waiver, authorization or order of,
give any
notice to, or make any filing or registration with, any court or
other federal,
state, local or other governmental authority or other Person in connection
with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6,
(ii) the
filing with the Commission of the Registration Statement, (iii) the
notice
and/or application(s) to each applicable Trading Market for the issuance
and
sale of the Debentures and Warrants and the listing of the Underlying
Shares for
trading thereon in the time and manner required thereby, and (iv)
the filing of
Form D with the Commission and such filings as are required to be
made under
applicable state securities laws (collectively, the “Required
Approvals”).
(f) Issuance
of the Securities.
Subject
to Stockholder Approval, the Securities are duly authorized and,
when issued and
paid for in accordance with the applicable Transaction Documents,
will be duly
and validly issued, fully paid and nonassessable, free and clear
of all Liens
imposed by the Company other than restrictions on transfer provided
for in the
Transaction Documents. The Underlying Shares, when issued in accordance
with the
terms of the Transaction Documents, will be validly issued, fully
paid and
nonassessable, free and clear of all Liens imposed by the Company.
The Company
has reserved from its duly authorized capital stock a number of shares
of Common
Stock for issuance of the Underlying Shares at least equal to the
Required
Minimum on the date hereof.
(g) Capitalization.
The
capitalization of the Company is as set forth on Schedule
3.1(g).
The
Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act,
other
than pursuant to the exercise of employee stock options under the
Company’s
stock option plans, the issuance of shares of Common Stock to employees
pursuant
to the Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. No Person has any
right of
first refusal, preemptive right, right of participation, or any similar
right to
participate in the transactions contemplated by the Transaction Documents.
Except as a result of the purchase and sale of the Securities, there
are no
outstanding options, warrants, script rights to subscribe to, calls
or
commitments of any character whatsoever relating to, or securities,
rights or
obligations convertible into or exercisable or exchangeable for,
or giving any
Person any right to subscribe for or acquire, any shares of Common
Stock, or
contracts, commitments, understandings or arrangements by which the
Company or
any Subsidiary is or may become bound to issue additional shares
of Common Stock
or Common Stock Equivalents. The issuance and sale of the Securities
will not
obligate the Company to issue shares of Common Stock or other securities
to any
Person (other than the Purchasers) and will not result in a right
of any holder
of Company securities to adjust the exercise, conversion, exchange
or reset
price under such securities. All of the outstanding shares of capital
stock of
the Company are validly issued, fully paid and nonassessable, have
been issued
in compliance with all federal and state securities laws, and none
of such
outstanding shares was issued in violation of any preemptive rights
or similar
rights to subscribe for or purchase securities. No further approval
or
authorization of any stockholder, the Board of Directors of the Company
or
others is required for the issuance and sale of the Securities. There
are no
stockholders agreements, voting agreements or other similar agreements
with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(h) SEC
Reports; Financial Statements.
The
Company has filed all reports, schedules, forms, statements and other
documents
required to be filed by it under the Securities Act and the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two
years
preceding the date hereof (or such shorter period as the Company
was required by
law to file such material) (the foregoing materials, including the
exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC
Reports”)
on a
timely basis or has received a valid extension of such time of filing
and has
filed any such SEC Reports prior to the expiration of any such extension.
As of
their respective dates, the SEC Reports complied in all material
respects with
the requirements of the Securities Act and the Exchange Act and the
rules and
regulations of the Commission promulgated thereunder, and none of
the SEC
Reports, when filed, contained any untrue statement of a material
fact or
omitted to state a material fact required to be stated therein or
necessary in
order to make the statements therein, in the light of the circumstances
under
which they were made, not misleading. The financial statements of
the Company
included in the SEC Reports comply in all material respects with
applicable
accounting requirements and the rules and regulations of the Commission
with
respect thereto as in effect at the time of filing. Such financial
statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods
involved
(“GAAP”),
except as may be otherwise specified in such financial statements
or the notes
thereto and except that unaudited financial statements may not contain
all
footnotes required by GAAP, and fairly present in all material respects
the
financial position of the Company and its consolidated subsidiaries
as of and
for the dates thereof and the results of operations and cash flows
for the
periods then ended, subject, in the case of unaudited statements,
to normal,
immaterial, year-end audit adjustments.
(i) Material
Changes.
Since
the date of the latest audited financial statements included within
the SEC
Reports, except as specifically disclosed in the SEC Reports, (i)
there has been
no event, occurrence or development that has had or that could reasonably
be
expected to result in a Material Adverse Effect, (ii) the Company
has not
incurred any liabilities (contingent or otherwise) other than (A)
trade payables
and accrued expenses incurred in the ordinary course of business
consistent with
past practice and (B) liabilities not required to be reflected in
the Company’s
financial statements pursuant to GAAP or required to be disclosed
in filings
made with the Commission, (iii) the Company has not altered its method
of
accounting, (iv) the Company has not declared or made any dividend
or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares
of its capital
stock and (v) the Company has not issued any equity securities to
any officer,
director or Affiliate, except pursuant to existing Company stock
option plans.
The Company does not have pending before the Commission any request
for
confidential treatment of information.
(j) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or
affecting the
Company, any Subsidiary or any of their respective properties before
or by any
court, arbitrator, governmental or administrative agency or regulatory
authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Securities or (ii) could,
if there were
an unfavorable decision, have or reasonably be expected to result
in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director
or
officer thereof, is or has been the subject of any Action involving
a claim of
violation of or liability under federal or state securities laws
or a claim of
breach of fiduciary duty. There has not been, and to the knowledge
of the
Company, there is not pending or contemplated, any investigation
by the
Commission involving the Company or any current or former director
or officer of
the Company. The Commission has not issued any stop order or other
order
suspending the effectiveness of any registration statement filed
by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
(k) Labor
Relations.
No
material labor dispute exists or, to the knowledge of the Company,
is imminent
with respect to any of the employees of the Company which could reasonably
be
expected to result in a Material Adverse Effect.
(l) Compliance.
Neither
the Company nor any Subsidiary (i) is in default under or in violation
of (and
no event has occurred that has not been waived that, with notice
or lapse of
time or both, would result in a default by the Company or any Subsidiary
under),
nor has the Company or any Subsidiary received notice of a claim
that it is in
default under or that it is in violation of, any indenture, loan
or credit
agreement or any other agreement or instrument to which it is a party
or by
which it or any of its properties is bound (whether or not such default
or
violation has been waived), (ii) is in violation of any order of
any court,
arbitrator or governmental body, or (iii) is or has been in violation
of any
statute, rule or regulation of any governmental authority, including
without
limitation all foreign, federal, state and local laws applicable
to its business
except in each case as could not have a Material Adverse Effect.
