DELTA PETROLEUM CORPORATION
INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE
SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN
BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS INVESTMENT AGREEMENT (this "Agreement" or "Investment Agreement") is
made as of the 21st day of July, 2000, by and between Delta Petroleum
Corporation, a corporation duly organized and existing under the laws of the
State of Colorado (the "Company"), and the undersigned Investor executing this
Agreement ("Investor").
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided
herein, shares of the Company's Common Stock, as part of an offering of Common
Stock by the Company to Investor, for a maximum aggregate offering amount of
Twenty Million Dollars ($20,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated
under the Act, Section 4(2) of the Act, and/or upon such other exemption from
the registration requirements of the Act as may be available with respect to
any or all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"20% Approval" shall have the meaning set forth in Section 5.25.
"9.9% Limitation" shall have the meaning set forth in Section 2.3.1(f).
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.4.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of the Registration Rights
Agreement as of a given date, including Put Shares and Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.5.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar
month or (ii) the last day of the next calendar month. Each Calendar Month
shall end on the day immediately preceding the beginning of the next
succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.10.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.5.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section
2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security during Normal Trading on the NASDAQ Small
Cap Market, or, if the NASDAQ Small Cap Market is not the principal securities
exchange or trading market for such security, the last closing bid price
during Normal Trading of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by such
principal securities exchange or trading market, or if the foregoing do not
apply, the last closing bid price during Normal Trading of such security in
the over-the-counter market on the electronic bulletin board for such
security, or, if no closing bid price is reported for such security, the
average of the bid prices of any market makers for such security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing
Bid Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the Investor
in this Offering. If the Company and the Investor in this Offering are unable
to agree upon the fair market value of the Common Stock, then such dispute
shall be resolved by an investment banking firm mutually acceptable to the
Company and the Investor in this offering and any fees and costs associated
therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.6.
"Commitment Warrants" shall have the meaning set forth in Section 2.4.1,
the form of which is attached hereto as Exhibit U.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.1.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean Delta Petroleum Corporation, a corporation duly
organized and existing under the laws of the State of Colorado.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.12.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.2.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not listed for and actively
trading on the Nasdaq Small Cap Market, the Nasdaq National Market, the
American Stock Exchange, the O.T.C. Bulletin Board, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section
2.5.
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Escrow Agent" shall mean First Union National Bank of Georgia.
"Escrow Agreement" shall mean that certain Escrow Agreement and
Instructions by and among the Company, the Escrow Agent and the Investor of
date even herewith.
"Evaluation Day" shall have the meaning set forth in Section 2.3.1(b).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Day" shall have the meaning set forth in Section 2.3.1(b).
"Extended Put Period" shall mean the period of time between the Advance
Put Notice Date until the Pricing Period End Date.
"Factual Representation of Counsel" shall have the meaning set forth in
Section 2.3.6(a), the form of which is attached hereto as Exhibit R.
"Factual Representation of Counsel Deadline" shall have the meaning set
forth in Section 2.3.6(a).
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.1.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit
B, or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.17, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Limitation Period" shall have the meaning set forth in Section 6.5.1.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or event
or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved
in such consolidation, merger, combination or event is a publicly traded
company with "Substantially Similar Trading Characteristics" (as defined
below) as the Company and the holders of Common Stock are to receive solely
Common Stock or no consideration (if the Company is the surviving entity) or
solely common stock of such other entity (if such other entity is the
surviving entity), such transaction shall not be deemed to be a Major
Transaction (provided the surviving entity, if other than the Company, shall
have agreed to assume all obligations of the Company under this Agreement and
the Registration Rights Agreement). For purposes hereof, an entity shall have
Substantially Similar Trading Characteristics as the Company if the average
daily dollar Trading Volume of the common stock of such entity is equal to or
in excess of $500,000 for the 90th through the 31st day prior to the public
announcement of such transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender
or exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable
Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a
Put Notice, and (ii) $2 million.
"Maximum Offering Amount" shall mean have the meaning set forth in the
recitals hereto.
"NASD" shall have the meaning set forth in Section 6.9.
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.10.
"Normal Trading" shall mean trading that occurs between 9:30 AM and 4:00
PM, New York City Time, on any Business Day, and shall expressly exclude
"after hours" trading.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
"NYSE" shall have the meaning set forth in Section 6.9.
"Offering" shall mean the Company's offering of Common Stock and Warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, and the Factual Representation
of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall mean, unless otherwise shortened under the terms
of this Agreement, the period beginning on the Business Day immediately
following the Put Date and ending on and including the date which is 20
Business Days after such Put Date.
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange, the O.T.C. Bulletin Board, or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrants" shall have the meaning set forth in Section 2.4.2,
the form of which is attached hereto as Exhibit D.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.11(a).
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.11(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.11(a), the form of which is attached hereto as Exhibit Q.
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.11(c), the form of which is attached hereto as Exhibit S.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section
2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which
case the "Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the respective Put Share Prices with respect to such Put Shares,
subject to the limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon
by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as Exhibit A, or such other form as
agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall have the meaning set forth in the recitals hereto.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Restrictive Legend" shall have the meaning set forth in Section 4.7.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Right of First Offer" shall have the meaning set forth in Section 6.5.2.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.6.
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.25.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.11.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination
Date.
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to
the Investor, (c) the date of an Automatic Termination, and (d) the date that
all of the Warrants have been exercised.
"Termination Fee" shall have the meaning as set forth in Section 2.6.
"Termination Notice" shall have the meaning as set forth in Section
2.3.12.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Trading Volume " shall mean the volume of shares of the Company's Common
Stock that trade between 9:30 AM and 4:00 PM, New York City Time, on any
Business Day, and shall expressly exclude any shares trading during "after
hours" trading.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent" shall have the meaning set forth in Section 6.10.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.1(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.11(d).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.11(b).
"Unlegended Share Certificates" shall mean a certificate or certificates
(or electronically delivered shares, as appropriate) (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or
its nominee (as instructed by Investor) and not containing a restrictive
legend or stop transfer order, including but not limited to the Put Shares for
the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
"Variable Equity Securities" shall have the meaning set forth in Section
6.5.1.
"Volume Limitations" shall have the meaning set forth in Section
2.3.1(b).
"Warrant Shares" shall mean the Common Stock issued or issuable upon
exercise of the Warrants.
"Warrants" shall mean Purchase Warrants and Commitment Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of
the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor
hereby agrees to purchase such amounts of Common Stock and accompanying
Warrants as the Company may, in its sole and absolute discretion, from time to
time elect to issue and sell to Investor according to one or more Puts
pursuant to Section 2.3 below.
2.2 Investment Commitment.
2.2.1 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
executed by both the Company and the Investor, and the other Conditions to
Investor's Obligations set forth in Section 2.2.2 below have been met.
2.2.2 Conditions to Investor's Obligations. As a prerequisite
to the Investment Commitment Closing and the Investor's obligations hereunder,
all of the following (the "Conditions to Investor's Obligations") shall have
been satisfied prior to or concurrently with the Company's execution and
delivery of this Agreement:
(a) the following documents shall have been delivered to the
Investor: (i) the Registration Rights Agreement (executed by the Company and
Investor), (ii) the Investment Commitment Opinion of Counsel (signed by the
Company's counsel), (iii) the Transfer Agent Instructions (executed by the
Company and the Investor), and (iv) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors authorizing this transaction,
(B) the Company's Certificate of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall
have been received by the Investor;
(c) the Company's Common Stock shall be listed for trading and
actually trading on the Nasdaq Small Cap Market, the Nasdaq National Market,
the American Stock Exchange, the O.T.C. Bulletin Board, or the New York Stock
Exchange;
(d) other than continuing losses described in the Risk Factors
set forth in the Disclosure Documents (provided for in Section 3.2.4), as of
the Closing there have been no material adverse changes in the Company's
business prospects or financial condition since the date of the last balance
sheet included in the Disclosure Documents, including but not limited to
incurring material liabilities; and
(e) the representations and warranties of the Company in this
Agreement shall be true and correct in all material respects and the
conditions to Investor's obligations set forth in this Section 2.2.2 shall
have been satisfied as of such Closing; and the Company shall deliver an
Officer's Certificate, signed by an officer of the Company, to such effect to
the Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the Individual
Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and
the other conditions and limitations set forth in this Agreement, at any time
beginning on the date on which the Registration Statement is declared
effective by the SEC (the "Effective Date"), the Company may, in its sole and
absolute discretion, elect to exercise one or more Puts according to the
following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than five (5) Business Days following the
preceding Pricing Period End Date:
(a) Delivery of Advance Put Notice. At least ten (10)
Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the
form of which is attached hereto as Exhibit E, the date of such Advance Put
Notice being the "Advance Put Notice Date") to Investor stating the Put Date
for which the Company shall, subject to the limitations and restrictions
contained herein, exercise a Put and stating the number of shares of Common
Stock (subject to the Individual Put Limit and the Maximum Put Dollar Amount)
which the Company intends to sell to the Investor for the Put (the "Intended
Put Share Amount").
The Company may, at its option, also designate in any Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $2,000,000, which
it shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which
the Investor may purchase shares of Common Stock pursuant to such Put Notice
(a "Company Designated Minimum Put Share Price"). The Company Designated
Minimum Put Share Price, if applicable, shall be no greater than 80% of the
Closing Bid Price of the Company's common stock on the Advance Put Notice
Date. The Company may decrease (but not increase) the Company Designated
Minimum Put Share Price for a Put at any time by giving the Investor written
notice of such decrease not later than 12:00 Noon, New York City time, on the
Business Day immediately preceding the Business Day that such decrease is to
take effect. A decrease in the Company Designated Minimum Put Share Price
shall have no retroactive effect on the determination of Trigger Prices and
Excluded Days for days preceding the Business Day that such decrease takes
effect.
Notwithstanding the above, if, at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the date of the
previous Put Closing and the number of shares specified in the Advance Put
Notice multiplied by the Closing Bid Price of the Company's Common Stock for
the Business Day immediately preceding the date of such Advance Put Notice is
greater than $150,000, then such Advance Put Notice shall provide at least
twenty (20) Business Days notice of the intended Put Date, unless waived in
writing by the Investor. In order to effect delivery of the Advance Put
Notice, the Company shall (i) send the Advance Put Notice by facsimile on such
date so that such notice is received by the Investor by 6:00 p.m., New York,
NY time, and (ii) surrender such notice on such date to a courier for
overnight delivery to the Investor (or two (2) day delivery in the case of an
Investor residing outside of the U.S.). Upon receipt by the Investor of a
facsimile copy of the Advance Put Notice, the Investor shall, within two (2)
Business Days, send, via facsimile, a confirmation of receipt (the "Advance
Put Notice Confirmation," the form of which is attached hereto as Exhibit F)
of the Advance Put Notice to the Company specifying that the Advance Put
Notice has been received and affirming the intended Put Date and the Intended
Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is the number
of shares of Common Stock that the Investor shall be obligated to purchase in
a given Put, and shall equal the lesser of (i) the Intended Put Share Amount,
and (ii) the Individual Put Limit. The "Individual Put Limit" shall equal the
lesser of (i) 15% of the sum of the aggregate daily reported Trading Volumes
in the outstanding Common Stock on the Company's Principal Market, excluding
any block trades of 20,000 or more shares of Common Stock, for all Evaluation
Days (as defined below) in the Pricing Period, (ii) the number of Put Shares
which, when multiplied by their respective Put Share Prices, equals the
Maximum Put Dollar Amount, and (iii) the 9.9% Limitation, but in no event
shall the Individual Put Limit exceed 15% of the sum of the aggregate daily
reported Trading Volumes in the outstanding Common Stock on the Company's
Principal Market, excluding any block trades of 20,000 or more shares of
Common Stock, for the twenty (20) Business Days immediately preceding the Put
Date (this limitation, together with the limitation in (i) immediately above,
are collectively referred to herein as the "Volume Limitations"). Company
agrees not to trade Common Stock or arrange for Common Stock to be traded for
the purpose of artificially increasing the Volume Limitations.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i)
the Company Designated Minimum Put Share Price, plus $.25, or (ii) the Company
Designated Minimum Put Share Price divided by .91.
An "Excluded Day" shall mean each Business Day during a Pricing
Period where the lowest intra-day trading price of the Common Stock is less
than the Trigger Price.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period that is not an Excluded Day.
