SECURITIES PURCHASE AGREEMENT
THIS SECURITIES
PURCHASE AGREEMENT
(this
“Agreement”),
dated
as of September ___, 2008, by and among Vortex Resources Corp. a Delaware
corporation, with headquarters located at 0000 Xxxxxxxx Xxxx., Xxxxx 000,
Xxxxxxx Xxxxx, XX 00000, (the “Company”),
and
Trafalgar Capital Specialized Investment Fund, Luxembourg ( “Buyer”).
WITNESSETH:
WHEREAS,
the
Company and the Buyer are executing and delivering this Agreement in reliance
upon an exemption from securities registration pursuant to Section 4(2) and/or
Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”)
under
the Securities Act of 1933, as amended (the “1933
Act”);
WHEREAS,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Buyer, as provided herein,
and
the Buyer shall purchase up to Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000) of a secured promissory note that is convertible to shares of
the
Company’s common stock in accordance with its terms (the “Note”),
which
shall be convertible into shares of the Company’s common stock, par value $.001
(the “Common Stock”) (as converted, the “Conversion
Shares”)
of
which One Million Six Hundred Thousand Dollars ($1,600,000) shall be funded
on
the date hereof (the “First Closing” or “Tranche A”), Four Hundred Thousand
Dollars ($400,000) shall be funded on September 30, 2008 upon the Buyer’s
consent based on its evaluation of the progress made in the drilling at the
Xxxx
Xxxxxxxx gas field and other factors (the “Second Closing” or “ Tranche B”) and
the balance of Seven Hundred Fifty Thousand Dollars ($750,000) shall be
disbursed upon satisfaction of certain conditions precedent described herein(the
“Third Closing” or “Tranche C”)(each individually referred to as a “Closing”
collectively referred to as the “Closings”),
for a
total purchase price of up to Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000), (the “Purchase
Price”)
Buyer;
and
WHEREAS,
the
proceeds of the sale of the Note contemplated hereby shall be held in escrow
pursuant to the terms of an escrow agreement substantially in the form of the
Escrow Agreement attached hereto as Exhibit
A
(the
“Escrow
Agreement”);
and
WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Security Agreement substantially in the
form attached hereto as Exhibit
B (the
“Security
Agreement”)
pursuant to which the Company has agreed to provide the Buyer a security
interest in Pledged Collateral (as this term is defined in the Security
Agreement dated the date hereof) to secure Company’s obligations under this
Agreement, the Note and the Security Agreement (collectively, the “Transaction
Documents”)
or any
other obligations of the Company to the Buyer; and
NOW,
THEREFORE,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Buyer hereby agree as follows:
1. PURCHASE
AND SALE OF NOTE.
(a) Purchase
of Note.
Subject
to the satisfaction (or waiver) of the terms and conditions of this Agreement,
Buyer agrees to purchase at the Closings (as defined herein below) and the
Company agrees to sell and issue to Buyer, at such Closings, Notes in
an
aggregate amount of up to Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000.00) (the “Purchase
Price”),
as
follows: (i) One Million Six Hundred Thousand Dollars ($1,600,000.00)
shall
be
funded at the First Closing (ii) Four Hundred Thousand Dollars ($400,000) shall
be funded at the Second Closing and (iii) the balance to be funded at the Third
Closing. Prior to execution hereof by the Buyer, the Buyer shall wire transfer
the portion of the Purchase Price required for the First Closing to Xxxxx Xxx
Xxxxxxxx as Escrow Agent for Vortex Resources Corp./Trafalgar Capital Investment
Fund”, which amount shall be held in escrow pursuant to the terms of the Escrow
Agreement (as hereinafter defined) and disbursed in accordance therewith. Buyer
shall wire transfer the portion of the Purchase Price required for each of
the
Second and Third Closing prior to the occurrence of such Closing
(b) Closing
Date.
The
First Closing of the purchase and sale of the Note shall take place at 10:00
a.m. Eastern Standard Time on the date hereof, subject to notification of
satisfaction of the conditions to the Closing set forth herein and in Sections
6
and 7 below (or such later date as is mutually agreed to by the Company and
the
Buyer) (the “First Closing
Date”),
and
the Second and Third Closing of the purchase and sale of the Note shall take
place at Buyer’s consent, subject to notification of satisfaction of the
conditions to those Closings as set forth herein and in Sections 6 and 7
below (or such later date as is mutually agreed to by the Company and the
Buyer(s)) (the “Second
Closing Date”
and
the
“Third Closing Date”) (collectively referred to as the “Closing
Dates”).
The
Closings shall occur on the Closing Dates at the offices of Xxxxx Xxx Xxxxxxxx
or such other place as is mutually agreed to by the Company and the Buyer).
(c) Escrow
Arrangements; Form of Payment. The
full
amount of the portion of the Purchase Price
for the
interests in the Note to be purchased in the First Closing
shall be
deposited in an escrow account with Xxxxx Xxx Xxxxxxxx, as escrow agent (the
“Escrow
Agent”)
prior
to the execution hereof.
Such
portion of the Purchase Price for the interests in the Note to be purchased
in
the other Closings shall be deposited into the Escrow Account prior to such
applicable Closing Date. Subject to the satisfaction of the terms and conditions
of this Agreement, on the Closing Dates, (i) the Escrow Agent shall deliver
to
the Company in accordance with the terms of the Escrow Agreement that
portion of the Escrow Funds (as that term is defined in the Escrow Agreement)
equal to the gross amount of
the Note
being
purchased by
such
Buyer
as set
forth on Schedule I (minus
the
fees and expenses as set forth herein which shall be paid directly from the
Escrow
Funds
at
the
Closing)
by wire
transfer of immediately available funds and (ii) the Company shall deliver
to Buyer, the Note as applicable which such Buyer is purchasing in amounts
indicated opposite such Buyer’s name on Schedule I, duly executed on behalf of
the Company.