(m) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations
and
permits issued by the appropriate federal, state, local or foreign
regulatory
authorities necessary to conduct their respective businesses as described
in the
SEC Reports, except where the failure to possess such permits could
not have or
reasonably be expected to result in a Material Adverse Effect (“Material
Permits”),
and
neither the Company nor any Subsidiary has received any notice of
proceedings
relating to the revocation or modification of any Material Permit.
(n) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee
simple to all
real property owned by them that is material to the business of the
Company and
the Subsidiaries and good and marketable title in all personal property
owned by
them that is material to the business of the Company and the Subsidiaries,
in
each case free and clear of all Liens, except for Liens as do not
materially
affect the value of such property and do not materially interfere
with the use
made and proposed to be made of such property by the Company and
the
Subsidiaries and Liens for the payment of federal, state or other
taxes, the
payment of which is neither delinquent nor subject to penalties.
Any real
property and facilities held under lease by the Company and the Subsidiaries
are
held by them under valid, subsisting and enforceable leases of which
the Company
and the Subsidiaries are in compliance.
(o) Patents
and Trademarks.
The
Company and the Subsidiaries have, or have rights to use, all patents,
patent
applications, trademarks, trademark applications, service marks,
trade names,
copyrights, licenses and other similar rights necessary or material
for use in
connection with their respective businesses as described in the SEC
Reports and
which the failure to so have could have a Material Adverse Effect
(collectively,
the “Intellectual
Property Rights”).
Neither the Company nor any Subsidiary has received a written notice
that the
Intellectual Property Rights used by the Company or any Subsidiary
violates or
infringes upon the rights of any Person. To the knowledge of the
Company, all
such Intellectual Property Rights are enforceable and there is no
existing
infringement by another Person of any of the Intellectual Property
Rights of
others.
(p) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized
financial
responsibility against such losses and risks and in such amounts
as are prudent
and customary in the businesses in which the Company and the Subsidiaries
are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. To
the best
knowledge of the Company, such insurance contracts and policies are
accurate and
complete. Neither the Company nor any Subsidiary has any reason to
believe that
it will not be able to renew its existing insurance coverage as and
when such
coverage expires or to obtain similar coverage from similar insurers
as may be
necessary to continue its business without a significant increase
in
cost.
(q) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports, none of the officers or directors
of the
Company and, to the knowledge of the Company, none of the employees
of the
Company is presently a party to any transaction with the Company
or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing
for the
furnishing of services to or by, providing for rental of real or
personal
property to or from, or otherwise requiring payments to or from any
officer,
director or such employee or, to the knowledge of the Company, any
entity in
which any officer, director, or any such employee has a substantial
interest or
is an officer, director, trustee or partner, in each case in excess
of $60,000
other than (i) for payment of salary or consulting fees for services
rendered,
(ii) reimbursement for expenses incurred on behalf of the Company
and (iii) for
other employee benefits, including stock option agreements under
any stock
option plan of the Company.
(r) Sarbanes-Oxley;
Internal Accounting Controls.
The
Company is in material compliance with all provisions of the Sarbanes-Oxley
Act
of 2002 which are applicable to it as of the Closing Date. The
Company and the Subsidiaries maintain a system of internal accounting
controls
sufficient 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 GAAP and to maintain asset accountability,
(iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for
assets is
compared with the existing assets at reasonable intervals and appropriate
action
is taken with respect to any differences. The Company has established
disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and
15d-15(e)) for the Company and designed such disclosure controls
and procedures
to ensure that material information relating to the Company, including
its
Subsidiaries, is made known to the certifying officers by others
within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be,
is being
prepared. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures as of the date prior to the filing date
of
the most recently filed periodic report under the Exchange Act (such
date, the
“Evaluation
Date”).
The
Company presented in its most recently filed periodic report under
the Exchange
Act the conclusions of the certifying officers about the effectiveness
of the
disclosure controls and procedures based on their evaluations as
of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the knowledge
of the
Company, in other factors that could significantly affect the Company’s internal
controls.
(s) Certain
Fees.
No
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement
agent,
investment banker, bank or other Person with respect to the transactions
contemplated by the
Transaction Documents.
The
Purchasers shall have no obligation with respect to any fees or with
respect to
any claims made by or on behalf of other Persons for fees of a type
contemplated
in this Section that may be due in connection with the transactions
contemplated
by the
Transaction Documents.
(t) Private
Placement.
Assuming the accuracy of the Purchasers representations and warranties
set forth
in Section 3.2, no registration under the Securities Act is required
for the
offer and sale of the Securities by the Company to the Purchasers
as
contemplated hereby. The issuance and sale of the Securities hereunder
does not
contravene the rules and regulations of the Trading Market.
(u) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after
receipt of
payment for the Securities, will not be or be an Affiliate of, an
“investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will
not become
subject to the Investment Company Act.
(v) Registration
Rights.
Other
than each of the Purchasers, no Person has any right to cause the
Company to
effect the registration under the Securities Act of any securities
of the
Company.
(w) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to, or which to
its knowledge
is likely to have the effect of, terminating the registration of
the Common
Stock under the Exchange Act nor has the Company received any notification
that
the Commission is contemplating terminating such registration. The
Company has
not, in the 12 months preceding the date hereof, received notice
from any
Trading Market on which the Common Stock is or has been listed or
quoted to the
effect that the Company is not in compliance with the listing or
maintenance
requirements of such Trading Market. The Company is, and has no reason
to
believe that it will not in the foreseeable future continue to be,
in compliance
with all such listing and maintenance requirements.
(x) Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action,
if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights
agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state
of
incorporation that is or could become applicable to the Purchasers
as a result
of the Purchasers and the Company fulfilling their obligations or
exercising
their rights under the Transaction Documents, including without limitation
as a
result of the Company’s issuance of the Securities and the Purchasers’ ownership
of the Securities.
(y) Disclosure.
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.
The
Company understands and confirms that the Purchasers will rely on
the foregoing
representations and covenants in effecting transactions in securities
of the
Company. All disclosure provided to the Purchasers regarding the
Company, its
business and the transactions contemplated hereby, including the
Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company
with
respect to the representations and warranties made herein are true
and correct
with respect to such representations and warranties and do not contain
any
untrue statement of a material fact or omit to state any material
fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges
and agrees
that no Purchaser makes or has made any representations or warranties
with
respect to the transactions contemplated hereby other than those
specifically
set forth in Section 3.2 hereof.