(c) Put Share Price. The purchase price for the Put
Shares (the "Put Share Price") shall equal the lesser of (i) the Market Price
for such Put, minus $.25, or (ii) 91% of the Market Price for such Put, but
shall in no event be less than the Company Designated Minimum Put Share Price
for such Put, if applicable.
(d) Delivery of Put Notice. After delivery of an Advance
Put Notice, on the Put Date specified in the Advance Put Notice the Company
shall deliver written notice (the "Put Notice," the form of which is attached
hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the Intended
Put Share Amount as specified in the Advance Put Notice (such exercise a
"Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company
shall (i) send the Put Notice by facsimile on the Put Date so that such notice
is received by the Investor by 6:00 p.m., New York, NY time, and (ii)
surrender such notice on the Put Date to a courier for overnight delivery to
the Investor (or two (2) day delivery in the case of an Investor residing
outside of the U.S.). Upon receipt by the Investor of a facsimile copy of the
Put Notice, the Investor shall, within two (2) Business Days, send, via
facsimile, a confirmation of receipt (the "Put Notice Confirmation," the form
of which is attached hereto as Exhibit H) of the Put Notice to Company
specifying that the Put Notice has been received and affirming the Put Date
and the Intended Put Share Amount.
(e) Delivery of Required Put Documents. On or before the
Put Date for such Put, the Company shall deliver the Required Put Documents
(as defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the
Investor, the Put Shares of Common Stock shall be transmitted electronically
pursuant to such electronic delivery system as the Investor shall request;
otherwise delivery shall be by physical certificates. If the Company has not
delivered all of the Required Put Documents to the Investor on or before the
Put Date, the Put shall be automatically cancelled, unless the Investor
agrees to delay the Put Date by up to three (3) Business Days, in which case
the Pricing Period begins on the Business Day following such new Put Date. If
the Company has not delivered all of the Required Put Documents to the
Investor on or before the Put Date (or new Put Date, if applicable), and the
Investor has not agreed in writing to delay the Put Date, the Put is
automatically canceled (an "Impermissible Put Cancellation") and, unless the
Put was otherwise canceled in accordance with the terms of Section 2.3.11, the
Company shall pay the Investor $2,500 for its reasonable due diligence
expenses incurred in preparation for the canceled Put and the Company may
deliver an Advance Put Notice for the subsequent Put no sooner than ten (10)
Business Days after the date that such Put was canceled, unless otherwise
agreed by the Investor.
(f) Limitation on Investor's Obligation to Purchase
Shares. Notwithstanding anything to the contrary in this Agreement, in no
event shall the Investor be required to purchase, and an Intended Put Share
Amount may not include, an amount of Put Shares, which when added to the
number of Put Shares acquired by the Investor pursuant to this Agreement
during the 31 days preceding the Put Date with respect to which this
determination of the permitted Intended Put Share Amount is being made, would
exceed 9.99% of the number of shares of Common Stock outstanding (on a fully
diluted basis, to the extent that inclusion of unissued shares is mandated by
Section 13(d) of the Exchange Act) on the Put Date for such Pricing Period, as
determined in accordance with Section 13(d) of the Exchange Act (the "Section
13(d) Outstanding Share Amount"). Each Put Notice shall include a
representation of the Company as to the Section 13(d) Outstanding Share Amount
on the related Put Date. In the event that the Section 13(d) Outstanding Share
Amount is different on any date during a Pricing Period than on the Put Date
associated with such Pricing Period, then the number of shares of Common Stock
outstanding on such date during such Pricing Period shall govern for purposes
of determining whether the Investor, when aggregating all purchases of Shares
made pursuant to this Agreement in the 31 calendar days preceding such date,
would have acquired more than 9.99% of the Section 13(d) Outstanding Share
Amount. The limitation set forth in this Section 2.3.1(f) is referred to as
the "9.9% Limitation."
2.3.2 Termination of Right to Put. The Company's right to
require the Investor to purchase any subsequent Put Shares shall terminate
permanently (each, an "Automatic Termination") upon the occurrence of any of
the following:
(a) the Company shall not exercise a Put or any Put
thereafter if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related to the
Company that has resulted in (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud
or misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put
thereafter, on any date after a cumulative time period or series of time
periods, consisting only of Ineffective Periods and Delisting Events, that
lasts for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put
thereafter if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
(d) the Company shall not exercise a Put after the sooner
of (i) the date that is three (3) years after the Effective Date, or (ii) the
Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts
equal the Maximum Offering Amount; and
(e) the Company shall not exercise a Put after the Company
has breached any covenant in Section 2.6, Section 6, or Section 9 hereof.
(f) if no Registration Statement has been declared
effective by the date that is one (1) year after the date of this Agreement,
the Automatic Termination shall occur on the date that is one (1) year after
the date of this Agreement.
2.3.3 Put Limitations. The Company's right to exercise a Put
shall be limited as follows:
(a) notwithstanding the amount of any Put, the Investor
shall not be obligated to purchase any additional Put Shares once the
aggregate Put Dollar Amount paid by Investor equals the Maximum Offering
Amount;
(b) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has announced
a subdivision or combination, including a reverse split, of its Common Stock
or has subdivided or combined its Common Stock during the Extended Put Period;
(c) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has paid a
dividend of its Common Stock or has made any other distribution of its Common
Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has made,
during the Extended Put Period, a distribution of all or any portion of its
assets or evidences of indebtedness to the holders of its Common Stock;
(e) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which a Major Transaction has
occurred during the Extended Put Period.
2.3.4 Conditions Precedent to the Right of the Company to
Deliver an Advance Put Notice or a Put Notice and the Obligation of the
Investor to Purchase Put Shares. The right of the Company to deliver an
Advance Put Notice or a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is
subject to the satisfaction, on (i) the date of delivery of such Advance Put
Notice or Put Notice and (ii) the applicable Put Closing Date, of each of the
following conditions:
(a) the Company's Common Stock shall be listed for and
actively trading on the Nasdaq Small Cap Market, the Nasdaq National Market,
the O.T.C. Bulletin Board, or the New York Stock Exchange and the Put Shares
shall be so listed, and to the Company's knowledge there is no notice of any
suspension or delisting with respect to the trading of the shares of Common
Stock on such market or exchange;
(b) the Company shall have satisfied any and all
obligations pursuant to the Registration Rights Agreement, including, but not
limited to, the filing of the Registration Statement with the SEC with respect
to the resale of all Registrable Securities and the requirement that the
Registration Statement shall have been declared effective by the SEC for the
resale of all Registrable Securities and the Company shall have satisfied and
shall be in compliance with any and all obligations pursuant to this Agreement
and the Warrants;
(c) the representations and warranties of the Company
are true and correct in all material respects as if made on such date and the
conditions to Investor's obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall deliver a certificate,
signed by an officer of the Company, to such effect to the Investor;
(d) the Company shall have reserved for issuance a
sufficient number of Common Shares for the purpose of enabling the Company to
satisfy any obligation to issue Common Shares pursuant to any Put and to
effect exercise of the Warrants;
(e) the Registration Statement is not subject to an
Ineffective Period as defined in the Registration Rights Agreement, the
prospectus included therein is current and deliverable, and to the Company's
knowledge there is no notice of any investigation or inquiry concerning any
stop order with respect to the Registration Statement; and
(f) if the Aggregate Issued Shares after the Closing
of the Put would exceed the Cap Amount, the Company shall have obtained the
Stockholder 20% Approval as specified in Section 6.11, if the Company's Common
Stock is listed on the NASDAQ Small Cap Market or the NASDAQ National Market
System (the "NMS"), and such approval is required by the rules of the NASDAQ.
2.3.5 Documents Required to be Delivered on the Put Date as
Conditions to Closing of any Put. The Closing of any Put and Investor's
obligations hereunder shall additionally be conditioned upon the delivery to
the Investor (or in the case of the Unlegended Share Certificates, to the
Escrow Agent in conformity with the Escrow Agreement) of each of the following
(the "Required Put Documents") on or before the applicable Put Date:
(a) a number of Unlegended Share Certificates (or freely
tradeable electronically delivered shares, as appropriate) equal to the
Intended Put Share Amount, in denominations of not more than 50,000 shares per
certificate;
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, Factual Representation of Counsel, and any
report or disclosure required under Section 2.3.6 or Section 2.5;
(c) all documents, instruments and other writings required
to be delivered on or before the Put Date pursuant to any provision of this
Agreement in order to implement and effect the transactions contemplated
herein.
2.3.6 Accountant's Letter and Factual Representation of
Counsel.
(a) The Company shall have caused to be delivered to the
Investor, (i) whenever required by Section 2.3.6(b) or by Section 2.5.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Factual Representation of Counsel Deadline"), an statement of the Company's
independent counsel, in substantially the form of Exhibit R (the "Factual
Representation of Counsel"), addressed to the Investor stating, inter alia,
that no facts ("Material Facts") have come to such counsel's attention that
have caused it to believe that the Registration Statement is subject to an
Ineffective Period or to believe that the Registration Statement, any
Supplemental Registration Statement (as each may be amended, if applicable),
and any related prospectuses, contain an untrue statement of material fact or
omits a material fact required to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. If a
Factual Representation of Counsel cannot be delivered by the Company's
independent counsel to the Investor on the Factual Representation of Counsel
Deadline due to the existence of Material Facts or an Ineffective Period, the
Company shall promptly notify the Investor and as promptly as possible amend
each of the Registration Statement and any Supplemental Registration
Statements, as applicable, and any related prospectus or cause such
Ineffective Period to terminate, as the case may be, and deliver such Factual
Representation of Counsel and updated prospectus as soon as possible
thereafter. If at any time after a Put Notice shall have been delivered to
Investor but before the related Pricing Period End Date, the Company acquires
knowledge of such Material Facts or any Ineffective Period occurs, the Company
shall promptly notify the Investor and shall deliver a Put Cancellation Notice
to the Investor pursuant to Section 2.3.11 by facsimile and overnight courier
by the end of that Business Day.
(b) (i) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as
shall have been reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the date
that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have
requested delivery of an Agreed Upon Procedures Report pursuant to Section
2.5.3, the Company shall engage its independent auditors to perform certain
agreed upon procedures and report thereon as shall have been reasonably
requested by the Investor with respect to certain financial information of the
Company and the Company shall deliver to the Investor a copy of such report
addressed to the Investor. In the event that the report required by this
Section 2.3.6(b) cannot be delivered by the Company's independent auditors,
the Company shall, if necessary, promptly revise the Registration Statement
and the Company shall not deliver a Put Notice until such report is delivered.
2.3.7 Investor's Obligation and Right to Purchase Shares.
Subject to the conditions set forth in this Agreement, following the
Investor's receipt of a validly delivered Put Notice, the Investor shall be
required to purchase (each a "Purchase") from the Company a number of Put
Shares equal to the Put Share Amount, in the manner described below.
2.3.8 Mechanics of Put Closing. Each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is
five (5) Business Days following the applicable Pricing Period End Date (the
"Payment Due Date") at the offices of Investor. On each or before each
Payment Due Date, the Investor shall deliver to the Company, in the manner
specified in Section 8 below, the Put Dollar Amount to be paid for such Put
Shares, determined as aforesaid. The closing (each a "Put Closing") for each
Put shall occur on the date that both (i) the Company has delivered to the
Investor all Required Put Documents, and (ii) the Investor has delivered to
the Company such Put Dollar Amount and any Late Payment Amount, if applicable
(each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall
pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent
(1%) for each month that passes after the date in question, up to a maximum of
five percent (5%) per month; provided, however, that in no event shall the
amount of interest that shall become due and payable hereunder exceed the
maximum amount permissible under applicable law.
2.3.9 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or
any short sale or other hedging or similar arrangement it deems appropriate
with respect to Put Shares after it receives a Put Notice with respect to such
Put Shares so long as such sales or arrangements do not involve more than the
number of such Put Shares specified in the Put Notice.
2.3.10 Cap Amount. Unless the Company has obtained
Stockholder 20% Approval as set forth in Section 6.11 or unless otherwise
permitted by Nasdaq, in no event shall the Aggregate Issued Shares exceed the
maximum number of shares of Common Stock (the "Cap Amount") that the Company
can, without stockholder approval, so issue pursuant to Nasdaq Rule
4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor
rule) (the "Nasdaq 20% Rule").