(d) The
Debentures shall contain provisions that provide that in the event the Euro
strengthens against the U.S. Dollar during the life of the Debenture, the Buyer
shall be afforded an adjustment to compensate for any such movement in either
conversions or redemptions.
2
2. BUYER’S
REPRESENTATIONS AND WARRANTIES.
Buyer
represents and warrants, severally and not jointly, that:
(a) Investment
Purpose.
Buyer
is acquiring their interest in the Note and, upon conversion of such interest
in
the Note, the Buyer will acquire the Conversion Shares then issuable, for its
own account for investment only and not with a view towards, or for resale
in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer reserves the right to dispose
of
the Conversion Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares or an available exemption
under the 1933 Act.
(b) Accredited
Investor Status.
Buyer
is an “Accredited
Investor”
as
that
term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance
on Exemptions.
Buyer
understands that the interests in the Note are being offered and sold to it
in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part
upon the truth and accuracy of, and such Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire such
securities.
(d) Information.
Buyer
and its advisors and counsel, if any, have been furnished with all materials
relating to the business, finances and operations of the Company and information
deemed by such Buyer to be material to making an informed investment decision
regarding the purchase of their interest in the Note and the Conversion Shares,
which have been requested by such Buyer. Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Buyer or its advisors, if any, or its representatives shall
modify, amend or affect such Buyer’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Buyer understands
that its investment in the Note and the Conversion Shares involves a high degree
of risk. Buyer is in a position regarding the Company, which, based upon
employment, family relationship or economic bargaining power, enabled and
enables such Buyer to obtain information from the Company in order to evaluate
the merits and risks of this investment. Buyer has sought such accounting,
legal
and tax advice, as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Note and the Conversion
Shares.
(e) No
Governmental Review.
Buyer
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the Note or the Conversion Shares, or the fairness or suitability
of the investment in the Note or the Conversion Shares, nor have such
authorities passed upon or endorsed the merits of the offering of the Note
or
the Conversion Shares.
3
(f) Transfer
or Resale.
Buyer
understands that: (i) the interests in the Note have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, or (B) such Buyer shall have delivered to the Company
an
opinion of counsel selected by Buyer, in a generally acceptable form, to the
effect that such securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration
requirements; (ii) any sale of such securities made in reliance on Rule 144
under the 1933 Act (or a successor rule thereto) (“Rule 144”)
may be
made only in accordance with the terms of Rule 144 and further, if Rule 144
is
not applicable, any resale of such securities under circumstances in which
the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 0000 Xxx) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of
the
SEC thereunder; and (iii) neither the Company nor any other person is under
any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. The Company reserves the right to place stop transfer instructions
against the shares and certificates for the Conversion Shares.
(g) Legends.
Buyer
understands that the certificates or other instruments representing the
interests in the Note and or the Conversion Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be
placed against transfer of such stock certificates):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.
The
legend set forth above shall be removed and the Company within two (2) business
days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided
the
Conversion Shares are registered under the 1933 Act or (ii) in connection with
a
sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope reasonably
acceptable to counsel for the Company, to the effect that a public sale,
assignment or transfer of the Conversion Shares may be made without registration
under the 1933 Act.
4
(h) Authorization,
Enforcement.
This
Agreement has been duly and validly authorized, executed and delivered on behalf
of such Buyer and is a valid and binding agreement of such Buyer enforceable
in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to,
or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
(i) Receipt
of Documents.
Buyer
and his or its counsel has received and read in their entirety: (i) this
Agreement and each representation, warranty and covenant set forth herein,
the
Security Agreement and the Escrow Agreement; (ii) all due diligence and other
information necessary to verify the accuracy and completeness of such
representations, warranties and covenants; and (iii) answers to all questions
Buyer submitted to the Company regarding an investment in the Company; and
Buyer
has relied on the information contained therein and has not been furnished
any
other documents, literature, memorandum or prospectus.
(j) Due
Formation of Corporate and Other Buyer.
If the
Buyer is a corporation, trust, partnership or other entity that is not an
individual person, it has been formed and validly exists and has not been
organized for the specific purpose of purchasing the Note and is not prohibited
from doing so.
(k) No
Legal Advice From the Company.
Buyer
acknowledges, that it had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with his or its own legal counsel
and investment and tax advisors. Buyer is relying solely on such counsel and
advisors and not on any statements or representations of the Company or any
of
its representatives or agents for legal, tax or investment advice with respect
to this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants as of the date hereof and as of the Closing
Date
to each of the Buyer that:
(a) Organization
and Qualification.
The
Company and its subsidiaries are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they
are
incorporated, and have the requisite corporate power to own their properties
and
to carry on their business as now being conducted. Each of the Company and
its
subsidiaries is duly qualified as a foreign corporation to do business and
is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries taken as a
whole.
(b) Authorization,
Enforcement, Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter
into and perform the Transaction Documents, and any related agreements, and
to
issue the Note and the Conversion Shares in accordance with the terms hereof
and
thereof, (ii) the execution and delivery of the Transaction Documents and any
related agreements by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance
of
the Note, the Conversion Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion or exercise thereof,
have been duly authorized by the Company’s Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors
or
its stockholders, (iii) the Transaction Documents and any related agreements
have been duly executed and delivered by the Company, (iv) the Transaction
Documents and any related agreements constitute the valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors’ rights and remedies. The Company knows of no reason why the
Company cannot file the registration statement as required under the Investor
Registration Rights Agreement or perform any of the Company’s other obligations
to the Buyer.
5
(c) Capitalization.