(z) No
Integrated Offering.
Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor any of its affiliates, nor
any Person
acting on its or their behalf has, directly or indirectly, made any
offers or
sales of any security or solicited any offers to buy any security,
under
circumstances that would cause this offering of the Securities to
be integrated
with prior offerings by the Company for purposes of the Securities
Act or any
applicable shareholder approval provisions, including, without limitation,
under
the rules and regulations of any Trading Market on which any of the
securities
of the Company are listed or designated.
(aa) Solvency.
Based
on the financial condition of the Company as of the Closing Date
after giving
effect to the receipt by the Company of the proceeds from the sale
of the
Securities hereunder, (i) the Company’s fair saleable value of its assets
exceeds the amount that will be required to be paid on or in respect
of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current
fiscal year
as now conducted and as proposed to be conducted including its capital
needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and
capital
availability thereof; and (iii) the current cash flow of the Company,
together
with the proceeds the Company would receive, were it to liquidate
all of its
assets, after taking into account all anticipated uses of the cash,
would be
sufficient to pay all amounts on or in respect of its debt when such
amounts are
required to be paid. The Company does not intend to incur debts beyond
its
ability to pay such debts as they mature (taking into account the
timing and
amounts of cash to be payable on or in respect of its debt). The
Company has no
knowledge of any facts or circumstances which lead it to believe
that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date. The
SEC Reports
set forth as of the dates thereof 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 $50,000
(other than trade accounts payable incurred in the ordinary course
of business),
(b) all guaranties, endorsements and other contingent obligations
in respect of
Indebtedness of others, whether or not the same are or should be
reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or
similar
transactions in the ordinary course of business; and (c) the present
value of
any lease payments
in excess of $50,000 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.
(bb) Tax
Status.
Except
for matters that would not, individually or in the aggregate, have
or reasonably
be expected to result in a Material Adverse Effect, the Company and
each
Subsidiary has filed all necessary federal, state and foreign income
and
franchise tax returns and has paid or accrued all taxes shown as
due thereon,
and the Company has no knowledge of a tax deficiency which has been
asserted or
threatened against the Company or any Subsidiary.
(cc) No
General Solicitation.
Neither
the Company nor any person acting on behalf of the Company has offered
or sold
any of the Securities by any form of general solicitation or general
advertising. The Company has offered the Securities for sale only
to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.
(dd) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other
person
acting on behalf of the Company, has (i) directly or indirectly,
used any funds
for unlawful contributions, gifts, entertainment or other unlawful
expenses
related to foreign or domestic political activity, (ii) made any
unlawful
payment to foreign or domestic government officials or employees
or to any
foreign or domestic political parties or campaigns from corporate
funds, (iii)
failed to disclose fully any contribution made by the Company (or
made by any
person acting on its behalf of which the Company is aware) which
is in violation
of law, or (iv) violated in any material respect any provision of
the Foreign
Corrupt Practices Act of 1977, as amended.
(ee) Accountants.
The
Company’s accountants are set forth on Schedule
3.1(ff)
of the
Disclosure Schedule. To the knowledge of the Company, such accountants,
who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2005 are a registered public accounting firm
as required
by the Securities Act.
(ff) Seniority.
As of
the Closing Date, no indebtedness or other equity of the Company
is senior to
the Debentures in right of payment, whether with respect to interest
or upon
liquidation or dissolution, or otherwise, other than indebtedness
secured by
purchase money security interests (which is senior only as to underlying
assets
covered thereby) and capital lease obligations (which is senior only
as to the
property covered thereby).
(gg) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably
anticipated
by the Company to arise, between the accountants and lawyers formerly
or
presently employed by the Company and the Company is current with
respect to any
fees owed to its accountants and lawyers.
(hh) Acknowledgment
Regarding Purchasers’ Purchase of Securities.
The
Company acknowledges and agrees that each of the Purchasers is acting
solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of
the Company (or in any similar capacity) with respect to this Agreement
and the
transactions contemplated hereby and any advice given by any Purchaser
or any of
their respective representatives or agents in connection with this Agreement and
the transactions contemplated hereby is merely incidental to the
Purchasers’
purchase of the Securities. The Company further represents to each
Purchaser
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby
by the
Company and its representatives.
(ii) Acknowledgement
Regarding Purchasers’ Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding
(except for Section 4.16 hereof), it is understood and agreed by
the Company (i)
that none of the Purchasers have been asked to agree, nor has any
Purchaser
agreed, to desist from purchasing or selling, long and/or short,
securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term; (ii) that
past or
future open market or other transactions by any Purchaser, including
Short
Sales, and specifically including, without limitation, Short Sales
or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of
the Company’s
publicly-traded securities; (iii) that any Purchaser, and counter
parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a “short” position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with
or control
over any arm’s length counter-party in any “derivative” transaction.
The
Company further understands and acknowledges that (a) one or more
Purchasers may
engage in hedging activities at various times during the period that
the
Securities are outstanding, including, without limitation, during
the periods
that the value of the Underlying Shares deliverable with respect
to Securities
are 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 any of the Transaction Documents.
(jj) Manipulation
of Price.
The Company has not, and to its knowledge no one acting on its behalf
has, (i)
taken, directly or indirectly, any action designed to cause or to
result in the
stabilization or manipulation of the price of any security of the
Company to
facilitate the sale or resale of any of the Securities, (ii) sold,
bid for,
purchased, or, paid any compensation for soliciting purchases of,
any of the
Securities (other than for the placement agent’s placement of the Securities),
or (iii) paid or agreed to pay to any person any compensation for
soliciting
another to purchase any other securities of the Company.
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser hereby, for itself and for no other Purchaser, represents
and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good
standing
under the laws of the jurisdiction of its organization with full
right,
corporate or partnership power and authority to enter into and to
consummate the
transactions contemplated by the Transaction Documents and otherwise
to carry
out its obligations hereunder and thereunder. The execution, delivery
and
performance by such Purchaser of the transactions contemplated by
this Agreement
have been duly authorized by all necessary corporate or similar action
on the
part of such Purchaser. Each Transaction Document to which it is
a party has
been duly executed by such Purchaser, and when delivered by such
Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding
obligation of such Purchaser, enforceable against it in accordance
with its
terms, except (i) as limited by general equitable principles and
applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive
relief or other equitable remedies and (iii) insofar as indemnification
and
contribution provisions may be limited by applicable law.