2.3.11 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time
during a Pricing Period the Company discovers the existence of Material Facts
or any Ineffective Period or Delisting Event occurs, the Company shall cancel
the Put (a "Put Cancellation"), by delivering written notice to the Investor
(the "Put Cancellation Notice"), attached as Exhibit Q, by facsimile and
overnight courier. The "Put Cancellation Date" shall be the date that the Put
Cancellation Notice is first received by the Investor, if such notice is
received by the Investor by 6:00 p.m., New York, NY time, and shall be the
following date, if such notice is received by the Investor after 6:00 p.m.,
New York, NY time.
(b) Effect of Put Cancellation. Anytime a Put
Cancellation Notice is delivered to Investor after the Put Date, the Put,
shall remain effective with respect to a number of Put Shares (the "Truncated
Put Share Amount") equal to the Individual Put Limit for the Truncated Pricing
Period.
(c) Put Cancellation Notice Confirmation. Upon
receipt by the Investor of a facsimile copy of the Put Cancellation Notice,
the Investor shall promptly send, via facsimile, a confirmation of receipt
(the "Put Cancellation Notice Confirmation," a form of which is attached as
Exhibit S) of the Put Cancellation Notice to the Company specifying that the
Put Cancellation Notice has been received and affirming the Put Cancellation
Date.
(d) Truncated Pricing Period. If a Put Cancellation
Notice has been delivered to the Investor after the Put Date, the Pricing
Period for such Put shall end at on the close of trading on the last full
trading day on the Principal Market that ends prior to the moment of initial
delivery of the Put Cancellation Notice (a "Truncated Pricing Period") to the
Investor.
2.3.12 Investment Agreement Cancellation. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties' other
rights and obligations under this Agreement, the Registration Rights Agreement
or the Warrants. Notwithstanding the above, any cancellation occurring during
an Extended Put Period is governed by Section 2.3.11.
2.3.13 Return of Excess Common Shares. In the event that
the number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investor's
possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 Commitment Warrants. In partial consideration hereof,
following the execution of the Letter of Agreement dated on or about May 31,
2000 between the Company and the Investor, the Company issued and delivered to
Investor or its designated assignees, warrants (the "Commitment Warrants") in
the form attached hereto as Exhibit U, or such other form as agreed upon by
the parties, to purchase 500,000 shares of Common Stock, subject to the terms
of the Commitment Warrant. Each Commitment Warrant shall be immediately
exercisable in accordance with its terms, and shall have a term beginning on
the date of issuance and ending on date that is five (5) years thereafter.
The Warrant Shares shall be registered for resale pursuant to the Registration
Rights Agreement. The Investment Commitment Opinion of Counsel shall cover the
issuance of the Commitment Warrant and the issuance of the common stock upon
exercise of the Commitment Warrant.
Notwithstanding any Termination or Automatic Termination of this
Agreement, regardless of whether or not the Registration Statement is or is
not filed, and regardless of whether or not the Registration Statement is or
is not declared effective by the SEC, the Investor shall retain full ownership
of the Commitment Warrant as partial consideration for its commitment
hereunder.
2.4.2 Purchase Warrants. Within five (5) Business Days of the
end of each Pricing Period, the Company shall issue and deliver to the
Investor a warrant ("Purchase Warrant"), in the form attached hereto as
Exhibit D, or such other form as agreed upon by the parties, to purchase a
number of shares of Common Stock equal to 15% of the Put Share Amount for that
Put. Each Purchase Warrant shall be exerciseable at a price (the "Purchase
Warrant Exercise Price") which shall initially equal 110% of the Market Price
for the applicable Put. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a term
beginning on the date of issuance and ending on the date that is five (5)
years thereafter. The Warrant Shares shall be registered for resale pursuant
to the Registration Rights Agreement.
2.5 Due Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors
to and representatives of the Investor (who may or may not be affiliated with
the Investor and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of Common Stock on behalf of the
Investor pursuant to the Registration Statement, any Supplemental Registration
Statement, or amendments or supplements thereto or any blue sky, NASD or other
filing, all financial and other records, all filings with the SEC, and all
other corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such information reasonably requested by
the Investor or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response
to all questions and other inquiries reasonably made or submitted by any of
them), prior to and from time to time after the filing and effectiveness of
the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective
accountants and attorneys to conduct initial and ongoing due diligence with
respect to the Company and the accuracy of the Registration Statement.
2.5.1 Treatment of Nonpublic Information. The
Company shall not disclose nonpublic information to the Investor or to its
advisors or representatives unless prior to disclosure of such information the
Company identifies such information as being nonpublic information and
provides the Investor and such advisors and representatives with the
opportunity to accept or refuse to accept such nonpublic information for
review. The Company may, as a condition to disclosing any nonpublic
information hereunder, require the Investor and its advisors and
representatives to enter into a confidentiality agreement (including an
agreement with such advisors and representatives prohibiting them from trading
in Common Stock during such period of time as they are in possession of
nonpublic information) in form reasonably satisfactory to the Company and the
Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting nonpublic information (whether or not requested of
the Company specifically or generally during the course of due diligence by
and such persons or entities), which, if not disclosed in the Prospectus
included in the Registration Statement, would cause such Prospectus to include
a material misstatement or to omit a material fact required to be stated
therein in order to make the statements therein, in light of the circumstances
in which they were made, not misleading. Nothing contained in this Section
2.5 shall be construed to mean that such persons or entities other than the
Investor (without the written consent of the Investor prior to disclosure of
such information) may not obtain nonpublic information in the course of
conducting due diligence in accordance with the terms of this Agreement;
provided, however, that in no event shall the Investor's advisors or
representatives disclose to the Investor the nature of the specific event or
circumstances constituting any nonpublic information discovered by such
advisors or representatives in the course of their due diligence without the
written consent of the Investor prior to disclosure of such information.
2.5.2 Disclosure of Misstatements and Omissions. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the
opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein,
in the light of the circumstances in which they were made, not misleading.
Upon receipt of such disclosure, the Investor's counsel shall consult with the
Company's independent counsel in order to address the concern raised as to the
existence of a material misstatement or omission and to discuss appropriate
disclosure with respect thereto; provided, however, that such consultation
shall not constitute the advice of the Company's independent counsel to the
Investor as to the accuracy of the Registration Statement and related
Prospectus.
2.5.3 Procedure if Material Facts are Reasonably Believed to
be Untrue or are Omitted. In the event after such consultation the Investor
or the Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement of a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading,
(a) the Company shall file with the SEC an amendment
to the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with copies of
the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such
material misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Factual Representation of Counsel and
(ii) in the event the dispute relates to the adequacy of financial disclosure
and the Investor shall reasonably request, the Company's independent auditors
shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the
Investor with a copy of such letter.
2.6 Commitment Payments.
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $1,000,000 in aggregate Put Dollar Amount during
that Commitment Evaluation Period, the Company, in consideration of Investor's
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Semi-Annual Non-Usage Fee") equal to the
difference of (i) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount
of the Put Shares put to Investor during that Commitment Evaluation Period.
In the event that the Company delivers a Termination Notice to the Investor or
an Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Semi-Annual Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x)
$200,000, minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares
put to Investor during all Puts to date, and the Company shall not be required
to pay the Semi-Annual Non-Usage Fee thereafter.
Each Semi Annual Non-Usage Fee or Termination Fee is payable, in cash,
within five (5) business days of the date it accrued. The Company shall not
be required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has
checked the applicable box set forth in Section 10 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional
information which Investor or Investor's professional advisor deems necessary
to verify the accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal
tax, investment, legal or other advisors and has not relied on the Company or
any of its affiliates, officers, directors, attorneys, accountants or any
affiliates of any thereof and each other person, if any, who controls any of
the foregoing, within the meaning of Section 15 of the Act for any tax or
legal advice (other than reliance on information in the Disclosure Documents
as defined in Section 3.2.4 below and on the Opinion of Counsel). The
foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering
in order to evaluate the merits and risks of the prospective investment, which
are substantial, including without limitation those set forth in the
Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1999,
(ii) the Company's quarterly report on Form 10-QSB for the quarters ended
March 31, 2000, and December 31, 1999, (iii) the Risk Factors, attached as
Exhibit J, (the "Risk Factors") (iv) the Capitalization Schedule, attached as
Exhibit K, (the "Capitalization Schedule") and (v) the Use of Proceeds
Schedule, attached as Exhibit L, (the "Use of Proceeds Schedule"); (b)
Investor has read, reviewed, and relied solely on the documents described in
(a) above, the Company's representations and warranties and other information
in this Agreement, including the exhibits, documents prepared by the Company
which have been specifically provided to Investor in connection with this
Offering (the documents described in this Section 3.2.4 (a) and (b) are
collectively referred to as the "Disclosure Documents"), and an independent
investigation made by Investor and Investor's representatives, if any; (c)
Investor has, prior to the date of this Agreement, been given an opportunity
to review material contracts and documents of the Company which have been
filed as exhibits to the Company's filings under the Act and the Exchange Act
and has had an opportunity to ask questions of and receive answers from the
Company's officers and directors; and (d) is not relying on any oral
representation of the Company or any other person, nor any written
representation or assurance from the Company other than those contained in the
Disclosure Documents or incorporated herein or therein. The foregoing,
however, does not limit or modify Investor's right to rely upon covenants,
representations and warranties of the Company in Sections 5 and 6 of this
Agreement. Investor acknowledges and agrees that the Company has no
responsibility for, does not ratify, and is under no responsibility whatsoever
to comment upon or correct any reports, analyses or other comments made about
the Company by any third parties, including, but not limited to, analysts'
research reports or comments (collectively, "Third Party Reports"), and
Investor has not relied upon any Third Party Reports in making the decision to
invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments
in securities other than those of the Company. Investor acknowledges that
Investor is able to fend for Investor's self in the transaction contemplated
by this Agreement, that Investor has the ability to bear the economic risk of
Investor's investment pursuant to this Agreement and that Investor is an
"Accredited Investor" by virtue of the fact that Investor meets the investor
qualification standards set forth in Section 3.1 above. Investor has not been
organized for the purpose of investing in securities of the Company, although
such investment is consistent with Investor's purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 No General Solicitation. The Investment Agreement was
not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation,
(i) any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
and (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
3.3.2 Restricted Securities. Investor understands that the
Investment Agreement is, the Common Stock and Warrants issued at each Put
Closing will be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold
without registration under the Act or pursuant to an exemption therefrom. In
this connection, Investor represents that Investor is familiar with Rule 144
under the Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
3.3.3 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor
further agrees not to sell, transfer, assign, or pledge the Securities (except
for any bona fide pledge arrangement to the extent that such pledge does not
require registration under the Act or unless an exemption from such
registration is available and provided further that if such pledge is realized
upon, any transfer to the pledgee shall comply with the requirements set forth
herein), or to otherwise dispose of all or any portion of the Securities
unless and until:
(a) There is then in effect a registration statement
under the Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such registration
statement and in compliance with applicable prospectus delivery requirements;
or
(b) (i) Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the proposed disposition to the extent
relevant for determination of the availability of an exemption from
registration, and (ii) if reasonably requested by the Company, Investor shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of the
Securities under the Act or state securities laws. It is agreed that the
Company will not require the Investor to provide opinions of counsel for
transactions made pursuant to Rule 144 provided that Investor and Investor's
broker, if necessary, provide the Company with the necessary representations
for counsel to the Company to issue an opinion with respect to such
transaction.
The Investor is entering into this Agreement for its own account and
the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold the Common Stock for any minimum or other specific term
and reserves the right to dispose of the Common Stock at any time in
accordance with federal and state securities laws applicable to such
disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement
and each other document included herein for which a signature is required in
such capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing
this Agreement. Investor has reached the age of majority (if an individual)
according to the laws of the state in which he or she resides.
3.4.2 Due Authorization. Investor is duly and validly
organized, validly existing and in good standing as a limited liability
company under the laws of Georgia with full power and authority to purchase
the Securities to be purchased by Investor and to execute and deliver this
Agreement.
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Agreement has made due inquiry to determine the
truthfulness of the representations and warranties made hereby.
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom
Investor is so purchasing.
4. Acknowledgments. Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in
the Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the Disclosure
Documents, this Agreement and the exhibits hereto do not purport to contain
all the information, which would be contained in a registration statement
under the Act;
4.2 No Government Approval. No federal or state agency has passed
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of
this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and
may not be sold, pledged (except for any limited pledge in connection with a
margin account of Investor to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein),
assigned or otherwise disposed of in the absence of an effective registration
of the Securities and any component thereof under the Act or unless an
exemption from such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of
the Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that
any registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it
may be required to bear the economic risk of Investor's investment for an
indefinite period of time;
4.6 Exempt Transaction. Investor understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings
set forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire
such Securities.