The
authorized capital stock of the Company consists of 400,000,000 shares of Common
Stock, par value $.001per share and 5,000,000 shares of Preferred Stock, no
par
value per share. As of the date hereof, the Company has 81,975,213 shares of
Common Stock and no shares of Preferred Stock issued and outstanding. All of
such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock are subject to preemptive rights or
any
other similar rights or any liens or encumbrances suffered or permitted by
the
Company. As of the date of this Agreement, (i) except as set forth on
Schedule
II
attached
hereto,., there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company or any
of
its subsidiaries, or contracts, commitments, understandings or arrangements
by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries
or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
any
shares of capital stock of the Company or any of its subsidiaries, (ii) except
as set forth on Schedule II attached hereto, there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any
of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement) and (iv) there are no outstanding registration statements and there
are no outstanding comment letters from the SEC or any other regulatory agency.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Note as described
in
this Agreement. The Company has furnished to the Buyer true and correct copies
of the Company’s Certificate of Incorporation, as amended and as in effect on
the date hereof (the “Certificate
of Incorporation”),
and
the Company’s Amended and Restated By-laws, as in effect on the date hereof (the
“By-laws”),
and
the terms of all securities convertible into or exercisable for Common Stock
and
the material rights of the holders thereof in respect thereto other than stock
options issued to employees and consultants.
(d) Issuance
of Securities.
The
Note is duly authorized and, when issued and paid for in accordance with the
terms hereof, shall be duly issued, fully paid and nonassessable, are free
from
all taxes, liens and charges with respect to the issue thereof. The Conversion
Shares issuable upon conversion of the Note have been duly authorized and
reserved for issuance. Upon conversion or exercise in accordance with the Note
the Conversion Shares will be duly issued, fully paid and
nonassessable.
6
(e) No
Conflicts.
The
execution, delivery and performance of this Agreement and the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles of
Incorporation or the By-laws or (ii), to the knowledge of the Company, conflict
with or constitute a default (or an event which with notice or lapse of time
or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations
and
the rules and regulations of The National Association of Securities Dealers
Inc.’s OTC Bulletin Board on which the Common Shares may be quoted) applicable
to the Company or any of its subsidiaries or by which any property or asset
of
the Company or any of its subsidiaries is bound or affected. To the best
knowledge of the Company, neither the Company nor its subsidiaries is in
violation of any term of or in default under its Articles of Incorporation
or
By-laws or their organizational charter or by-laws, respectively,
or, any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to
the
Company or its subsidiaries. The business of the Company and its subsidiaries
is
not being conducted, and shall not be conducted in violation of any material
law, ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any
court or governmental agency in order for it to execute, deliver or perform
any
of its obligations under or contemplated by this Agreement in accordance with
the terms hereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof, except
for any required post-Closing notice filings under applicable United States
federal or state securities laws, if any.
(f) SEC
Documents: Financial Statements.
The
Company has filed or furnished, as applicable, all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under
of
the Securities Exchange Act of 1934, as amended (the “1934
Act”)
(all
of the foregoing filed prior to the date hereof or amended after the date hereof
and all exhibits and schedules included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to as the “SEC
Documents”).
The
Company has delivered to the Buyer or their representatives, or made available
through the SEC’s website at xxxx://xxx.xxx.xxx, true and complete copies of the
SEC Documents. As of their respective dates, the financial statements of the
Company included in the SEC Documents (the “Financial
Statements”)
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial statements have
been
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such Financial Statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in
all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
7
(g)
No
Material Misstatement or Omission.
None of
the Company’s SEC Documents at the time of filing and none of the representation
and warranties made in this Agreement or any of the other Transaction Documents
include any untrue statements of material fact, nor do the Company’s SEC
Documents at the time of filing and none of the representations and warranties
made in this Agreement or any of the other Transaction Documents omit to state
any material fact required to be stated therein necessary to make the statements
made, in light of the circumstances under which they were made, not
misleading.
(h) Absence
of Litigation.
Except
as set forth on schedule 3(h), there is no action, suit, proceeding, inquiry
or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents, have a material
adverse effect on the business, operations, properties, financial condition
or
results of operations of the Company and its subsidiaries taken as a
whole.
(i) Acknowledgment
Regarding Buyer’s Purchase of the Interest in the Note.
The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is not
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 the Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to such Buyer’s purchase of its
interest in the Note or the Conversion Shares. The Company further represents
to
the Buyer that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation by the Company and its
representatives.
(j) No
General Solicitation.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 0000 Xxx) in connection with
the
offer or sale of the Note or the Conversion Shares.
(k) No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security
or
solicited any offers to buy any security, under circumstances that would require
registration of the Note or the Conversion Shares under the 1933 Act or cause
this offering of the Note or the Conversion Shares to be integrated with prior
offerings by the Company for purposes of the 1933 Act.
8
(l) Employee
Relations.
Neither
the Company nor any of its subsidiaries is involved in any labor dispute nor,
to
the knowledge of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company’s or its subsidiaries’ employees is a member of
a union and the Company and its subsidiaries believe that their relations with
their employees are good.
(m) Intellectual
Property Rights.
The
Company and its subsidiaries own or possess adequate rights or licenses to
use
all trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct
their
respective businesses as now conducted. The Company and its subsidiaries do
not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company there
is
no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of
any
facts or circumstances which might give rise to any of the
foregoing.
(n) Environmental
Laws.
The
Company and its subsidiaries are (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental
Laws”),
(ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license
or
approval.
(o)
Title.
Any
real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.
(p)
Insurance.
The
Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its subsidiaries are engaged. Neither the Company
nor
any such subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
9
(q) Regulatory
Permits.
The
Company and its subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(r)
Internal Accounting Controls.
The
Company and each of its 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 generally accepted accounting principles and
to
maintain asset accountability, and (iii) the recorded amounts for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(s)
No
Material Adverse Breaches, etc.
Neither
the Company nor any of its subsidiaries is subject to any charter, corporate
or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company’s officers has or is expected in the future
to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is in breach
of
any contract or agreement which breach, in the judgment of the Company’s
officers, has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
(t)
Tax
Status.