(b) Own
Account.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state
securities
law and is acquiring the Securities as principal for its own account
and not
with a view to or for distributing or reselling such Securities or
any part
thereof in violation of the Securities Act or any applicable state
securities
law, has no present intention of distributing any of such Securities
in
violation of the Securities Act or any applicable state securities
law and has
no arrangement or understanding with any other persons regarding
the
distribution of such Securities (this representation and warranty
not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and
state
securities laws) in violation of the Securities Act or any applicable
state
securities law. Such Purchaser is acquiring the Securities hereunder
in the
ordinary course of its business. Such Purchaser does not have any
agreement or
understanding, directly or indirectly, with any Person to distribute
any of the
Securities.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the
date hereof
it is, and on each date on which it exercises any Warrants or converts
any
Debentures it will be either: (i) an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the Securities
Act. Such Purchaser is not required to be registered as a broker-dealer
under
Section 15 of the Exchange Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, either alone or together with its representatives, has
such
knowledge, sophistication and experience in business and financial
matters so as
to be capable of evaluating the merits and risks of the prospective
investment
in the Securities, and has so evaluated the merits and risks of such
investment.
Such Purchaser is able to bear the economic risk of an investment
in the
Securities and, at the present time, is able to afford a complete
loss of such
investment.
(e) General
Solicitation.
Such
Purchaser is not purchasing the Securities as a result of any advertisement,
article, notice or other communication regarding the Securities published
in any
newspaper, magazine or similar media or broadcast over television
or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) Short
Sales and Confidentiality Prior To The Date Hereof.
Other
than the transaction contemplated hereunder, such Purchaser has not
directly or
indirectly, nor has any Person acting on behalf of or pursuant to
any
understanding with such Purchaser, executed any disposition, including
Short
Sales (but not including the location and/or reservation of borrowable
shares of
Common Stock), in the securities of the Company during the period
commencing from
the time
that such Purchaser first received a term sheet from the Company
or any other
Person setting forth the material terms of the transactions contemplated
hereunder until the date hereof (“Discussion
Time”).
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 representation 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.
Other than to other Persons party to this Agreement, such Purchaser
has
maintained the confidentiality of all disclosures made to it in connection
with
this transaction (including the existence and terms of this
transaction).
The
Company acknowledges and agrees that each Purchaser does not make
or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this
Section
3.2.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Transfer
Restrictions.
(a) The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other
than
pursuant to an effective registration statement or Rule 144, to the
Company or
to an affiliate of a Purchaser or in connection with a pledge as
contemplated in
Section 4.1(b), the Company may require the transferor thereof to
provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion
shall be
reasonably satisfactory to the Company, to the effect that such transfer
does
not require registration of such transferred Securities under the
Securities
Act. As a condition of transfer, any such transferee shall agree
in writing to
be bound by the terms of this Agreement and shall have the rights
of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this
Section
4.1(b), of a legend on any of the Securities in the following form:
[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE
[EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION
OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The
Company acknowledges and agrees that a Purchaser may from time to
time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer
or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this
Agreement
and the Registration Rights Agreement and, if required under the
terms of such
arrangement, such Purchaser may transfer pledged or secured Securities
to the
pledgees or secured parties. Such a pledge or transfer would not
be subject to
approval of the Company and no legal opinion of legal counsel of
the pledgee,
secured party or pledgor shall be required in connection therewith.
Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation
as a pledgee
or secured party of Securities may reasonably request in connection
with a
pledge or transfer of the Securities, including, if the Securities
are subject
to registration pursuant to the Registration Rights Agreement, the
preparation
and filing of any required prospectus supplement under Rule 424(b)(3)
under the
Securities Act or other applicable provision of the Securities Act
to
appropriately amend the list of Selling Stockholders thereunder.
(c) Certificates
evidencing the Underlying Shares shall not contain any legend (including
the
legend set forth in Section 4.1(b) hereof): (i) while a registration
statement
(including the Registration Statement) covering the resale of such
security is
effective under the Securities Act, or (ii) following any sale of
such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
Shares are
eligible for sale under Rule 144(k), or (iv) if such legend is not
required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the
Company’s
transfer agent to effect the removal of the legend hereunder. If
all or any
portion of a Debenture or Warrant is converted or exercised (as applicable)
at a
time when there is an effective registration statement to cover the
resale of
the Underlying Shares, or if such Underlying Shares may be sold under
Rule
144(k) or if such legend is not otherwise required under applicable
requirements
of the Securities Act (including judicial interpretations thereof)
then such
Underlying Shares shall be issued free of all legends. The Company
agrees that
following the Effective Date or at such time as such legend is no
longer
required under this Section 4.1(c), it will, no later than three
Trading Days
following the delivery by a Purchaser to the Company or the Company’s transfer
agent of a certificate representing Underlying Shares, as applicable,
issued
with a restrictive legend (such third Trading Day, the “Legend
Removal Date”),
deliver or cause to be delivered to such Purchaser a certificate
representing
such shares that is free from all restrictive and other legends.
The Company may
not make any notation on its records or give instructions to any
transfer agent
of the Company that enlarge the restrictions on transfer set forth
in this
Section. Certificates for Securities subject to legend removal hereunder
shall
be transmitted by the transfer agent of the Company to the Purchasers
by
crediting the account of the Purchaser’s prime broker with the Depository Trust
Company System.
(d) In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for
each $1,000 of Underlying Shares (based on the Closing Price of the
Common Stock
on the date such Securities are submitted to the Company’s transfer agent)
delivered for removal of the restrictive legend and subject to Section
4.1(c),
$10 per Trading Day (increasing to $20 per Trading Day 5 Trading
Days after such
damages have begun to accrue) for each Trading Day after the Legend
Removal Date
until such certificate is delivered without a legend. Nothing herein
shall limit
such Purchaser’s right to pursue actual damages for the Company’s failure to
deliver certificates representing any Securities as required by the
Transaction
Documents, and such Purchaser shall have the right to pursue all
remedies
available to it at law or in equity including, without limitation,
a decree of
specific performance and/or injunctive relief.
(e) Each
Purchaser, severally and not jointly with the other Purchasers, agrees
that the
removal of the restrictive legend from certificates representing
Securities as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery
requirements, or an exemption therefrom.
(f) Until
the
one year anniversary of the Effective Date, the Company shall not
undertake a
reverse or forward stock split or reclassification of the Common
Stock without
the prior written consent of the Purchasers holding a majority in
Principal
Amount outstanding of the Debentures.