4.7 Legends. The certificates representing the Put Shares shall
not bear a legend restricting the sale or transfer thereof ("Restrictive
Legend"). The certificates representing the Warrant Shares shall not bear a
Restrictive Legend unless they are issued at a time when the Registration
Statement is not effective for resale. It is understood that the certificates
evidencing any Warrant Shares issued at a time when the Registration Statement
is not effective for resale, subject to legend removal under the terms of
Section 6.8 below, shall bear the following legend (the "Legend"):
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under those
securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative
or legal proceeding (a "Proceeding") by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, or the Securities and
Exchange Commission, The National Association of Securities Dealer, Inc., The
Nasdaq Stock Market, Inc. or any state securities commission, or any other
governmental entity, which have not been disclosed in the Disclosure
Documents. None of the disclosed Proceedings, if any, will have a material
adverse effect upon the Company or the market for the Common Stock. The
Company has the following subsidiaries:
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except
for changes in the ordinary course of business and normal year-end adjustments
that are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the
Company's business, financial condition, or prospects since the dates of such
Disclosure Documents. The financial statements as contained in the 10-KSB and
10-QSB have been prepared in accordance with generally accepted accounting
principles, consistently applied (except as otherwise permitted by Regulation
S-X of the Exchange Act), subject, in the case of unaudited interim financial
statements, to customary year end adjustments and the absence of certain
footnotes, and fairly present the financial condition of the Company as of the
dates of the balance sheets included therein and the consolidated results of
its operations and cash flows for the periods then ended,. Without limiting
the foregoing, there are no material liabilities, contingent or actual, that
are not disclosed in the Disclosure Documents (other than liabilities incurred
by the Company in the ordinary course of its business, consistent with its
past practice, after the period covered by the Disclosure Documents). The
Company has paid all material taxes that are due, except for taxes that it
reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending or, to the best of the Company's knowledge,
threatened against the Company, except as disclosed in the Disclosure
Documents. This Agreement and the Disclosure Documents do not contain any
untrue statement of a material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which, under applicable law, requires public disclosure but which has
not been so publicly announced or disclosed.
5.3 Authorization. All corporate action on the part of the Company
by its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations
of the Company hereunder and the authorization, issuance and delivery of the
Common Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals
required for it to execute, deliver and perform each agreement referenced in
the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and
warranties of Investor, will be issued in compliance with all applicable U.S.
federal and state securities laws. The Put Shares, the Warrants and the
Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement,
or of any material provision of any material instrument or material contract
to which it is a party or by which it is bound or of any provision of any
federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, which would have a material adverse
effect on the Company's business or prospects, or on the performance of its
obligations under this Agreement or the Registration Rights Agreement. The
execution, delivery and performance of this Agreement and the other agreements
entered into in conjunction with the Offering and the consummation of the
transactions contemplated hereby and thereby will not (a) result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company, which would have a
material adverse effect on the Company's business or prospects, or on the
performance of its obligations under this Agreement, the Registration Rights
Agreement, or (b) violate the Company's Certificate of Incorporation or
By-Laws or (c) violate any statute, rule or governmental regulation
applicable to the Company which violation would have a material adverse
effect on the Company's business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of
this Offering and thereafter, to make such reports available, for the full
term of this Agreement, including any extensions thereof, and for as long as
Investor holds the Securities. The Common Stock is duly listed on the NASDAQ
Small Cap Market. The Company is not in violation of the listing requirements
of the NASDAQ Small Cap Market and does not reasonably anticipate that the
Common Stock will be delisted by the NASDAQ Small Cap Market for the
foreseeable future. The Company has filed all reports required under the
Exchange Act. The Company has not furnished to the Investor any material
nonpublic information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of the
date hereof is, and the capitalization as of the Closing, subject to exercise
of any outstanding warrants and/or exercise of any outstanding stock options,
after taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities. Except
as disclosed in the Capitalization Schedule, as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe
for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, 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, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Act (except the Registration Rights
Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M
lists all patents, trademarks, trademark registrations, trade names and
copyrights of the Company. The Company has granted such licenses or has
assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth in Exhibit M. The
Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as set forth in
Exhibit M. To the best of the Company's knowledge after due inquiry, the
Company is not infringing on the intellectual property rights of any third
party, nor is any third party infringing on the Company's intellectual
property rights. There are no restrictions in any agreements, licenses,
franchises, or other instruments that preclude the Company from engaging in
its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit L hereto. These purposes and amounts are estimates and are
subject to change without notice to any Investor.
5.10 No Rights of Participation. No person or entity, including,
but not limited to, current or former stockholders of the Company,
underwriters, brokers, agents or other third parties, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the financing contemplated by this Agreement which has not been
waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has
made no representations or warranties, either written or oral, as to how long
the Securities will be held by Investor or regarding Investor's trading
history or investment strategies.
5.12 No Advance Regulatory Approval. The Company acknowledges
that this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC,
or any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. Except as
otherwise disclosed to the Investor, the Company is not obligated to pay any
compensation or other fees, costs or related expenditures in cash or
securities to any underwriter, broker, agent or other representative other
than the Investor in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company
is currently eligible and agrees to maintain its eligibility to register the
resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 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 of the Company's securities or
solicited any offers to buy any security under circumstances that would
prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under Regulation D of the
Act or would require the issuance of any other securities to be integrated
with this Offering under the Rules of the SEC, provided, however, that the
Company has disclosed that it has closed or plans to close the offerings
described in the Schedule of Exceptions. The Company has not engaged in any
form of general solicitation or advertising in connection with the offering of
the Common Stock or the Warrants.
5.16 Foreign Corrupt Practices. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
5.17 Key Employees. Each "Key Employee" (as defined in Exhibit N)
is currently serving the Company in the capacity disclosed in Exhibit N. No
Key Employee, to the best knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each Key Employee does
not subject the Company or any of its subsidiaries to any liability with
respect to any of the foregoing matters. No Key Employee has, to the best
knowledge of the Company and its subsidiaries, any intention to terminate his
employment with, or services to, the Company or any of its subsidiaries.
5.18 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.19 Tax Status. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that
the Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and 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 as 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.
5.20 Transactions With Affiliates. Except as set forth in the
Disclosure Documents or the Schedule of Exceptions, as may be updated to
reflect subsequent events, 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.
5.21 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 or other
similar anti-takeover provision under Colorado law which is or could become
applicable to the Investor as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Common
Stock, any exercise of the Warrants and ownership of the Common Shares and
Warrant Shares. The Company has not adopted and will not adopt any "poison
pill" provision that will be applicable to Investor as a result of
transactions contemplated by this Agreement.
5.22 Other Agreements. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.23 Major Transactions. Except as disclosed in the Schedule of
Exceptions, there are no other Major Transactions currently pending or
contemplated by the Company.
5.24 Financings. Except as disclosed in the Schedule of
Exceptions, there are no other financings currently pending or contemplated by
the Company.
5.25 Shareholder Authorization. The Company shall, at its next
annual shareholder meeting following its listing on either the Nasdaq Small
Cap Market or the Nasdaq National Market, or at a special meeting to be held
as soon as practicable thereafter, use its best efforts to obtain approval of
its shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to
the Company's ability to issue shares of Common Stock in excess of the Cap
Amount (such approvals being the "20% Approval") and (ii) the increase in the
number of authorized shares of Common Stock of the Company (the "Share
Authorization Increase Approval") such that at least 8,000,000 shares can be
reserved for this Offering. In connection with such shareholder vote, the
Company shall use its best efforts to cause all officers and directors of the
Company to promptly enter into irrevocable agreements to vote all of their
shares in favor of eliminating such prohibitions. As soon as practicable
after the 20% Approval and the Share Authorization Increase Approval, the
Company agrees to use its best efforts to reserve 8,000,000 shares of Common
Stock for issuance under this Agreement.
5.26 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Company's Common Stock traded on its Principal Market.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at
least the Termination Date, maintain its corporate existence in good standing
and, once it becomes a "Reporting Issuer" (defined as a Company which files
periodic reports under the Exchange Act), remain a Reporting Issuer (provided,
however, that the foregoing covenant shall not prevent the Company from
entering into any merger or corporate reorganization as long as the surviving
entity in such transaction, if not the Company, assumes the Company's
obligations with respect to the Common Stock and has Common Stock listed for
trading on a stock exchange or on Nasdaq and is a Reporting Issuer) and shall
pay all its taxes when due except for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
6.4 Asset Transfers. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any subsidiary
except for a cash or cash equivalent consideration and for a proper business
purpose or (ii) transfer, sell, convey or otherwise dispose of any of its
material assets to any Affiliate, as defined below, during the Term of this
Agreement. For purposes hereof, "Affiliate" shall mean any officer of the
Company, director of the Company or owner of twenty percent (20%) or more of
the Common Stock or other securities of the Company.
6.5 Capital Raising Limitations and Rights of First Offer.
6.5.1 Capital Raising Limitations. During the period from
the date of this Agreement until the date that is ninety (90) days after the
Termination Date (the "Limitation Period"), the Company shall not issue or
sell, or agree to issue or sell Variable Equity Securities (as defined below),
for cash in private capital raising transactions or any securities of the
Company pursuant to an equity line structure or format similar in nature to
this Offering without obtaining the prior written approval of the Investor of
the Offering. For purposes hereof, the following shall be collectively
referred to herein as, the "Variable Equity Securities": any debt or equity
securities which are convertible into, exercisable or exchangeable for, or
carry the right to receive additional shares of Common Stock either (i) at any
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security, or (ii) with a
fixed conversion, exercise or exchange price that is subject to being reset at
some future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company's Common Stock
since date of initial issuance.
6.5.2 Investor's Right of First Offer. In the event that
anytime during the Limitation Period the Company commences or plans to
commence negotiations with an investor other than the Investor regarding a
private capital raising transaction of common stock or other equity
securities, or any debt or equity securities that are convertible or
exchangeable into common stock, the Company agrees to use reasonable
commercial efforts to promptly notify the Investor of such negotiations or
planned negotiations and to negotiate in good faith with the Investor
regarding a potential private capital raising transaction to meet the
Company's capital needs. (the "Right of First Offer"). The Investor shall
not be deemed to have a right of first refusal on future financings or other
transactions of the Company.
6.5.3 Exceptions to Capital Raising Limitations and Rights of
First Offer. Notwithstanding the above, neither the Capital Raising
Limitations nor the Rights of First Offer shall apply to any transaction
involving issuances of securities in connection with a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a business,
product or license by the Company or exercise of options by employees,
consultants or directors, or a primary underwritten offering of the Company's
Common Stock, or the transactions set forth on Schedule 6.5.1. The Capital
Raising Limitations and Rights of First Offer also shall not apply to (a) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof,
(b) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan for the
benefit of the Company's employees, directors or consultants, or (c) the
issuance of debt securities, with no equity feature, incurred solely for
working capital purposes. If the Investor, at any time, is more than five (5)
business days late in paying any Put Dollar Amounts that are then due, the
Investor shall not be entitled to the benefits of Sections 6.5.1 and 6.5.2
above until the date that the Investor has paid all Put Dollar Amounts that
are then due.
6.6 Financial 00-XXX Xxxxxxxxxx, Etc. and Current Reports on Form
8-K. The Company shall deliver to the Investor copies of its annual reports
on Form 10-KSB, and quarterly reports on Form 10-QSB and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the
Term of this Agreement.
6.7 Opinion of Counsel. Investor shall, concurrent with the
Investment Commitment Closing, receive an opinion letter from the Company's
legal counsel, in the form attached as Exhibit B, or in such form as agreed
upon by the parties, and shall, concurrent with each Put Date, receive an
opinion letter from the Company's legal counsel, in the form attached as
Exhibit I or in such form as agreed upon by the parties.
6.8 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms
of this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without
the Legend, if (a) the sale of such Security is registered under the Act, or
(b) such holder provides the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in comparable
transactions (the reasonable cost of which shall be borne by the Investor), to
the effect that a public sale or transfer of such Security may be made without
registration under the Act, or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144.
Each Investor agrees to sell all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which were
originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the Act.