The
Company and each of its subsidiaries has made and filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject and (unless and only to the extent that
the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) has
paid
all taxes and other governmental assessments and charges that are material
in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
(u) Certain
Transactions.
Except
for arm’s length transactions pursuant to which the Company makes payments in
the ordinary course of business for an amount less than fifty thousand dollars
($50,000) and which are upon terms no less favorable than the Company could
obtain from third parties , none of the officers, directors, or employees of
the
Company is presently a party to any transaction with the Company (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 corporation, partnership, trust or other entity
in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner.
10
(v)
Fees
and Rights of First Refusal.
The
Company is not obligated to offer the securities offered hereunder on a right
of
first refusal basis or otherwise to any third parties including, but not limited
to, current or former shareholders of the Company, underwriters, brokers, agents
or other third parties.
(w)
Schedule of Indebtedness.
The
schedule of the Company’s debt and other liabilities included on Schedule 4(j)
attached hereto is complete and accurate.
4, COVENANTS.
(a)
Best
Efforts.
Each
party shall use its best efforts timely to satisfy each of the conditions to
be
satisfied by it as provided in Sections 6 and 7 of this Agreement.
(b)
Form
D.
The
Company agrees to file a Form D with respect to the Conversion Shares as
required under Regulation D and to provide a copy thereof to Buyer promptly
after such filing. The Company shall, on or before the applicable Closing Date,
take such action as the Company shall reasonably determine is necessary to
qualify the Conversion Shares, or obtain an exemption for the Conversion Shares
for sale to the Buyer at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of any such action so taken to the Buyer on or prior to the
applicable Closing Date.
(c)
Reporting Status.
Until
the earlier of (i) the date as of which the Buyer may sell all of the Conversion
Shares without restriction pursuant to Rule 144(k) promulgated under the 1933
Act (or successor thereto), or (ii) the date on which (A) the Buyer shall have
sold all the Conversion Shares and (B) none of the Note are outstanding (the
“Registration
Period”),
the
Company shall file in a timely manner all reports required to be filed with
the
SEC pursuant to the 1934 Act and the regulations of the SEC thereunder, and
the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
(d)
Use
of Proceeds.
The
Company will use the proceeds from the sale of the Note for working capital
purposes and more specifically, the proceeds from the first close used to drill
two xxxxx in the Xxxx Xxxxxxxx gas field.
(e)
Reservation of Shares.
The
Company shall take all action reasonably necessary to at all times have
authorized, and reserved for the purpose of issuance, such number of shares
of
Common Stock as shall be necessary to effect the issuance of the Conversion
Shares. If at any time the Company does not have available such shares of Common
Stock as shall from time to time be sufficient to effect the conversion of
all
of the Conversion Shares of the Company, the Company, within ten (10) business
days for the sole purpose of increasing the number of shares authorized shall
either (i) obtain sufficient written consents from the Company’s shareholders
and file an Information Statement with the Securities and Exchange Commission
(the “SEC”) or (ii) file a preliminary proxy statement with the SEC and shall
call and hold a special meeting of the shareholders as soon as practicable
after
such occurrence.. The Company’s management shall recommend to the shareholders
to vote in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number
of authorized shares of Common Stock. Notwithstanding the foregoing, the Buyer
hereby acknowledge that the Company currently does not have sufficient shares
of
its Common Stock authorized as shall be necessary to effect the issuance of
the
Conversion Shares, but has obtained the written consent of a sufficient number
of votes of its shareholders to authorize such increase and has filed an
Information Statement with the SEC reflecting such approval.
11
(f) Fees
and Expenses.
Other
than as set forth herein, each of the Company and the Buyer shall pay all costs
and expenses incurred by such party in connection with the negotiation,
investigation, preparation, execution and delivery of the Transaction Documents
and any other documents relating to this transaction.
(i) The
Company shall pay the Buyer a facility commitment fee of four percent (4%)
of
the Purchase Price in stock at the time of each Close. The value of shares
shall
be based on the VWAP of the Company’s shares during the five days preceding such
Close.
(ii) The
Company has agreed to pay a structuring fee to Buyer of Fifteen Thousand Five
Hundred Dollars ($15,000), Ten Thousand Dollars ($10,000) of which has been
paid
with the remaining amount paid directly from the proceeds of the First Closing
or on the date on which the Company notifies the Investor that it does not
intend to proceed with the financing
(iii) The
Company shall pay the Buyer a facility draw down fee of four percent (4%) of
the
Purchase Price, which shall be paid directly from the proceeds of and
proportionally upon each Closing.
(iv) The
Company shall issue the Buyer 150,000 shares of the common stock of the Company
at the First Close.
(v) The
Company has agreed to pay a due diligence fee to Buyer of Fifteen Thousand
Dollars ($15,000), Seven Thousand Five Hundred Dollars ($7,500.00) of which
has
been paid with the remaining amount paid directly from the proceeds of the
First
closing or on the date on which the Company notifies the Buyer that it does
not
intend to proceed with the financing. The Company shall pay an Advisory fee
of
$100,000 to T.A.S. Holdings Limited out of the First Close.
(g) Corporate
Existence.
So long
as any of the interests in the Note remain outstanding, the Company shall not
directly or indirectly consummate any merger, reorganization, restructuring,
reverse stock split consolidation, sale of all or substantially all of the
Company’s assets or any similar transaction or related transactions (each such
transaction, an “Organizational
Change”)
unless, prior to the consummation an Organizational Change, the Company obtains
the written consent of Buyer which consent shall not be unreasonably withheld
or
delayed. In any such case, the Company will make appropriate provision with
respect to such holders’ rights and interests to insure that the provisions of
this Section 4(g) will thereafter be applicable to the Note.
12
(h) Transactions
With Affiliates.