4.2 Acknowledgment
of Dilution.
The
Company acknowledges that the issuance of the Securities may result
in dilution
of the outstanding shares of Common Stock, which dilution may be
substantial
under certain market conditions. The Company further acknowledges
that its
obligations under the Transaction Documents, including without limitation
its
obligation to issue the Underlying Shares pursuant to the Transaction
Documents,
are unconditional and absolute and not subject to any right of set
off,
counterclaim, delay or reduction, regardless of the effect of any
such dilution
or any claim the Company may have against any Purchaser and regardless
of the
dilutive effect that such issuance may have on the ownership of the
other
stockholders of the Company.
4.3 Furnishing
of Information.
As long
as any Purchaser owns Securities, the Company covenants to timely
file (or
obtain extensions in respect thereof and file within the applicable
grace
period) all reports required to be filed by the Company after the
date hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities,
if the
Company is not required to file reports pursuant to the Exchange
Act, it will
prepare and furnish to the Purchasers and make publicly available
in accordance
with Rule 144(c) such information as is required for the Purchasers
to sell the
Securities under Rule 144. The Company further covenants that it
will take such
further action as any holder of Securities may reasonably request,
all to the
extent required from time to time to enable such Person to sell such
Securities
without registration under the Securities Act within the limitation
of the
exemptions provided by Rule 144.
4.4 Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or
otherwise
negotiate in respect of any security (as defined in Section 2 of
the Securities
Act) that would be integrated with the offer or sale of the Securities
in a
manner that would require the registration under the Securities Act
of the sale
of the Securities to the Purchasers or that would be integrated with
the offer
or sale of the Securities for purposes of the rules and regulations
of any
Trading Market.
4.5 Conversion
and Exercise Procedures.
The
form of Notice of Exercise included in the Warrants and the form
of Notice of
Conversion included in the Debentures set
forth
the totality of the procedures required of the Purchasers in order
to exercise
the Warrants or convert the Debentures. No additional legal opinion
or other
information or instructions shall be required of the Purchasers to
exercise
their Warrants or convert their Debentures. The Company shall honor
exercises of
the Warrants and conversions of the Debentures and shall deliver
Underlying
Shares in accordance with the terms, conditions and time periods
set forth in
the Transaction Documents.
4.6 Securities
Laws Disclosure; Publicity.
The
Company shall, by 8:30 a.m. Eastern time on the Trading Day following
the date
hereof, issue a Current Report on Form 8-K, reasonably acceptable
to each
Purchaser disclosing the material terms of the transactions contemplated
hereby,
and shall attach the Transaction Documents thereto. The Company and
each
Purchaser shall consult with each other in issuing any other press
releases with
respect to the transactions contemplated hereby, and neither the
Company nor any
Purchaser shall issue any such press release or otherwise make any
such public
statement without the prior consent of the Company, with respect
to any press
release of any Purchaser, or without the prior consent of each Purchaser,
with
respect to any press release of the Company, which consent shall
not
unreasonably be withheld, except if such disclosure is required by
law, in which
case the disclosing party shall promptly provide the other party
with prior
notice of such public statement or communication. Notwithstanding
the foregoing,
the Company shall not publicly disclose the name of any Purchaser,
or include
the name of any Purchaser in any filing with the Commission or any
regulatory
agency or Trading Market, without the prior written consent of such
Purchaser,
except (i) as required by federal securities law in connection with
the
registration statement contemplated by the Registration Rights Agreement
and
(ii) to the extent such disclosure is required by law or Trading
Market
regulations, in which case the Company shall provide the Purchasers
with prior
notice of such disclosure permitted under subclause (i) or (ii).
4.7 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge
of the
Company, any other Person that any Purchaser is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect
or hereafter
adopted by the Company, or that any Purchaser could be deemed to
trigger the
provisions of any such plan or arrangement, by virtue of receiving
Securities
under the Transaction Documents or under any other agreement between
the Company
and the Purchasers. The Company shall conduct its business in a manner
so that
it will not become subject to the Investment Company Act.
4.8 Non-Public
Information.
The
Company covenants and agrees that neither it nor any other Person
acting on its
behalf 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.
4.9 Use
of
Proceeds.
Except
as set forth on Schedule
4.9
attached
hereto, the Company shall use the net proceeds from the sale of the
Securities
hereunder for working capital purposes and not for the satisfaction
of any
portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.
4.10 Reimbursement.
If any
Purchaser becomes involved in any capacity in any Proceeding by or
against any
Person who is a stockholder of the Company (except as a result of
sales,
pledges, margin sales and similar transactions by such Purchaser
to or with any
current stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such
Purchaser for
its reasonable legal and other expenses (including the cost of any
investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations
of the
Company under this paragraph shall be in addition to any liability
which the
Company may otherwise have, shall extend upon the same terms and
conditions to
any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees
and
controlling persons (if any), as the case may be, of the Purchasers
and any such
Affiliate, and shall be binding upon and inure to the benefit of
any successors,
assigns, heirs and personal representatives of the Company, the Purchasers
and
any such Affiliate and any such Person. The Company also agrees that
neither the
Purchasers nor any such Affiliates, partners, directors, agents,
employees or
controlling persons shall have any liability to the Company or any
Person
asserting claims on behalf of or in right of the Company solely as
a result of
acquiring the Securities under this Agreement.
4.11 Indemnification
of Purchasers.
Subject
to the provisions of this Section 4.11, the Company will indemnify
and hold the
Purchasers and their directors, officers, shareholders, members,
partners,
employees and agents (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments,
amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as
a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or
in the other
Transaction Documents or (b) any action instituted against a Purchaser,
or any
of them or their respective Affiliates, by any stockholder of the
Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is
based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser
may
have with any such stockholder or any violations by the Purchaser
of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any
action shall
be brought against any Purchaser Party in respect of which indemnity
may be
sought pursuant to this Agreement, such Purchaser Party shall promptly
notify
the Company in writing, and the Company shall have the right to assume
the
defense thereof with counsel of its own choosing. Any Purchaser Party
shall have
the right to employ separate counsel in any such action and participate
in the
defense thereof, but the fees and expenses of such counsel shall
be at the
expense of such Purchaser Party except to the extent that (i) the
employment
thereof has been specifically authorized by the Company in writing,
(ii) the
Company has failed after a reasonable period of time to assume such
defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of
such separate counsel, a material conflict on any material issue
between the
position of the Company and the position of such Purchaser Party.