6.9 Listing. Subject to the remainder of this Section 6.9, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares and Put Shares) are listed and available for trading on the NASDAQ
Small Cap Market. Thereafter, the Company shall (i) use its best efforts to
continue the listing and trading of its Common Stock on the NASDAQ Small Cap
Market or to become eligible for and listed and available for trading on the
NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in all material
respects with the Company's reporting, filing and other obligations under the
By-Laws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable.
6.10 The Company's Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock (the "Transfer Agent"),
by delivering, within ten (10) Business Days of the date of this Agreement,
instructions in the form of Exhibit T hereto, to issue certificates,
registered in the name of each Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by
the holder thereof. Such certificates shall not bear a Legend unless issuance
with a Legend is permitted by the terms of this Agreement and Legend removal
is not permitted by Section 6.8 hereof and the Company shall cause the
Transfer Agent to issue such certificates without a Legend. Nothing in this
Section shall affect in any way Investor's obligations and agreement set forth
in Sections 3.3.2 or 3.3.3 hereof to resell the Securities pursuant to an
effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. If (a) an Investor provides the
Company with an opinion of counsel, which opinion of counsel shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions, to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from registration or (b) an
Investor transfers Securities, pursuant to Rule 144, to a transferee which is
an accredited investor, the Company shall permit the transfer, and, in the
case of Put Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by such Investor. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to an Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Section 6.10 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
this Section 6.10, that an Investor shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6.11 Stockholder 20% Approval. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, if
required by the rules of NASDAQ because the Company's Common Stock is listed
on NASDAQ, the Company shall obtain approval of its stockholders to authorize
(i) the issuance of the full number of shares of Common Stock which would be
issuable pursuant to this Agreement but for the Cap Amount and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to
the Company's ability to issue shares of Common Stock in excess of the Cap
Amount (such approvals being the "Stockholder 20% Approval").
6.12 Press Release. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be
unreasonably withheld by Investor.
6.13 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no Termination Fee shall be due, provided that notwithstanding
any termination under this section 6.13, the Investor shall retain full
ownership of the Commitment Warrant as partial consideration for its
commitment hereunder.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing;
Severability. Investor's and the Company's representations and warranties
shall survive the Investment Date and any Put Closing contemplated by this
Agreement notwithstanding any due diligence investigation made by or on behalf
of the party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, or is altered by a term required by the
Securities Exchange Commission to be included in the Registration Statement,
this Agreement shall continue in full force and effect without said provision;
provided that if the removal of such provision materially changes the economic
benefit of this Agreement to the Investor, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent. If assigned, the terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Investor may assign
Investor's rights hereunder, in connection with any private sale of the Common
Stock of such Investor, so long as, as a condition precedent to such transfer,
the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement in a form acceptable to the Company
and provides an original copy of such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
7.4 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference
to the others.
7.5 Written Notices, Etc. Any notice, demand or request required
or permitted to be given by the Company or Investor pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants, whether oral, written, or otherwise
except as specifically set forth herein or therein. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The
parties acknowledge that any and all actions, whether at law or at equity, and
whether or not said actions are based upon this Agreement between the parties
hereto, shall be filed in any state or federal court sitting in Atlanta,
Georgia. Georgia law shall govern both the proceeding as well as the
interpretation and construction of the Transaction Documents and the
transaction as a whole. In any litigation between the parties hereto, the
prevailing party, as found by the court, shall be entitled to an award of all
attorney's fees and costs of court. Should the court refuse to find a
prevailing party, each party shall bear its own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
(a) Wire transfer of Subscription Funds. Investor shall
deliver Put Dollar Amounts (as payment towards any Put Share Price) by wire
transfer, to the Company pursuant to a wire instruction letter to be provided
by the Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges
and agrees, subject to the provisions of any applicable laws providing for the
refund of subscription amounts submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel, terminate or revoke
this Agreement or any other agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other agreements shall
survive the death or disability of such Investor and shall be binding upon and
inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be joint and
several, and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators, successors, legal
representatives and assigns.
9. Indemnification.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
Investor and all of its stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents,
members, partners or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "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 Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorney's fees and
disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee 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 the
Transaction Documents or any other certificate, instrument or documents
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim, derivative or otherwise, by any stockholder of
the Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
stockholders of the Company, or (d) claims made by third parties against any
of the Indemnitees based on a violation of Section 5 of the Securities Act
caused by the integration of the private sale of common stock to the Investor
and the public offering pursuant to the Registration Statement.
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
it would be required to make if such foregoing undertaking was enforceable
which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made
against the other party (hereinafter "Indemnitor") under this Section 9,
deliver to the Indemnitor a written notice of the commencement thereof and the
Indemnitor shall have the right to participate in and to assume the defense
thereof with counsel reasonably selected by the Indemnitor, provided, however,
that an Indemnified Party shall have the right to retain its own counsel, with
the reasonably incurred fees and expenses of such counsel to be paid by the
Indemnitor, if representation of such Indemnified Party by the counsel
retained by the Indemnitor would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the Indemnitor within a reasonable time of the commencement
of any such action, if prejudicial to the Indemnitor's ability to defend such
action, shall relieve the Indemnitor of any liability to the Indemnified Party
under this Section 9, but the omission to so deliver written notice to the
Indemnitor will not relieve it of any liability that it may have to any
Indemnified Party other than under this Section 9 to the extent it is
prejudicial.
[INTENTIONALLY LEFT BLANK]
10. Accredited Investor. Investor is an "accredited investor"
because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of
the Internal Revenue Code, or a corporation, limited duration company, limited
liability company, business trust, or partnership not formed for the specific
purpose of acquiring the securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or a director, executive
officer or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could check one (1) of the
last three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify]
__________________________________________________________.
The undersigned hereby subscribes the Maximum Offering Amount and
acknowledges that this Agreement and the subscription represented hereby shall
not be effective unless accepted by the Company as indicated below.
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct
and that Investor by the following signature(s) executed this Agreement.
Dated this 21st day of July, 2000.
XXXXXX PRIVATE EQUITY, LLC
By: ____________________________________
Xxxx X. Xxxxxx, Manager
SECURITY DELIVERY INSTRUCTIONS:
Xxxxxx Private Equity, LLC
X/x Xxxx X. Xxxxxx
000 Xxxxxxx Xxxxxx, Xxxxx 000
0000 Xxxxxxx Xxxxxx Xxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT OF THE MAXIMUM
OFFERING AMOUNT ON THE 21st DAY OF JULY, 2000.
DELTA PETROLEUM CORPORATION
By: ___________________________________
Xxxxxx X. Xxxxxx, Xx., CEO
Address:
Attn: Xxxxxx X. Xxxxxx, Xx.
17th Street, Suite 3310
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as
of July 21, 2000, by and among Delta Petroleum Corporation, a corporation duly
incorporated and existing under the laws of the State of Colorado (the
"Company"), and the subscriber as named on the signature page hereto
(hereinafter referred to as "Subscriber").
RECITALS:
WHEREAS, pursuant to the Company's offering ("Offering") of up to Twenty
Million Dollars ($20,000,000), excluding any funds paid upon exercise of the
Warrants, of Common Stock of the Company pursuant to that certain Investment
Agreement of even date herewith (the "Investment Agreement") between the
Company and the Subscriber, the Company has agreed to sell and the Subscriber
has agreed to purchase, from time to time as provided in the Investment
Agreement, shares of the Company's Common Stock for a maximum aggregate
offering amount of Twenty Million Dollars ($20,000,000);
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to issue to the Subscriber the Commitment Warrants and, from time
to time, the Purchase Warrants, each as defined in the Investment Agreement,
to purchase a number of shares of Common Stock, exercisable for five (5) years
from their respective dates of issuance (collectively, the "Warrants"); and
WHEREAS, pursuant to the terms of the Investment Agreement, the Company
has agreed to provide the Subscriber with certain registration rights with
respect to the Common Stock to be issued in the Offering and the Common Stock
issuable upon exercise of the Warrants as set forth in this Agreement.
TERMS:
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
Recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both singular and plural forms of the
terms defined):
"Additional Registration Statement" shall have the meaning set forth
in Section 3(b).
"Amended Registration Statement" shall have the meaning set forth in
Section 3(b).
"Business Day" shall have the meaning set forth in the Investment
Agreement.
"Closing Bid Price" shall have the meaning set forth in the
Investment Agreement.
"Common Stock" shall mean the common stock, par value $0.01, of the
Company.
"Due Date" shall mean the date that is one hundred twenty (120) days
after the date of this Agreement.
"Effective Date" shall have the meaning set forth in Section 2.4.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Filing Deadline" shall mean September 30, 2000.
"Investment Agreement" shall have the meaning set forth in the
Recitals hereto.
"Holder" shall mean Subscriber, and any other person or entity
owning or having the right to acquire Registrable Securities or any permitted
assignee;
"Piggyback Registration" and"Piggyback Registration Statement" shall
have the meaning set forth in Section 4.
"Put" shall have the meaning as set forth in the Investment
Agreement.
"Register," "Registered," and "Registration" shall mean and refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act and pursuant to Rule
415 under the Securities Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall have the meaning set forth in Section
2.1.
"Registration Statement" shall have the meaning set forth in Section
2.2.
"Rule 144" shall mean Rule 144, as amended, promulgated under the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Subscriber" shall have the meaning set forth in the preamble to this
Agreement.
"Supplemental Registration Statement" shall have the meaning set
forth in Section 3(b).
"Warrants" shall have the meaning set forth in the above Recitals.
"Warrant Shares" shall mean shares of Common Stock issuable upon
exercise of any Warrant.
2. Required Registration.
2.1 Registrable Securities. "Registrable Securities" shall mean
those shares of the Common Stock of the Company together with any capital
stock issued in replacement of, in exchange for or otherwise in respect of
such Common Stock, that are: (i) issuable or issued to the Subscriber pursuant
to the Investment Agreement, and (ii) issuable or issued upon exercise of the
Warrants; provided, however, that notwithstanding the above, the following
shall not be considered Registrable Securities:
(a) any Common Stock which would otherwise be deemed to be
Registrable Securities, if and to the extent that those shares of Common Stock
may be resold in a public transaction without volume limitations or other
material restrictions without registration under the Securities Act, including
without limitation, pursuant to Rule 144 under the Securities Act; and
(b) any shares of Common Stock which have been sold in a
private transaction in which the transferor's rights under this Agreement are
not assigned.
2.2 Filing of Initial Registration Statement. The Company
shall, by the Filing Deadline, file a registration statement ("Registration
Statement") on Form S-1 (or other suitable form, at the Company's discretion,
but subject to the reasonable approval of Subscriber), covering the resale of
a number of shares of Common Stock as Registrable Securities equal to at least
Eight Million (8,000,000) shares of Common Stock and shall cover, to the
extent allowed by applicable law, such indeterminate number of additional
shares of Common Stock that may be issued or become issuable as Registrable
Securities by the Company pursuant to Rule 416 of the Securities Act. In the
event that the Company has not filed the Registration Statement by the Filing
Deadline, then the Company shall pay to "Subscriber an amount equal to $500,
in cash, "for each Business Day after the Filing Deadline until such
Registration Statement is filed, payable within ten (10) "Business Days
following the end of each calendar month in which such payments accrue.
2.3 [Intentionally Left Blank].
2.4 "Registration Effective Date. The Company shall use its
commercially reasonable efforts to have the Registration Statement declared
effective by the SEC (the date of such effectiveness is referred to herein as
the"Effective Date") by the Due Date.
2.5 [Intentionally Left Blank].
2.6 [Intentionally Left Blank].
2.7 Shelf Registration. The Registration Statement shall be
prepared as a "shelf" registration statement under Rule 415, and shall be
maintained effective until all Registrable Securities are resold pursuant to
the Registration Statement.
2.8 Supplemental Registration Statement. Anytime the
Registration Statement does not cover a sufficient number of shares of Common
Stock to cover all outstanding Registrable Securities, the Company shall
promptly prepare and file with the SEC such Supplemental Registration
Statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all such Registrable Securities and
shall use its commercially reasonable efforts to cause such Supplemental
Registration Statement to be declared effective as soon as possible.
3. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the
Company shall, as expeditiously and reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a Registration Statement with respect to such Registrable Securities
and use its commercially reasonable efforts to cause such Registration
Statement to become effective and to remain effective until all Registrable
Securities are resold pursuant to such Registration Statement, notwithstanding
any Termination or Automatic Termination (as each is defined in the Investment
Agreement) of the Investment Agreement.