So long
as any Notes are outstanding, the Company shall not, and shall cause each of
its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement (an “Affiliate Transaction”) with any of
its or any subsidiary’s officers or directors, or persons who were officers or
directors of the Company at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a “Related
Party”)
for an
aggregate amount for all Affiliate Transactions with such Related Party in
excess of fifty thousand dollars ($50,000), except for (a) customary employment
arrangements and benefit programs on reasonable terms, (b) any investment in
an
Affiliate of the Company, (c) any Affiliate Transaction on an arms-length basis
on terms no less favorable than terms which would have been obtainable from
a
person other than such Related Party, or (d) any Affiliate Transaction which
is
approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect
to
any such agreement, transaction, commitment, or arrangement. “Affiliate”
for
purposes hereof means, with respect to any person or entity, another person
or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity,
or
(iv) shares common control with that person or entity. “Control”
or
“controls”
for
purposes hereof means that a person or entity has the power, direct or indirect,
to conduct or govern the policies of another person or entity. In the event
the
Company wishes to engage in an Affiliate Transaction valued in excess of fifty
thousand dollars ($50,000) the Buyer and the Company shall agree upon an
independent third party who shall be engaged at the Company’s expense to
determine whether such Affiliate Transaction is permissible pursuant to one
or
more of (a) through (d) of this paragraph.
(i)Section
Not In Use
(j)Restriction
on Issuance of the Capital Stock and Incurrence of Debt.
Except
for the Securities Purchase Agreement dated the date hereof between the Company
and Trafalgar Capital Specialized Investment Fund, Luxembourg, , so long as
any
of the principal of or interest on the Note remains unpaid and unconverted,
the
Company shall not, without the prior consent of the Buyer:
(i) issue
or sell Common Stock or Preferred Stock issue or sell a warrant, option, right,
contract, call, or other security or instrument granting the holder thereof
the
right to acquire Common Stock. (iii)
enter into any security instrument granting the holder a security interest
in
any of the assets of the Company, (iv)
file
any registration statement on Form S-8 or (v) other than in the ordinary course
of business consistent with past practice, directly or indirectly permit,
create, incur assume, permit to exist, increase, renew or extend on or after
the
date hereof any additional debt or permit any subsidiary of the Company to
do or
allow any of the foregoing without the Buyer’s prior written consent beyond that
which is set forth in Schedule
4(j)
attached
hereto. In the event that Buyer does provide its consent hereunder to issue
any
such securities described under (i), (ii) or (iv) of this Section, the Fixed
Price under the Note shall be adjusted to equal to the lesser of: (a) the Fixed
Price as defined therein and (b) eighty-five percent (85%) of the lowest
consideration paid per share for any such security issued by the Company.
13
5. SECTION
NOT IN USE
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Note to the Buyer
at
the Closings is subject to the satisfaction, at or before the Closing Dates,
of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
(a) Buyer
shall have executed this Agreement, the Security Agreement, and the Escrow
Agreement and delivered the same to the Company.
(b) The
Buyer
shall have delivered to the Escrow Agent the Purchase Price for Note in
respective amounts as set forth next to Buyer as outlined on Schedule I attached
hereto and the Escrow Agent shall have delivered the net proceeds to the Company
by wire transfer of immediately available U.S. funds pursuant to the wire
instructions provided by the Company.
(c) The
representations and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Dates as though
made at that time (except for representations and warranties that speak as
of a
specific date), and the Buyer shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Buyer at
or
prior to the Closing Dates.
(d) The
Company shall have filed a form UCC-1 with regard to the Pledged Property and
Pledged Collateral as detailed in the Security Agreement dated the date hereof
and provided proof of such filing to the Buyer.
7. CONDITIONS
TO THE BUYER’S OBLIGATION TO PURCHASE.
The
obligation of the Buyer hereunder to purchase the Note at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions:
(a) The
Company shall have executed this Agreement, the Security Agreement, the Note
in
such
amounts as purchased by Buyer hereunder),
the
Escrow Agreement, and delivered the same to the Buyer.
(b) The
trading in the Common Shares on the OTCBB shall not have been suspended for
any
reason.
(c) The
representations and warranties of the Company shall be true and correct in
all
material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality in Section 3 above, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Closing Dates
as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Dates. If requested by the Buyer, the Buyer
shall have received a certificate, executed by the President of the Company,
dated as of the Closing Dates, to the foregoing effect and as to such other
matters as may be reasonably requested by the Buyer including, without
limitation an update as of the Closing Dates regarding the representation
contained in Section 3(c) above.
14
(d) The
Company shall have executed and delivered to the Buyer the Note in the
respective amounts set forth opposite Buyer name on Schedule I attached
hereto.
(e) The
Buyer
shall have received an opinion of counsel from counsel to the Company in a
form
satisfactory to the Buyer.
(f) The
Company shall have provided to the Buyer a certificate of good standing from
the
secretary of state from the state in which the Company is
incorporated.
(g) As
of the
Closing Date, the Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Note,
shares of Common Stock to effect the conversion of all of the Conversion Shares
then outstanding.
(h) Not
In
Use
(i) Not
in
Use
(j) The
Company shall have filed a form UCC-1 or such other forms as may be required
to
perfect the Buyer’(s’) interest in the Pledged Property and Pledged Collateral
as detailed in the Security Agreement dated the date hereof and provided proof
of such filing to the Buyer.
(k) Buyer’s
due diligence shall have been completed to Buyer’s satisfaction.
(l) Not
in
Use
(m) The
Second and Third Closings shall be at the discretion of Buyer based on the
performance of the gas drilling program at the Xxxx Xxxxxxxx gas field and
other
factors deemed material and relevant to Buyer and would require identical
repayment terms, adjusted pro-rata, as the funds disbursed in the First
Closing.
(n) In
the
event the Company closes a financing with cash proceeds in the amount of
$4,000,000 or more, the Holder has the right to demand repayment of the total
amount of principal and interest outstanding from the First and Second Closings
plus a redemption premium. Should such financing be closed in several
installments, then repayment would be made on a pro rata basis as set forth
in
the Convertible Note.