The Company
will not be liable to any Purchaser Party under this Agreement (i)
for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or
(ii) to the
extent, but only to the extent that a loss, claim, damage or liability
is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this
Agreement or
in the other Transaction Documents.
4.12 Reservation
and Listing of Securities.
(a) Subject
to Stockholder Approval, the Company shall maintain a reserve from
its duly
authorized shares of Common Stock for issuance pursuant to the Transaction
Documents in such amount as may be required to fulfill its obligations
in full
under the Transaction Documents.
(b) If,
on
any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such
date, then the
Board of Directors of the Company shall use commercially reasonable
efforts to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the
Required Minimum at such time, as soon as possible and in any event
not later
than the 75th day after such date.
(c) The
Company shall, if applicable: (i) in the time and manner required
by the Trading
Market, prepare and file with such Trading Market an additional shares
listing
application covering a number of shares of Common Stock at least
equal to the
Required Minimum on the date of such application, (ii) take all steps
necessary
to cause such shares of Common Stock to be approved for listing on
the Trading
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence
of such listing, and (iv) maintain the listing of such Common Stock
on any date
at least equal to the Required Minimum on such date on such Trading
Market or
another Trading Market.
4.13 Stockholder
Approval.
The
Company shall file a proxy or information statement with the SEC
on or before
April 16, 2007 and shall use its best efforts to obtain, on or before
May 15,
2007, such approvals of the Company’s stockholders as may be required to issue
all of the shares of Common Stock issuable upon conversion or exercise
of, or
otherwise with respect to, the Debentures and the Warrants in accordance
with
Nevada law and any applicable rules or regulations of the OTCBB and
Nasdaq,
either through a reverse stock split of the Common Stock or an increase
in
authorized capital (the “Stockholder
Approval”).
The
Company shall furnish to each Purchaser and its legal counsel promptly
(but in
no event less than two (2) business days) before the same is filed
with the SEC,
one copy of any amendment thereto, and shall deliver to each Buyer
promptly each
letter written by or on behalf of the Company to the SEC or the staff
of the
SEC, and each item of correspondence from the SEC or the staff of
the SEC, in
each case relating to such proxy or information statement (other
than any
portion thereof which contains information for which the Company
has sought
confidential treatment). The Company will promptly (but in no event
more than
three (3) business days) respond to any and all comments received
from the SEC
(which comments shall promptly be made available to each Buyer).
The Company
shall comply with the filing and disclosure requirements of Section
14 under the
1934 Act in connection with the Stockholder Approval. The Company
represents and
warrants that its Board of Directors has approved the proposal contemplated
by
this Section 4(l) and shall indicate such approval in the proxy or
information
statement used in connection with the Stockholder Approval. If
the
Company does not obtain Stockholder Approval at the first meeting,
the Company
shall call a meeting every 4 months thereafter to seek Stockholder
Approval
until the date that the Debentures are no longer outstanding. The
Company shall
notify the Purchasers promptly upon receipt of Stockholder
Approval.
4.14 Participation
in Future Financing.
(a) From
the
date hereof until the date that is the 12 month anniversary of the
Effective
Date, upon any financing by the Company or any of its Subsidiaries
of Common
Stock or Common Stock Equivalents (a “Subsequent
Financing”),
such
Purchaser shall have the right to participate in the Subsequent Financing
in an
amount equal to up to 100% of the Subsequent Financing (the “Participation
Maximum”).
(b) At
least
5 Trading Days prior to the closing of the Subsequent Financing,
the Company
shall deliver to each Purchaser a written notice of its intention
to effect a
Subsequent Financing (“Pre-Notice”),
which
Pre-Notice shall ask such Purchaser if it wants to review the details
of such
financing (such additional notice, a “Subsequent
Financing Notice”).
Upon
the request of a Purchaser, and only upon a request by such Purchaser,
for a
Subsequent Financing Notice, the Company shall promptly, but no later
than 1
Trading Day after such request, deliver a Subsequent Financing Notice
to such
Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail
the proposed terms of such Subsequent Financing, the amount of proceeds
intended
to be raised thereunder, the Person with whom such Subsequent Financing
is
proposed to be effected, and attached to which shall be a term sheet
or similar
document relating thereto.
(c) Any
Purchaser desiring to participate in such Subsequent Financing must
provide
written notice to the Company by not later than 5:30 p.m. (New York
City time)
on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice that
the Purchaser
is willing to participate in the Subsequent Financing, the amount
of the
Purchaser’s participation, and that the Purchaser has such funds ready, willing
and available for investment on the terms set forth in the Subsequent
Financing
Notice. If the Company receives no notice from a Purchaser as of
such
5th
Trading
Day, such Purchaser shall be deemed to have notified the Company
that it does
not elect to participate.
(d) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, notifications
by
the Purchasers of their willingness to participate in the Subsequent
Financing
(or to cause their designees to participate) is, in the aggregate,
less than the
total amount of the Subsequent Financing, then the Company may effect
the
remaining portion of such Subsequent Financing on the terms and to
the Persons
set forth in the Subsequent Financing Notice.
(e) If
by
5:30 p.m. (New York City time) on the 5th
Trading
Day after all of the Purchasers have received the Pre-Notice, the
Company
receives responses to a Subsequent Financing Notice from Purchasers
seeking to
purchase more than the aggregate amount of the Participation Maximum,
each such
Purchaser shall have the right to purchase the greater of (a) their
Pro Rata
Portion (as defined below) of the Participation Maximum and (b) the
difference
between the Participation Maximum and the aggregate amount of participation
by
all other Purchasers. “Pro
Rata Portion”
is
the
ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date
by a Purchaser participating under this Section 4.13 and (y) the
sum of the
aggregate Subscription Amounts of Securities purchased on the Closing
Date by
all Purchasers participating under this Section 4.13.
(f) The
Company must provide the Purchasers with a second Subsequent Financing
Notice,
and the Purchasers will again have the right of participation set
forth above in
this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent
Financing Notice is not consummated for any reason on the terms set
forth in
such Subsequent Financing Notice within 60 Trading Days after the
date of the
initial Subsequent Financing Notice.
(g) Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an
Exempt
Issuance.
4.15 Subsequent
Equity Sales.
(a) From
the
date hereof until 90 days after the Effective Date, neither the Company
nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
provided,
however,
the 90
day period set forth in this Section 4.14 shall be extended for the
number of
Trading Days during such period in which (i) trading in the Common
Stock is
suspended by any Trading Market, or (ii) following the Effective
Date, the
Registration Statement is not effective or the prospectus included
in the
Registration Statement may not be used by the Purchasers for the
resale of the
Underlying Shares.