(b) Prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection with such
Registration Statement ("Amended Registration Statement") or prepare and file
any additional registration statement ("Additional Registration Statement,"
together with the Amended Registration Statement,"Supplemental Registration
Statements") as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Supplemental Registration Statements or such prior registration statement
and to cover the resale of all Registrable Securities.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its commercially reasonable efforts to register and qualify
the securities covered by such Registration Statement under such other
securities or Blue Sky laws of the jurisdictions in which the Holders are
located, of such other jurisdictions as shall be reasonably requested by the
Holders of the Registrable Securities covered by such Registration Statement
and of all other jurisdictions where legally required, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) [Intentionally Omitted].
(f) As promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities of the happening of any event of
which the Company has knowledge, as a result of which the prospectus included
in the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, use its commercially
reasonable efforts promptly to prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and
deliver a number of copies of such supplement or amendment to each Holder as
such Holder may reasonably request.
(g) Provide Holders with notice of the date that a Registration
Statement or any Supplemental Registration Statement registering the resale of
the Registrable Securities is declared effective by the SEC, and the date or
dates when the Registration Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity and a
reasonable amount of time, based upon reasonable notice delivered by the
Company, to conduct a reasonable due diligence inquiry of Company's pertinent
financial and other records and make available its officers and directors for
questions regarding such information as it relates to information contained in
the Registration Statement.
(i) Provide Holders and their representatives the opportunity to
review the Registration Statement and all amendments or supplements thereto
prior to their filing with the SEC by giving the Holder at least ten (10)
business days advance written notice prior to such filing.
(j) Provide each Holder with prompt notice of the issuance by the
SEC or any state securities commission or agency of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceeding for such purpose. The Company shall use its commercially
reasonable efforts to prevent the issuance of any stop order and, if any is
issued, to obtain the removal thereof at the earliest possible date.
(k) Use its commercially reasonable efforts to list the Registrable
Securities covered by the Registration Statement with all securities exchanges
or markets on which the Common Stock is then listed and prepare and file any
required filing with the NASD, American Stock Exchange, NYSE and any other
exchange or market on which the Common Stock is listed.
4. Piggyback Registration. If anytime prior to the date that the
Registration Statement is declared effective or during any Ineffective Period
(as defined in the Investment Agreement) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its Common Stock under the
Securities Act in connection with the public offering of such securities
solely for cash (other than a registration relating solely for the sale of
securities to participants in a Company stock plan or a registration on Form
S-4 promulgated under the Securities Act or any successor or similar form
registering stock issuable upon a reclassification, upon a business
combination involving an exchange of securities or upon an exchange offer for
securities of the issuer or another entity), the Company shall, at such time,
promptly give each Holder written notice of such registration (a"Piggyback
Registration Statement"). Upon the written request of each Holder given by
fax within ten (10) days after mailing of such notice by the Company, the
Company shall cause to be included in such registration statement under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered ("Piggyback Registration") to the extent such
inclusion does not violate the registration rights of any other security
holder of the company granted prior to the date hereof; provided, however,
that nothing herein shall prevent the Company from withdrawing or abandoning
such registration statement prior to its effectiveness.
5. Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the related Piggyback
Registration Statement of all Registrable Securities proposed to be included
would interfere with the successful marketing of the securities proposed to be
registered by the Company, then the number of such Registrable Securities to
be included in such Piggyback Registration Statement, to the extent any such
Registrable Securities may be included in such Piggyback Registration
Statement, shall be allocated among all Holders who had requested Piggyback
Registration pursuant to the terms hereof, in the proportion that the number
of Registrable Securities which each such Holder seeks to register bears to
the total number of Registrable Securities sought to be included by all
Holders. If required by the managing underwriter of such an underwritten
public offering, the Holders shall enter into an agreement limiting the number
of Registrable Securities to be included in such Piggyback Registration
Statement and the terms, if any, regarding the future sale of such Registrable
Securities.
6. Dispute as to Registrable Securities. In the event the Company
believes that shares sought to be registered under Section 2 or Section 4 by
Holders do not constitute"Registrable Securities" by virtue of Section 2.1 of
this Agreement, and the status of those shares as Registrable Securities is
disputed, the Company shall provide, at its expense, an Opinion of Counsel,
reasonably acceptable to the Holders of the Securities at issue (and
satisfactory to the Company's transfer agent to permit the sale and transfer),
that those securities may be sold immediately, without volume limitation or
other material restrictions, without registration under the Securities Act, by
virtue of Rule 144 or similar provisions.
7. Furnish Information. At the Company's request, each Holder shall
furnish to the Company such information regarding Holder, the Registrable
Securities held by it, and the intended method of disposition of such
securities to the extent required to effect the registration of its
Registrable Securities or to determine that registration is not required
pursuant to Rule 144 or other applicable provision of the Securities Act. The
Company shall include all information provided by such Holder pursuant hereto
in the Registration Statement, substantially in the form supplied, except to
the extent such information is not permitted by law.
8. Expenses. All expenses, other than commissions and fees and
expenses of counsel to the selling Holders, incurred in connection with
registrations, filings or qualifications pursuant hereto, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company, shall be
borne by the Company.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors, partners, legal
counsel, and accountants of each Holder, any underwriter (as defined in the
Securities Act, or as deemed by the Securities Exchange Commission, or as
indicated in a registration statement) for such Holder and each person, if
any, who controls such Holder or underwriter within the meaning of Section 15
of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, and the Company will reimburse each such
Holder, officer or director, underwriter or controlling person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 9(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by any such Holder, officer, director, underwriter or controlling person;
provided however, that the above shall not relieve the Company from any other
liabilities which it might otherwise have.
(b) Each Holder of any securities included in such registration
being effected shall indemnify and hold harmless the Company, its directors
and officers, each underwriter and each other person, if any, who controls
(within the meaning of the Securities Act) the Company or such other
indemnified party, against any liability, joint or several, to which any such
indemnified party may become subject under the Securities Act or any other
statute or at common law, insofar as such liability (or actions in respect
thereof) arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which securities were registered
under the Securities Act at the request of such Holder, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission by such Holder to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary or final
prospectus, amendment or supplement thereto in reliance upon and in conformity
with information furnished in writing to the Company by such Holder
specifically for use therein. Such Holder shall reimburse any indemnified
party for any legal fees incurred in investigating or defending any such
liability; "provided, "however, that such Holder's obligations hereunder shall
be limited to an amount equal to the proceeds to such Holder of the securities
sold in any such registration.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume, the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
shall have the right to retain its own counsel, with the reasonably incurred
fees and expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.
(d) In the event that the indemnity provided in paragraphs (a)
and/or (b) of this Section 9 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company and each Holder
agree to contribute to the aggregate claims, losses, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively"Losses") to which the Company
and one or more of the Holders may be subject in such proportion as is
appropriate to reflect the relative fault of the Company and the Holders in
connection with the statements or omissions which resulted in such Losses.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or by the
Holders. The Company and the Holders agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation that does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls a
Holder of Registrable Securities within the meaning of either the Securities
Act or the Exchange Act and each director, officer, partner, employee and
agent of a Holder shall have the same rights to contribution as such holder,
and each person who controls the Company within the meaning of either the
Securities Act or the Exchange Act and each director and officer of the
Company shall have the same rights to contribution as the Company, subject in
each case to the applicable terms and conditions of this paragraph (d).
(e) The obligations of the Company and Holders under this
Section 9 shall survive the resale, if any, of the Common Stock, the
completion of any offering of Registrable Securities in a Registration
Statement under this Agreement, and otherwise.
10. Reports Under Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Holder
to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144; and
(b) use its commercially reasonable efforts to file with the SEC
in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act.
11. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the written
consent of each Holder affected thereby. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder, each future
Holder, and the Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify
the section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Delta Petroleum Corporation.; Attn: Xxxxxx
X. Xxxxxx, Xx., CEO; 000 00xx Xxxxxx, Xxxxx 0000, Xxxxxx, XX 00000; Telephone:
(000) 000-0000, Facsimile: (000) 000-0000 (or at such other location as
directed by the Company in writing) and (ii) the Holders at their respective
last address as the party as shown on the records of the Company. Any notice,
except as otherwise provided in this Agreement, shall be made by fax and shall
be deemed given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist (as that term is defined in Section 2.1
hereof); but without prejudice to (i) the parties' rights and obligations
arising from breaches of this Agreement occurring prior to such termination
(ii) other indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this
Agreement by the Company or any Holder, respectively, shall be made without
the prior written consent of the majority in interest of the Holders or the
Company, respectively; provided that the rights of a Holder may be transferred
to a subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement), and the Company hereby agrees to file
an amended registration statement including such transferee or a selling
security holder thereunder; and provided further that the Company may transfer
its rights and obligations under this Agreement to a purchaser of all or a
substantial portion of its business if the obligations of the Company under
this Agreement are assumed in connection with such transfer, either by merger
or other operation of law (which may include without limitation a transaction
whereby the Registrable Securities are converted into securities of the
successor in interest) or by specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Georgia applicable to agreements
made in and wholly to be performed in that jurisdiction, except for matters
arising under the Securities Act or the Exchange Act, which matters shall be
construed and interpreted in accordance with such laws. Any dispute arising
out of or relating to this Agreement or the breach, termination or validity
hereof shall be finally settled by the federal or state courts located in
"Xxxxxx County, Georgia.
16. Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
17. Specific Performance. The Holder shall be entitled to the remedy
of specific performance in the event of the Company's breach of this
Agreement, the parties agreeing that a remedy at law would be inadequate.
18. Indemnity. Each party shall indemnify each other party against
any and all claims, damages (including reasonable attorney's fees), and
expenses arising out of the first party's breach of any of the terms of this
Agreement.
19. Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Investment Agreement, the Common
Stock certificates, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable
or bound to any other party in any manner by any warranties, representations
or covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
this 21st day of July, 2000.
DELTA PETROLEUM CORPORATION
By: ______________________________
Xxxxxx X. Xxxxxx, Xx., CEO
Address:
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SUBSCRIBER:
XXXXXX PRIVATE EQUITY, LLC.
By: ________________________________
Xxxx X. Xxxxxx, Manager
Address: 0000 Xxxxxxx Xxxxxx Xxxx
Xxxx. 000, Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
EXHIBIT B
July 21, 2000
Xxxxxx Private Equity, LLC
0000 Xxxxxxx Xxxxxx Xxxx
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Re: Delta Petroleum Corporation/Private Equity Line
Commitment Opinion
Ladies and Gentlemen:
We have acted as special counsel to Delta Petroleum Corporation, a
Colorado corporation (the "Company"), in connection with certain aspects of
that certain Investment Agreement dated July 21, 2000 by and between you and
the Company (the "Investment Agreement"), including, but not limited to, the
issuance and sale of shares of the Company's common stock (the "Common Stock")
to you pursuant to the terms and conditions thereof. This opinion is being
delivered to you pursuant to Section 6.8 of the Investment Agreement.
Capitalized terms utilized herein without definition have the respective
meanings ascribed to them in the Investment Agreement and the Registration
Rights Agreement between the parties of even date therewith.
In rendering this opinion, we have examined originals or copies,
certified or otherwise identified to us, of the following documents, corporate
records and other instruments: (i) the Articles of Incorporation of the
Company, as amended, certified by the Secretary of the Company; (ii) the
Bylaws of the Company as in effect on July 21, 2000 as certified by an officer
of the Company; (iii) a certificate dated July 21, 2000 by the Colorado
Secretary of State regarding the existence and good standing of the Company as
a corporation under the laws of the State of Colorado; (iv) the minute books
of the Company, including copies, certified to our satisfaction, of
resolutions adopted by the Board of Directors of the Company on July 21, 2000;
(v) the Investment Agreement; (vi) the Registration Rights Agreement; and
(vii) the Warrants. The foregoing are sometimes referred to in this letter as
the Transaction Documents.
We have also examined, relied upon and assumed the accuracy, where
appropriate, of the representations and warranties of the Company and the
other parties thereto contained in the Transaction Documents as to matters of
fact therein represented. As to certain questions of fact material to the
opinions contained herein, we have, when appropriate, relied upon the
representations of each party made in the Investment Agreement and other
Transaction Documents and certificates or statements of public officials and
officers and agents of the Company, and we have assumed that any certificates
or statements of public officials dated earlier than the date hereof are
accurate on the date hereof as if made on and as of such date.