15
8. INDEMNIFICATION.
(a) In
consideration of the Buyer’s execution and delivery of this Agreement and
acquiring the Note and the Conversion Shares hereunder, and in addition to
all
of the Company’s other obligations under this Agreement, the Company shall
defend, protect, indemnify and hold harmless the Buyer and each other holder
of
the Note and the Conversion Shares, and all of their officers, directors,
employees and agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the “Buyer
Indemnitees”)
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Buyer Indemnitee is a party to the action
for
which indemnification hereunder is sought), and including reasonable attorneys’
fees and disbursements (the “Indemnified
Liabilities”),
incurred by the Buyer Indemnitees or any of them as a result of, or arising
out
of, or relating to (a) any misrepresentation or breach of any representation
or
warranty made by the Company in this Agreement, the Note or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Investor
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party and arising out of
or
resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Indemnities, any transaction financed or to be financed
in
whole or in part, directly or indirectly, with the proceeds of the issuance
of
the Note or the status of the Buyer or holder of the Note the Conversion Shares,
as a Buyer of Note in the Company. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make
the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.
(b) In
consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Buyer’s other obligations under this Agreement, the Buyer
shall defend, protect, indemnify and hold harmless the Company and all of its
officers, directors, employees and agents (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Company
Indemnitees”)
from
and against any and all Indemnified Liabilities incurred by the Indemnitees
or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Buyer
in this Agreement, the Note or the Investor Registration Rights Agreement or
any
other certificate, instrument or document contemplated hereby or thereby
executed by the Buyer, (b) any breach of any covenant, agreement or obligation
of the Buyer contained in this Agreement, the Note, the Investor Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby executed by the Buyer, or (c) any cause of action, suit or
claim brought or made against such Company Indemnitee based on material
misrepresentations or due to a material breach and arising out of or resulting
from the execution, delivery, performance or enforcement of this Agreement,
the
Note, the Investor Registration Rights Agreement or any other certificate
instrument, document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by Buyer may be
unenforceable for any reason, Buyer shall make the maximum contribution to
the
payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
16
9. GOVERNING
LAW: MISCELLANEOUS.
(a) Governing
Law.
This
Agreement shall be governed by and interpreted in accordance with the laws
of
the State of Florida without regard to the principles of conflict of laws.
The
parties further agree that any action between them shall be heard in Broward
County, Florida and expressly consent to the jurisdiction and venue of the
State
Court sitting in Broward County, Florida and the United States District Court
for the Southern District of Florida for the adjudication of any civil action
asserted pursuant to this Paragraph.
(b) Counterparts.
This
Agreement may be executed in two or more identical counterparts, all of which
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.
In
the event any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause four (4) additional original executed
signature pages to be physically delivered to the other party within five (5)
days of the execution and delivery hereof.
(c) Recitals
and Headings.
The recitals
of this Agreement are an integral part of this Agreement and shall be
incorporated herein as if made a part of this Agreement.
The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
(d) Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(e) Entire
Agreement, Amendments.
This
Agreement supersedes all other prior oral or written agreements between the
Buyer, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
(f) Notices.
Any
notices, consents, waivers, or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
confirmation of receipt, when sent by facsimile; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv) one (1)
day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
17
|
If
to the Company, to:
|
Xxxxx
Xxxxx, CEO
|
|
0000
Xxxxxxxx Xxxx., Xxxxx 000
|
|
|
Xxxxxxx
Xxxxx, XX 00000
|
|
|
Fax:
000-000-0000
|
|
|
With
a Copy to:
|
Law
Offices of Xxxxxxx X. Xxxxxxx LLC
|
|
000
Xxxxxxx Xxxxxx, 0xx
Xxxxx
|
|
|
Xxxx
Xxxxxx XX 00000
|
|
|
Facsimile:
000-000-0000
|
|
|
And
if to the Buyer:
|
Trafalgar
Capital Specialized
Investment
Fund, Luxembourg
|
|
00000
XX 00xx
Xxxxxx
|
|
|
Attention:
Xxx Xxxxx
Portfolio
Manager
|
|
|
Facsimile:
1-786-323-1651
|
If
to the
Buyer, to its address and facsimile number on Schedule I. Each party shall
provide five (5) days’ prior written notice to the other party of any change in
address or facsimile number.
(g) Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. Neither the Company nor any Buyer
shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other party hereto.
(h) No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
(i) Survival.
Unless
this Agreement is terminated under Section 9(l), the representations and
warranties of the Company and the Buyer contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4, 5 and 9, and the
indemnification provisions set forth in Section 8, shall survive the Closing
for
a period of two (2) years following the date on which the Note are converted
in
full. The Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
(j) Publicity.
The
Company and the Buyer shall have the right to approve, before issuance any
press
release or any other public statement with respect to the transactions
contemplated hereby made by any party; provided, however, that the Company
shall
be entitled, without the prior approval of the Buyer, to issue any press release
or other public disclosure with respect to such transactions required under
applicable securities or other laws or regulations (the Company shall use its
best efforts to consult the Buyer in connection with any such press release
or
other public disclosure prior to its release and Buyer shall be provided with
a
copy thereof upon release thereof).
18
(k) Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
(l) Termination.
In the
event that the Closing shall not have occurred with respect to the Buyer on
or
before five (5) business days from the date hereof due to the Company’s or the
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the non-breaching party’s failure to waive such unsatisfied condition(s)),
the non-breaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated by the Company pursuant to this Section 9(l), the
Company shall remain obligated to pay the Buyer for the structuring fee
described in Section 4(g) above.
(m) No
Strict Construction.