(b) From
the
date hereof until such time as no Purchaser holds any of the Debentures,
the
Company shall be prohibited from effecting or entering into an agreement
to
effect any Subsequent Financing involving a “Variable Rate Transaction”. The
term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt
or equity
securities that are convertible into, exchangeable or exercisable
for, or
include the right to receive additional shares of Common Stock either
(A) at a
conversion, exercise or exchange rate or other price that is based
upon and/or
varies with the trading prices of or quotations for the shares of
Common Stock
at any time after the initial issuance of such debt or equity securities,
or (B)
with a conversion, exercise or exchange price that is subject to
being reset at
some future date after the initial issuance of such debt or equity
security or
upon the occurrence of specified or contingent events directly or
indirectly
related to the business of the Company or the market for the Common
Stock or
(ii) enters into any agreement, including, but not limited to, an
equity line of
credit, whereby the Company may sell securities at a future determined
price.
(c) Notwithstanding
the foregoing, this Section 4.14 shall not apply in respect of an
Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.
4.16 Equal
Treatment of Purchasers.
No
consideration shall be offered or paid to any person 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. Further, the Company shall not make any payment
of
principal on the Debentures in amounts which are disproportionate
to the
respective Principal Amounts outstanding on the Debentures at any
applicable
time. For clarification purposes, this provision constitutes a separate
right
granted to each Purchaser by the Company and negotiated separately
by each
Purchaser, and is intended for the Company to treat the Purchasers
as a class
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.
4.17 Short
Sales and Confidentiality After The Date Hereof.
Each
Purchaser severally and not jointly with the other Purchasers covenants
that
neither it nor any affiliates acting on its behalf or pursuant to
any
understanding with it will execute any Short Sales during the period
after the
Discussion Time and ending at the time that the transactions contemplated
by
this Agreement are first publicly announced as described in Section
4.6. 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 4.6, 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 of the Registration Statement with the Securities
is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section
5 under
Section A, of the Manual of Publicly Available Telephone Interpretations,
dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in
the
securities of the Company after the time that the transactions contemplated
by
this Agreement are first publicly announced as described in Section
4.6.
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.
ARTICLE
V.
MISCELLANEOUS
5.1 Termination.
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the
obligations
between the Company and the other Purchasers, by written notice to
the other
parties, if the Closing has not been consummated on or before September
20,
2005; provided,
however,
that no
such termination will affect the right of any party to sue for any
breach by the
other party (or parties).
5.2 Fees
and Expenses.
Except
as expressly set forth in the Transaction Documents to the contrary,
each party
shall pay the fees and expenses of its advisers, 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.
The Company shall pay all transfer agent fees, stamp taxes and other
taxes and
duties levied in connection with the delivery of any Securities.
5.3 Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto,
contain
the entire understanding of the parties with respect to the subject
matter
hereof and supersede all prior agreements and understandings, oral
or written,
with respect to such matters, which the parties acknowledge have
been merged
into such documents, exhibits and schedules.
5.4 Notices.
Any and
all notices or other communications or deliveries required or permitted
to be
provided hereunder shall be in writing and shall be deemed given
and effective
on the earliest of (a) the date of transmission, if such notice or
communication
is delivered via facsimile at the facsimile number set forth on the
signature
pages attached hereto prior to 5:30 p.m. (New York City time) on
a Trading Day,
(b) the next Trading Day after the date of transmission, if such
notice or
communication is delivered via facsimile at the facsimile number
set forth on
the signature pages attached hereto on a day that is not a Trading
Day or later
than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party
to whom such
notice is required to be given. The address for such notices and
communications
shall be as set forth on the signature pages attached hereto.
5.5 Amendments;
Waivers.
No
provision of this Agreement may be waived or amended except in a
written
instrument signed, in the case of an amendment, by the Company and
each
Purchaser or, in the case of a waiver, by the party against whom
enforcement of
any such waiver is sought. No waiver 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 subsequent default
or a
waiver of any other provision, condition or requirement hereof, nor
shall any
delay or omission of either party to exercise any right hereunder
in any manner
impair the exercise of any such right.
5.6 Headings.
The
headings herein are for convenience only, do not constitute a part
of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be
the language
chosen by the parties to express their mutual intent, and no rules
of strict
construction will be applied against any party.
5.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties
and
their successors and permitted assigns. The Company may not assign
this
Agreement or any rights or obligations hereunder without the prior
written
consent of each Purchaser. Any Purchaser may assign any or all of
its rights
under this Agreement to any Person to whom such Purchaser assigns
or transfers
any Securities, provided such transferee agrees in writing to be
bound, with
respect to the transferred Securities, by the provisions hereof that
apply to
the “Purchasers”.
5.8 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their
respective
successors and permitted assigns and is not for the benefit of, nor
may any
provision hereof be enforced by, any other Person, except as otherwise
set forth
in Section 4.11.
5.9 Governing
Law.
All
questions concerning the construction, validity, enforcement and
interpretation
of the Transaction Documents shall be governed by and construed and
enforced in
accordance with the internal laws of the State of New York, without
regard to
the principles of conflicts of law thereof. Each party agrees that
all legal
proceedings concerning the interpretations, enforcement and defense
of the
transactions contemplated by this Agreement and any other Transaction
Documents
(whether brought against a party hereto or its respective affiliates,
directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each
party hereby
irrevocably submits to the exclusive jurisdiction of the state and
federal
courts sitting in the City of New York, borough of Manhattan for
the
adjudication of any dispute hereunder or in connection herewith or
with any
transaction contemplated hereby or discussed herein (including with
respect to
the enforcement of any of the Transaction Documents), and hereby
irrevocably
waives, and agrees not to assert in any suit, action or proceeding,
any claim
that it is not personally subject to the jurisdiction of any such
court, that
such suit, action or proceeding is improper or inconvenient venue
for such
proceeding. Each party hereby irrevocably waives personal service
of process and
consents to process being served in any such suit, action or proceeding
by
mailing a copy thereof via registered or certified mail or overnight
delivery
(with evidence of delivery) 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 contained
herein
shall be deemed to limit in any way any right to serve process in
any manner
permitted by law. The parties hereby waive all rights to a trial
by jury. If
either party shall commence an action or proceeding to enforce any
provisions of
the Transaction Documents, then the prevailing party in such action
or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation
and
prosecution of such action or proceeding.
5.10 Survival.
The
representations and warranties contained herein shall survive the
Closing and
the delivery, exercise and/or conversion of the Securities, as applicable
for
the applicable statue of limitations.