In our examination of all of the documents described above, including,
but not limited to, the Transaction Documents, we have assumed the genuineness
of all signatures of parties other than the Company, the authenticity of all
documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as copies.
With respect to our opinions in paragraph 4 hereof that the Common Stock,
when issued and paid for upon exercise of the Put Shares and the Warrants and
fulfillment of the terms of the Transaction Documents, respectively, will be
validly issued, we have assumed that (i) such Common Stock will be evidenced
by appropriate certificates, duly executed and delivered; (ii) the Company
will maintain a sufficient number of authorized and unissued shares of Common
Stock, at all times while the Investment Agreement and Warrants are
outstanding, to permit the issuance of the Put Shares and the exercise of the
Warrants in accordance with their terms; (iii) the consideration paid and to
be paid for the shares of such Common Stock (including, but not limited to,
those shares which may be issued pursuant to the cashless exercise provisions
of the Warrants) is adequate; and (iv) the consideration has actually been
received by the Company. It should be noted that we are not aware of any
reported Colorado cases that directly pertain to the adequacy of consideration
paid for shares of stock that are issued pursuant to cashless exercise
provisions of warrants or similar rights and we express no opinion as to how a
Colorado court would answer that question.
In addition, we have assumed that the representations and warranties as
to factual matters and acknowledgments made by you in the Investment Agreement
are true. We have also assumed that you have received all of the documents
that you were required to receive pursuant to the Investment Agreement.
The opinions contained herein are limited to the laws of the State of
Colorado and the Federal laws of the United States. We express no opinion as
to the laws of any other state or jurisdiction of the United States or of any
foreign jurisdiction. We have made no inquiry as to the laws and regulations
of any other jurisdiction or jurisdictions or as to laws relating to choice of
law or conflicts of law principles.
Based upon the foregoing and subject to the limitations and
qualifications set forth herein, we are of the opinion that:
1. Based solely upon a Certificate of Good Standing issued by the
Colorado Secretary of State as of July 21, 2000, the Company is duly
incorporated and validly existing under the laws of the State of Colorado and
has the requisite power and authority, corporate or otherwise, to carry on its
business as currently conducted.
2. The execution, delivery and performance of the Transaction
Documents, the issuance of the Common Stock, the issuance of the Warrants and
the issuance of the Common Stock upon exercise of the Warrants have been duly
approved by all required corporate action on the part of the Company, and
except for the approval by the Company's shareholders of the issuance of the
Common Stock in excess of the Cap Amount, no further consents of the Company
or its Board of Directors or shareholders are required.
3. The authorized capital stock of the Company consists of
300,000,000 shares of $0.01 par value Common Stock and 3,000,000 shares of
$0.10 par value Preferred Stock.
4. When the Put Shares are issued in accordance with the Investment
Agreement, or when shares of Common Stock are issued upon exercise of the
Warrants in accordance with the terms of the Warrants, such shares of Common
Stock will, upon the Company's receipt of payment in full for such shares, be
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock of the Company, free of all statutory or, to our knowledge, preemptive
or similar rights.
5. The Investment Agreement, the Registration Rights Agreement and
the Irrevocable Instructions to Transfer Agent have been duly executed and
delivered and are valid and binding obligations of the Company, enforceable in
accordance with their respective terms.
6. Assuming that (a) you are an "Accredited Investor" as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933 (the "Securities Act"), (b) you are acquiring the subject securities from
the Company for investment purposes and without a view to distribution other
than pursuant to a valid registration statement covering the resale of such
securities and (c) you factually meet the other requirements of a purchaser
under Section 4(2) of the Securities Act, it will not be necessary, in
connection with the execution of the Investment Agreement and the issuance and
sale to you of the Put Shares, to register such securities under the
Securities Act or, to the best of our knowledge, under the registration
provisions of any state, and such execution, issuance and sale are exempt from
such registration under Sections 4(2) and/or 4(6) and/or Rule 506 promulgated
under the Securities Act.
7. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated by the Transaction Documents will not materially
violate the Articles of Incorporation or Bylaws of the Company, or result in a
violation of any Federal law, rule or regulation (or any order, judgment or
decree known to us) of a type generally recognized as being directly
applicable to the Company and the transactions contemplated by the Transaction
Documents. It should be noted in that regard, however, that the Transaction
Documents require the delivery of share certificates for Put Shares before the
payment for such shares is actually received by the Company. Under Colorado
law, these shares will not be considered to be fully paid and nonassessable
until such time as the Company actually receives payment in full of the amount
specified in the Transaction Documents.
The opinions set forth above are subject to the following limitations:
(a) Our opinion in paragraph 5 above as to the enforceability of the
Transaction Documents is subject to (i) bankruptcy, insolvency,
reorganization, moratorium and other laws and legal principles of general
application now or hereafter in effect relating to or limiting the rights of
creditors, (ii) general principles of equity, whether such enforceability is
considered in a proceeding in equity or at law and the exercise of judicial
discretion in granting equitable remedies, and (iii) such opinion does not
mean that (a) any particular remedy is available upon a material default or
(b) that a court will enforce every provision of a contract exactly as it is
written. In addition, certain provisions of the Transaction Documents
(including, without limitation, indemnification provisions and provisions in
the nature of liquidated damages or penalties) may not be enforceable in whole
or in part under the laws or public policies of the United States and the
State of Colorado.
(b) We have assumed (i) that the Transaction Documents constitute the
legal, valid and binding obligations of the parties thereto other than the
Company, enforceable in accordance with their respective terms; (ii) that the
parties to the Transaction Documents, other than the Company, have the
requisite corporate power and authority to enter into such agreements and to
perform their respective obligations thereunder; and (iii) that each of the
parties to the Transaction Documents, other than the Company, has duly
authorized, executed and delivered the Transaction Documents. We have also
assumed the legal capacity of all natural persons whose acts are relevant to
the opinions rendered herein.
(c) We express no opinion and assume no responsibility as to the
effect of, or consequences resulting from, any legislative act or other change
in law occurring after the date of this letter.
(d) We express no opinion on the enforceability, under certain
circumstances, of provisions to the effect that failure to exercise or delay
in exercising any right or remedy will not operate as a waiver of that right
or remedy.
(e) We express no opinion on the enforceability, in certain
circumstances, of provisions waiving broadly or vaguely stated rights,
statutory or other rights representing public policy, or unknown future rights
and of provisions that rights or remedies are not exclusive.
(f) We express no opinion on limitations on the exercise of certain
contractual rights and remedies if the defaults are not material or the
penalties bear no reasonable relation to the damages suffered by the aggrieved
party as a result of the delinquencies or defaults.
(g) We express no opinion with respect to any application of the
usury laws of any jurisdiction.
(h) We express no opinion as to the validity, binding effect or
enforceability of the Transaction Documents in connection with willful acts or
negligence of the indemnified party, or any provisions of the Transaction
Documents relating to indemnification.
(i) We express no opinion as to the effect of any laws, rules or
regulations relating to any patent, trademark, copyright, or communications
matters.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of Colorado as currently in effect, and does not include an
interpretation or statement concerning the laws of any other state or
jurisdiction.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Transaction Documents and
may not be relied upon by, or delivered to, any other person or entity or for
any other purpose without our prior written consent.
In addition to the legal opinions set forth above, you have asked us to
make certain factual representations to you based upon our present actual
knowledge of certain facts as they pertain to the Company. With respect to
the factual representations set forth below, you are advised that whenever we
state that such representation is made "to the best of our knowledge," we have
made such representation in reliance upon (a) our actual knowledge of only
those facts of which we have actually been made consciously aware in the
course of our representation of the Company as its counsel, (b) our review of
the documents specified above with respect to the legal opinions expressed in
this letter and (c) our inquiry of the Company to ascertain the accuracy of
the factual representations made by us; however, we have no reason to believe
that such reliance is improper. In making the factual representations
referred to below, we have not undertaken an independent investigation or
other examination of the records of any court, administrative tribunal or
similar entity, and, except for those documents specifically referred to in
this letter as having been reviewed by us for the purposes of expressing the
opinions contained herein, we have not attempted to reevaluate for the
purposes of this letter any agreement, contract or other instrument to which
the Company is a party.
Subject to the limitation that no legal opinion is being expressed with
respect to any of the matters set forth below, and subject further to all of
the limitations and qualifications set forth in this letter with respect to
both legal opinions and factual representations, you are advised of the
following:
(a) We are not aware of any jurisdictions (other than those in which the
Company is currently qualified to do business) where the qualification to do
business as a foreign corporation is required for the Company to conduct its
business as it is currently conducted and where the failure of the Company to
become qualified would have a material adverse effect on the business or
operations of the Company.
(b) During the course of our representation of the Company in connection
with the Transaction Documents, nothing has come to our attention which causes
us to believe that the Transaction Documents contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading.
(c) To the best of our knowledge, the execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated by the Transaction Documents will not
violate, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company is a party or by which
its property is bound or any material agreement, indenture or instrument
entered into subsequent thereto of which we are aware.
(d) Assuming and relying upon the accuracy of your representations and
covenants in the Investment Agreement, to the best of our knowledge the
Company is not required to obtain the consent, approval or action of, or to
make any filings with, or give any notice to, any corporation, person or firm
or any public, governmental or judicial authority, except as may have been
duly obtained or made, as the case may be (other than SEC, NASD and/or state
securities filings, any registration statement under the Act which may be
filed pursuant to the Transaction Documents and authorization by the Company's
shareholders of the issuance of securities pursuant to the Transaction
Documents) in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents or issue and sell the securities
in accordance with the terms of the Transaction Documents.
(e) To the best of our knowledge, there is no litigation, arbitration,
claim, governmental or other proceeding (formal or informal), or investigation
pending or threatened, with respect to the Company or any of its operations,
business, properties or assets, except as may be described in the Company's
periodic and other reports filed under the Exchange Act, or individually or in
the aggregate, that now has, and could not reasonably be expected to have, a
material adverse effect upon the operations, business, properties or assets of
the Company.
(f) To the best of our knowledge, the outstanding capital stock of the
Company is set forth in the Capitalization Schedule included as an exhibit to
the Investment Agreement.
This opinion is governed by, and shall be construed in accordance with,
the Legal Opinion Accord of the ABA Section of Business Law (1991). We are
only licensed to practice law in the State of Colorado and express no opinion
as to any state or local laws, rules or regulations of any jurisdiction other
than the State of Colorado; and we express opinions on applicable Federal law
only to the extent that such opinions do not relate to matters involving FCC,
patent or copyright law. This opinion speaks only as of its date, is for your
use only and is not to be relied upon or provided to any other person without
our express written consent.
Very truly yours,
XXXX XXXXX XXXXXXXX & XXXXXX, P.C.
By
/s/ Xxxxxxx X. Xxxxxxxx, P.C.
Xxxxxxx X. Xxxxxxxx, P.C.
EXHIBIT C
SCHEDULE OF EXCEPTIONS
None.
EXHIBIT D
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED. SEE THE RISK FACTORS SET FORTH UNDER THAT CERTAIN INVESTMENT
AGREEMENT BY AND BETWEEN THE COMPANY AND HOLDER REFERENCED THEREIN AS EXHIBIT
J.
Warrant to Purchase
"N" shares Warrant Number ____
Warrant to Purchase Common Stock
of
DELTA PETROLEUM CORPORATION
THIS CERTIFIES that Xxxxxx Private Equity, LLC or any subsequent holder
hereof ("Holder"), has the right to purchase from Delta Petroleum Corporation,
a Colorado corporation (the "Company"), up to "N" fully paid and nonassessable
shares, wherein "N" is defined below, of the Company's common stock, $0.01 par
value per share ("Common Stock"), subject to adjustment as provided herein, at
a price equal to the Exercise Price as defined in Section 3 below, at any time
beginning on the Date of Issuance (defined below) and ending at 5:00 p.m., New
York, New York time the date that is five (5) years after the Date of Issuance
(the "Exercise Period"); provided, that, with respect to each "Put," as that
term is defined in that certain Investment Agreement (the "Investment
Agreement") by and between the initial Holder and Company, dated on or about
July 21, 2000, "N" shall equal Fifteen percent (15%) of the number of shares
of Common Stock purchased by the Holder in that Put.