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.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
19
IN
WITNESS WHEREOF,
the
Buyer and the Company have caused this Securities Purchase Agreement to be
duly
executed as of the date first written above.
|
COMPANY:
|
||
|
By:
|
||
|
Name:
Xxxxx Xxxxx
|
||
|
Title: Chief
Executive Officer
|
||
|
BUYER:
|
||
|
TRAFALGAR
CAPITAL SPECIALIZED
|
||
|
INVESTMENT
FUND, LUXEMBOURG
|
||
|
By:
|
Trafalgar Capital Sarl
|
|
|
Its:
|
General Partner
|
|
|
By:
|
||
|
Name:
Xxxxxx
Xxxxx
|
||
|
Title:
Chairman
of the Board
|
||
20
EXHIBIT
A
FORM
OF ESCROW AGREEMENT
EXHIBIT
B
FORM
OF SECURITY AGREEMENT
SCHEDULE
I
SCHEDULE
OF BUYER
|
Name
|
Signature
|
Address/Facsimile
Number of Buyer
|
Amount of
Subscription
|
||||
|
0-00 Xxx Xxxxxxx Xxxxx
|
|||||||
|
Trafalgar Capital Specialized
|
By:
|
Trafalgar Capital Sarl
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BP
3023
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$
2,750,000
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Investment Fund, Luxembourg
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Its:
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General
Partner
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X-0000
Xxxxxxxxxx
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Facsimile:
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|||||||
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011-44-207-405-0161
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By:
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and
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||||||
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Name:
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Xxxxxx
Xxxxx
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001-786-323-1651
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Its:
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Chairman of the Board
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2
LITIGATION
The
Company filed a complaint in the Superior Court for the County of Los Angeles,
against a foreign attorney. The case was filed on February 14, 2007, and service
of process has been done. In the complaint the Company is seeking judgment
against this attorney in the amount of approximately 250,000 Euros
(approximately $316,000 as of the date of actual transferring the funds), plus
interest, costs and fees. Defendant has not yet appeared in the action. The
Company believes that it has a meritorious claim for the return of monies
deposited with defendant in a trust capacity, and, from the documents in the
Company’s possession, there is no reason to doubt the validity of the claim.
During April 2007 defendant returned $92,694 (70,000 Euros at the relevant
time)
which netted to $72,694 post legal expenses; the Company has granted him a
15-day extension to file his defense. Post the extension and in lieu of not
filing a defense, the Company filed for a default judgment. On October 25,
2007
the Company obtained a California Judgment by court after default against the
attorney for the sum of $249,340.65. However, management does not have any
information on the collectibility of said judgment that entered in
court.
On
November 21, 2007 LM Construction filed a demand for arbitration proceeding
against Verge in connection with amounts due for general contracting services
provided by them during the construction of the Company Sales Center. The
Company agreed to enter into arbitration, deny any wrong doing and counterclaim
damages. Amount in dispute are approximately $67,585 and are included in other
current liabilities on the balance sheet.
Navigator
Acquisition - Registration Rights
The
Company entered into a registration rights agreement dated July 21, 2005,
whereby it agreed to file a registration statement registering the 441,566
shares of Company common stock issued in connection with the Navigator
acquisition within 75 days of the closing of the transaction. The Company also
agreed to have such registration statement declared effective within 150 days
from the filing thereof. In the event that Company failed to meet its
obligations to register the shares, it may have been required to pay a penalty
equal to 1% of the value of the shares per month. The Company obtained a written
waiver from the seller stating that the seller would not raise any claims in
connection with the filing of registration statement through May 30, 2006.
The
Company since received another waiver extending the registration deadline
through May 30, 2007 without penalty. As of today the Company is in default
on
said agreement and therefore made a provision for compensation represent
$150,000 as agreed FINAL compensation.
Indemnities
Provided Upon Sale of Subsidiaries
On
April
15, 2005, the Company sold Euroweb Slovakia. According to the securities
purchase contract (the “Contract”); the Company will indemnify the buyer for all
damages incurred by the buyer as the result of seller’s breach of certain
representations, warranties, or obligations as set in the Contract up to an
aggregate amount of $540,000. The buyer shall not be entitled to make any claim
under the Contract after the fourth anniversary of the date of the Contract.
No
claims have been made to-date. At September 30, 2007 the Company accrued $35,000
as the estimated fair value of this indemnity.
On
May
23, 2006, the Company sold Euroweb Hungary and Euroweb Romania. According to
the
share purchase agreement (the “SPA”), the Company will indemnify the buyer for
all damages incurred by the buyer as the result of seller’s breach of certain
representations, warranties or obligations as provided for in the SPA. The
Company shall not incur any liability with respect to any claim for breach
of
representation and warranty or indemnity, and any such claim shall be wholly
barred and unenforceable unless notice of such claim is served upon Emvelco
by
buyer no later than 60 days after the buyer’s approval of Euroweb Hungary and
Euroweb Romania’s statutory financial reports for the fiscal year 2006, but in
any event no later than June 1, 2007. In the case of Clause 8.1.6 (Taxes) or
Clause 9.2.4 of SPA, the time period is five years from the last day of the
calendar year in which the closing date occurs. No claims have been made to
date. At September 30, 2007, the Company has accrued $201,020 as the estimated
fair value of this indemnity.
3
SCHEDULE
4(j)
SCHEDULE
OF INDEBTEDNESS
As
of
6/30/08:
|
1.
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Xxxxx Xxxxx- Insider: |
$
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1,182,328
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||||
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2.
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Greaton – Former Insider: |
$
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150,000
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3.
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East West Bank: | ||||||
| [will be paid off on 10/5/08 by | |||||||
| escrow since it is sold] |
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$
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1,317,775
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||||
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4.
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Altda – To be reversed due to sale |
$
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1,240,320
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||||
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5.
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DCC Members – working capital contribution |
$
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580,822
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||||
*
To date
number 3 and 4 are not due any more (were due in June).
2008
Incentive Stock Plan
The
Company is authorized to issue up to 5,000,000 shares of common stock to
directors, employees and consultants.