5.11 Execution.
This
Agreement may be executed in two or more counterparts, all of which
when taken
together shall be considered one and the same agreement and shall
become
effective when counterparts have been signed by each party and delivered
to the
other party, it being understood that both parties need not sign
the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation
of the
party executing (or on whose behalf such signature is executed) with
the same
force and effect as if such facsimile signature page were an original
thereof.
5.12 Severability.
If any
provision of this Agreement is held to be invalid or unenforceable
in any
respect, the validity and enforceability of the remaining terms and
provisions
of this Agreement shall not in any way be affected or impaired thereby
and the
parties will attempt to agree upon a valid and enforceable provision
that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate
such
substitute provision in this Agreement.
5.13 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without
limiting any
similar provisions of) the Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction
Document and
the Company does not timely perform its related obligations within
the periods
therein provided, then such Purchaser may rescind or withdraw, in
its sole
discretion from time to time upon written notice to the Company,
any relevant
notice, demand or election in whole or in part without prejudice
to its future
actions and rights; provided,
however,
in the
case of a rescission of a conversion of a Debenture or exercise of
a Warrant,
the Purchaser shall be required to return any shares of Common Stock
subject to
any such rescinded conversion or exercise notice.
5.14 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated,
lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange
and
substitution for and upon cancellation thereof, or in lieu of and
substitution
therefor, a new certificate or instrument, but only upon receipt
of evidence
reasonably satisfactory to the Company of such loss, theft or destruction
and
customary and reasonable indemnity, if requested. The applicants
for a new
certificate or instrument under such circumstances shall also pay
any reasonable
third-party costs associated with the issuance of such replacement
Securities.
5.15 Remedies.
In
addition to being entitled to exercise all rights provided herein
or granted by
law, including recovery of damages, each of the Purchasers and the
Company will
be entitled to specific performance under the Transaction Documents.
The parties
agree that monetary damages may not be adequate compensation for
any loss
incurred by reason of any breach of obligations described in the
foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be adequate.
5.16 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser
pursuant to
any Transaction Document or a Purchaser enforces or exercises its
rights
thereunder, and such payment or payments or the proceeds of such
enforcement or
exercise or any part thereof are subsequently invalidated, declared
to be
fraudulent or preferential, set aside, recovered from, disgorged
by or are
required to be refunded, repaid or otherwise restored to the Company,
a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause
of action),
then to the extent of any such restoration the obligation or part
thereof
originally intended to be satisfied shall be revived and continued
in full force
and effect as if such payment had not been made or such enforcement
or setoff
had not occurred.
5.17 Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist
upon or
plead or in any manner whatsoever claim, and will resist any and
all efforts to
be compelled to take the benefit or advantage of, usury laws wherever
enacted,
now or at any time hereafter in force, in connection with any claim,
action or
proceeding that may be brought by any Purchaser in order to enforce
any right or
remedy under any Transaction Document. Notwithstanding any provision
to the
contrary contained in any Transaction Document, it is expressly agreed
and
provided that the total liability of the Company under the Transaction
Documents
for payments in the nature of interest shall not exceed the maximum
lawful rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest
or
default interest, or both of them, when aggregated with any other
sums in the
nature of interest that the Company may be obligated to pay under
the
Transaction Documents exceed such Maximum Rate. It is agreed that
if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate
of interest
allowed by law will be the Maximum Rate applicable to the Transaction
Documents
from the effective date forward, unless such application is precluded
by
applicable law. If under any circumstances whatsoever, interest in
excess of the
Maximum Rate is paid by the Company to any Purchaser with respect
to
indebtedness evidenced by the Transaction Documents, such excess
shall be
applied by such Purchaser to the unpaid principal balance of any
such
indebtedness or be refunded to the Company, the manner of handling
such excess
to be at such Purchaser’s election.
5.18 Independent
Nature of Purchasers’ Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document 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 any Transaction Document. Nothing contained herein
or in any
Transaction Document, and no action taken by any Purchaser pursuant
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.
Each
Purchaser shall be entitled to independently protect and enforce
its rights,
including without limitation the rights arising out of this Agreement
or out of
the other Transaction Documents, and it shall not be necessary for
any other
Purchaser to be joined as an additional party in any proceeding for
such
purpose. Each Purchaser has been represented by its own separate
legal counsel
in their review and negotiation of the Transaction Documents. For
reasons of
administrative convenience only, Purchasers and their respective
counsel have
chosen to communicate with the Company through Sichenzia Ross Friedman
Ference
LLP.
5.19 Liquidated
Damages.
The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation
of the Company
and shall not terminate until all unpaid partial liquidated damages
and other
amounts have been paid notwithstanding the fact that the instrument
or security
pursuant to which such partial liquidated damages or other amounts
are due and
payable shall have been canceled.
5.20 Construction.
The
parties agree that each of them and/or their respective counsel has
reviewed and
had an opportunity to revise the Transaction Documents and, therefore,
the
normal rule of construction to the effect that any ambiguities are
to be
resolved against the drafting party shall not be employed in the
interpretation
of the Transaction Documents or any amendments hereto.
(Signature
Pages Follow)
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories
as of
the date first indicated above.
|
FELLOWS
ENERGY LTD.
|
Address
for Notice:
|
|
By:
/s/ GEORGE S. YOUNG
Name:
George S. Young
Title:
Chief Executive Officer
|
370
Interlocken Boulevard, Suite 400, Broomfield, CO 80021
|
|
With
a copy to (which shall not constitute notice):
Marc
Ross
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21st
flr.
New
York, NY 10018
|
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGE FOR PURCHASER FOLLOWS]
[PURCHASER
SIGNATURE PAGES TO FLWE SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement
to be duly executed by their respective authorized signatories as
of the date
first indicated above.
Name
of
Purchaser: PALISADES
MASTER FUND L.P.
| |
|
|
|
| /s/ Arlene
DeCastro |
|
|
/s/ Peter
Cooper |
Arlene
DeCastro |
|
|
Peter
Cooper |
| Authorized
Signatory |
|
|
Authorized
Signatory |
Email
Address of
Purchaser:_______________________________________________________
Address
for Notice of Purchaser:
Address
for Delivery of Securities for Purchaser (if not same as above):
Subscription
Amount: $500,000
Principal
Amount: (1.429
multiplied by the Subscription Amount) $714,500
EIN
Number: [PROVIDE
THIS UNDER SEPARATE COVER]
35