Blackhawk
On
September 2, 2008, the Company entered into a Memorandum of Understanding (the
“MOU”) to enter into a definitive asset purchase agreement with Blackhawk
Investments Limited, a Turks & Caicos company (“Blackhawk”) based in London,
England. Blackhawk exercised its exclusive option to acquire all of the issued
and allotted share capital in Sandhaven Securities Limited (“SSL”), and its
underlying oil and gas assets in NT Energy. SSL owns approximately 62% of the
outstanding securities of NT Energy, Inc., a Delaware company (“NT Energy”). NT
energy holds rights to mineral leases covering approximately 12,972 acres in
the
Xxxxxxx Shale, Fort Worth area of Texas containing proved and probable
undeveloped natural gas reserves. SSL was a wholly owned subsidiary of Sandhaven
Resources plc (“Sandhaven”), a public company registered in Ireland, and listed
on the Plus exchange in London.
In
consideration of Blackhawk exercising its option to acquire the leases and
transferring such leases to the Company, the Company will pay $180,000,000
by
issuing Blackhawk or its designees shares of common stock of the Company, based
upon the average share price of the Company on the Over the Counter Bulletin
Board during the 30 days preceding the execution of the MOU, which was $1.50
per
share, representing 120,000,000 shares as the total consideration, under said
MOU. However, the number of shares to be delivered shall be adjusted on the
six
month anniversary of the closing of the asset acquisition (the “Closing”), using
the volume weighted average price for the six months following the Closing.
Blackhawk, SSL, NT Energy, Sandhaven and the advisors described below as well
as
each of the officers, directors and affiliates of the aforementioned will agree
to not engage in any activities in the stock of the Company.
In
addition, the Company will be required to pay fees to two advisors of $6,000,000
payable with the Company shares, and, therefore, issue an additional 3,947,368
of the Company shares of common stock, along with 300% warrant coverage,
representing warrants to purchase an aggregate of 11,842,106 shares of common
stock on a cashless basis for a period of two years with an exercise price
of
$2.00 per share, if the transaction closes. Although both parties have agreed
to
obtain shareholder approval prior to the Closing, the Company is not required
by
any statute to do so.
4
Unlu
On
August
20, 2008, the Company entered into that certain term sheet with Xxxxx Xxxxx
Xxxx
(“Unlu”) pursuant to which the Company and Unlu agreed to enter into a joint
venture to develop certain specific identified chromium opportunities located
in
the Gaziantep Province of southern Turkey (the “Gaziantep Property”). The
parties will establish a Turkey limited liability company which will be 80%
owned by the Company and 20% owned by Unlu. Unlu will contribute a lease on
the
Gaziantep Property and the Company shall serve as the manager and will develop
a
work program to exploit the Gaziantep Property as well as fund all operations.
The Company will issue Unlu 10,000,000 shares of common stock, which will have
piggyback registration rights in the event of a fully registered underwritten
offering, as well as warrants to purchase 10,000,000 shares of common stock
in
consideration for contributing the lease to the join venture. The warrant shall
be exercisable for a period of four years at an exercise price of $1.80 per
share. The Company will also reimburse Unlu $25,000 for legal expenses and
expenses associated with updating a report on the property.
Acquisitions
The
Company is presently evaluating several acquisition candidates in which it
may
acquire for shares of common stock of the Company.
Warrants
The
Company has issued common stock purchase warrants to purchase 1,100,000 shares
of common stock with exercise prices varying from $1.50 to $2.00.
Mustafoglu
Effective
July 16, 2008, the Board of Directors of the Company approved that certain
Mergers and Acquisitions Consulting Agreement (the "M&A Agreement") between
the Company and TransGlobal Financial LLC, a California limited liability
company ("TransGlobal"). Pursuant to the M&A Agreement, TransGlobal agreed
to assist the Company in the identification, evaluation, structuring,
negotiation and closing of business acquisitions for a term of five years.
As
compensation for entering into the M&A Agreement, TransGlobal shall receive
a 20% carried interest in any transaction introduced by TransGlobal to the
Company that is closed by the Company. At TransGlobal's election, such
compensation may be paid in restricted shares of common stock of the Company
equal to 20% of the transaction value. Xxxx Mustafoglu, who is the Chairman
of
Transglobal Financial, was elected on July 28, 2008 at a special shareholder
meeting as the Company’s Chairman of the Board of Directors.
On
August
19, 2008, the Company entered into that certain Employment Agreement with Xxxx
Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed
to
serve as the Chairman of the Board of Directors of the Company for a period
of
five years. Mr. Mustafoglu will receive (i) a salary of $240,000; (ii) a
performance bonus of 10% of net income before taxes, which will be allocated
by
Mr. Mustafoglu and other key executives at the sole discretion of Mr.
Mustafoglu; and (iii) a warrant to purchase 10 million shares of common stock
of
the Company at an exercise price equal to the lesser of $.50 or 50% of the
average market price of the Company’s common stock during the 20 day period
prior to exercise on a cashless basis (the “Mustafoglu Warrant”). The Mustafoglu
Warrant shall be released from escrow on an equal basis over the employment
period of five years. As a result, 2,000,000 shares of the Mustafoglu Warrant
will vest per year.
5
SCHEDULE
II
CURRENT
OUTSTANDING RIGHTS TO ACQUIRE COMPANY
SECURITIES
AND OUTSTANDING DEBT SECURITIES
|
Warrants
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Exercise
Price
|
||||||
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Greenwood
|
200,000
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$
|
1.50
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||||
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Greenwood
|
100,000
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$
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2.00
|
||||
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Xxxxx
|
300,000
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$
|
1.50
|
||||
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300,000
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$
|
2.00
|
|||||
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Vortex
Ocean
|
200,000
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$
|
0.50
|
* | |||
*
Per
Employment Agreement 2 Million Shares for each full year of employment at $0.50
on cashless basis.
6