Holder agrees with the Company that this Warrant to Purchase Common Stock
of the Company (this "Warrant") is issued and all rights hereunder shall be
held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on _____________, ______ ("Date
of Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
Notwithstanding anything to the contrary herein, the Holder shall not
exercise this warrant if and to the extent that the number of shares of Common
Stock to be issued to Holder upon such exercise, when added to the number of
shares of Common Stock, if any, that the Holder otherwise beneficially owns at
the time of such exercise, would equal or exceed 4.99% of the number of shares
of Common Stock then outstanding, as determined in accordance with Section
13(d) of the Exchange Act (the "4.99% Limitation"). The 4.99% Limitation
shall be conclusively satisfied if the applicable Exercise Notice includes a
signed representation by the Holder that the issuance of the shares in such
Exercise Notice will not violate the 4.99% Limitation, and the Company shall
not be entitled to require additional documentation of such satisfaction.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock
covered hereby (the "Warrant Shares") upon surrender of this Warrant, with the
Exercise Form attached hereto as Exhibit A (the "Exercise Form") duly
completed and executed, together with the full Exercise Price (as defined
below) for each share of Common Stock as to which this Warrant is exercised,
at the office of the Company, Attention: Xxxxxx X. Xxxxxx, Xx., 000 00xx
Xxxxxx, Xxxxx 0000, Xxxxxx, XX 00000; Telephone:(000) 000-0000,
Facsimile:(000) 000-0000, or at such other office or agency as the Company may
designate in writing, by overnight mail, with an advance copy of the Exercise
Form sent to the Company and its Transfer Agent by facsimile (such surrender
and payment of the Exercise Price hereinafter called the "Exercise of this
Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed
Exercise Form is sent by facsimile to the Company, provided that the original
Warrant and Exercise Form are received by the Company as soon as practicable
thereafter. Alternatively, the Date of Exercise shall be defined as the date
the original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile. The Company shall not be required to deliver the
shares of Common Stock to the Holder until the requirements of Section 2(a)
above are satisfied.
(c) Delivery of Shares of Common Stock Upon Exercise. Upon any exercise
of this Warrant, the Company shall deliver, or shall cause its transfer agent
to deliver, a stock certificate or certificates representing the number of
shares of Common Stock into which this Warrant was exercised, within three (3)
trading days of the Date of Exercise (as defined above). Such stock
certificates shall not contain a legend restricting transfer if a registration
statement covering the resale of such shares of Common Stock is in effect at
the time of such exercise or if such shares of Common Stock may be resold
pursuant to Rule 144 under the Securities Act of 1933. If the Company has not
delivered stock certificates representing the requisite number of shares of
Common Stock (unlegended, if so required per the above) within three (3)
trading days of the Date of Exercise, the Company shall pay to the Holder
liquidated damages equal to $1,000 per day until such share certificates
(unlegended, if so required per the above) are received by the Holder.
(d) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of
Exercise, Holder shall be entitled to receive Common Stock for the number of
shares purchased upon such Exercise of this Warrant, and if this Warrant is
not exercised in full, Holder shall be entitled to receive a new Warrant
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(e) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder
of record of such shares on the Date of Exercise of this Warrant, irrespective
of the date of delivery of the Common Stock purchased upon the Exercise of
this Warrant. Nothing in this Warrant shall be construed as conferring upon
Holder any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price"), shall initially equal $Y per
share, where "Y" shall equal 110% of the Market Price for the applicable Put
(as both are defined in the Investment Agreement).
Payment of the Exercise Price may be made by either of the following, or
a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: subject to the last sentence of this Section
3, surrender of this Warrant at the principal office of the Company together
with notice of cashless election, in which event the Company shall issue
Holder a number of shares of Common
Stock computed using the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be defined as the
average Closing Price of the Common Stock for the five (5) trading days prior
to the Date of Exercise of this Warrant (the "Average Closing Price"), as
reported by the O.T.C. Bulletin Board, National Association of Securities
Dealers Automated Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market, the Average Closing
Price in any other over-the-counter market; provided, however, that if the
Common Stock is listed on a stock exchange, the Market Price shall be the
Average Closing Price on such exchange for the five (5) trading days prior to
the date of exercise of the Warrants. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date of Exercise, then the
closing price for the last publicly traded day shall be deemed to be the
closing price for any and all (if applicable) days during such five (5)
trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise
transaction shall be deemed to have commenced on the date this Warrant was
issued.
Notwithstanding anything to the contrary contained herein, this Warrant
may not be exercised in a cashless exercise transaction if, on the Date of
Exercise, the shares of Common Stock to be issued upon exercise of this
Warrant would upon such issuance be then registered pursuant to an effective
registration statement filed pursuant to that certain Registration Rights
Agreement dated on or about July 21, 2000 by and among the Company and certain
investors, or otherwise be registered under the Securities Act of 1933, as
amended.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender
and, as soon as practicable thereafter, the person to whom such transfer is
made shall be entitled to receive a new Warrant or Warrants as to the portion
of this Warrant transferred, and Holder shall be entitled to receive a new
Warrant as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise
of this Warrant constitutes "Registrable Securities" under that certain
Registration Rights Agreement dated on or about July 21, 2000 between the
Company and certain investors and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then Holder, upon Exercise of this
Warrant after the record date for the determination of holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise
of this Warrant, in addition to the number of shares of Common Stock as to
which this Warrant is exercised, such additional shares of Common Stock as
such Holder would have received had this Warrant been exercised immediately
prior to such record date and the Exercise Price will be proportionately
adjusted.
(b) Recapitalization or Reclassification. If the Company shall at
any time effect a recapitalization, reclassification or other similar
transaction of such character that the shares of Common Stock shall be changed
into or become exchangeable for a larger or smaller number of shares, then
upon the effective date thereof, the number of shares of Common Stock which
Holder shall be entitled to purchase upon Exercise of this Warrant shall be
increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of Common Stock by reason of such
recapitalization, reclassification or similar transaction, and the Exercise
Price shall be, in the case of an increase in the number of shares,
proportionally decreased and, in the case of decrease in the number of shares,
proportionally increased. The Company shall give Holder the same notice it
provides to holders of Common Stock of any transaction described in this
Section 5(b).
(c) Distributions. If the Company shall at any time distribute for
no consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or other securities
or assets which Holder would have been entitled to receive with respect to
each such share of Common Stock as a result of the happening of such event had
this Warrant been exercised immediately prior to the record date or other date
fixing shareholders to be affected by such event (the "Determination Date")
or, in lieu thereof, if the Board of Directors of the Company should so
determine at the time of such distribution, a reduced Exercise Price
determined by multiplying the Exercise Price on the Determination Date by a
fraction, the numerator of which is the result of such Exercise Price reduced
by the value of such distribution applicable to one share of Common Stock
(such value to be determined by the Board of Directors of the Company in its
discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or another class or
classes of stock or securities or other assets of the Company or another
entity or there is a sale of all or substantially all the Company's assets (a
"Corporate Change"), then this Warrant shall be exerciseable into such class
and type of securities or other assets as Holder would have received had
Holder exercised this Warrant immediately prior to such Corporate Change;
provided, however, that Company may not affect any Corporate Change unless it
first shall have given ten (10) business days notice to Holder hereof of any
Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section
3 of this Warrant, until the occurrence of an event stated in subsection (a),
(b), (c) (d) of this Section 5, and thereafter shall mean said price as
adjusted from time to time in accordance with the provisions of this Warrant.
No such adjustment under this Section 5 shall be made unless such adjustment
would change the Exercise Price at the time by $.01 or more; provided,
however, that all adjustments not so made shall be deferred and made when the
aggregate thereof would change the Exercise Price at the time by $.01 or more.
No adjustment made pursuant to any provision of this Section 5 shall have the
net effect of increasing the Exercise Price in relation to the split adjusted
and distribution adjusted price of the Common Stock. The number of shares of
Common Stock subject hereto shall increase proportionately with each decrease
in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall
be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock.
If, on Exercise of this Warrant, Holder would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant and the receipt by
the Company of the consideration therefore (whether by virtue of a cash
exercise or a cashless exercise), all shares of Common Stock issuable upon
such exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act
by virtue of Regulation D and exempt from state registration under applicable
state laws. The Warrant and the Common Stock issuable upon the Exercise of
this Warrant may not be pledged, transferred, sold or assigned except pursuant
to an effective registration statement or an exemption to the registration
requirements of the Act and applicable state laws.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration
or exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment
attached hereto as Exhibit B, indicating the person or persons to whom the
Warrant shall be assigned and the respective number of warrants to be assigned
to each assignee. If the Company reasonably agrees that the evidence provided
by Holder is reasonably satisfactory, the Company shall effect the assignment
within ten (10) days, and shall deliver to the assignee(s) designated by
Holder a Warrant or Warrants of like tenor and terms for the appropriate
number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and Holder any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed
by and construed in accordance with the laws of the state of Georgia, without
giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by
Holder to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, to
the address set forth in Section 2(a) above. Notices or demands pursuant to
this Warrant to be given or made by the Company to or on Holder shall be
sufficiently given or made if sent by certified or registered mail, return
receipt requested, postage prepaid, and addressed, to the address of Holder
set forth in the Company's records, until another address is designated in
writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of _______, 200_.
DELTA PETROLEUM CORPORATION
By: ________________________________
Xxxxxx X. Xxxxxx, Xx., CEO
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: DELTA PETROLEUM CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of Delta
Petroleum Corporation, a Colorado corporation (the "Company"), evidenced by
the attached warrant (the "Warrant"), and herewith makes payment of the
exercise price with respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any of the Common Stock obtained on exercise of the Warrant, except
in accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be
issued free of any restrictive legend, if appropriate, and a warrant
representing any unexercised portion hereof be issued, pursuant to the Warrant
in the name of the undersigned and delivered to the undersigned at the address
set forth below:
Dated:
________________________________________________________________________
Signature
________________________________________________________________________
Print Name
________________________________________________________________________
Address
________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons
below named the right to purchase ____________________ shares of the Common
Stock of DELTA PETROLEUM CORPORATION, evidenced by the attached Warrant and
does hereby irrevocably constitute and appoint _______________________
attorney to transfer the said Warrant on the books of the Company, with full
power of substitution in the premises.
Dated: _________ ______________________________
Signature
Fill in for new registration of Warrant:
___________________________________
Name
___________________________________
Address
___________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
EXHIBIT E
ADVANCE PUT NOTICE
DELTA PETROLEUM CORPORATION (the "Company") hereby intends, subject to the
Individual Put Limit (as defined in the Investment Agreement), to elect to
exercise a Put to sell the number of shares of Common Stock of the Company
specified below, to _____________________________, the Investor, as of the
Intended Put Date written below, all pursuant to that certain Investment
Agreement (the "Investment Agreement") by and between the Company and Xxxxxx
Private Equity, LLC dated on or about July 21, 2000.
Date of Advance Put Notice: ________________________
Intended Put Date :_________________________________
Intended Put Share Amount: _________________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
DELTA PETROLEUM CORPORATION
By: ______________________________
Xxxxxx X. Xxxxxx, Xx., CEO
Address:
Attn: Xxxxxx X. Xxxxxx, Xx.
17th Street, Suite 3310
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
EXHIBIT F
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
DELTA PETROLEUM CORPORATION's (the "Company") Advance Put Notice on the
Advance Put Date written below, and its intention to elect to exercise a Put
to sell shares of common stock ("Intended Put Share Amount") of the Company to
the Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Xxxxxx Private Equity, LLC dated on or about July 21, 2000.
Date of Confirmation: _____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
INVESTOR(S)
____________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT G
PUT NOTICE
DELTA PETROLEUM CORPORATION (the "Company") hereby elects to exercise a Put to
sell shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Xxxxxx Private Equity, LLC dated on or about July 21, 2000.
Put Date :_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
DELTA PETROLEUM CORPORATION
By:______________________________
Xxxxxx X. Xxxxxx, Xx., CEO
Address:
Attn: Xxxxxx X. Xxxxxx, Xx.
17th Street, Suite 3310
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
EXHIBIT H
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
Delta Petroleum Corporation (the "Company") Put Notice and election to
exercise a Put to sell ___________________________ shares of common stock
("Common Stock") of the Company to Investor, as of the Put Date, all pursuant
to that certain Investment Agreement (the "Investment Agreement") by and
between the Company and Xxxxxx Private Equity, LLC dated on or about July 21,
2000.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: ___________________________________
___________________________________
___________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT I
[LETTERHEAD]
Xxxxxx Private Equity, LLC
0000 Xxxxxxx Xxxxxx Xxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Re: Delta Petroleum Corporation
Put Opinion
Gentlepersons,
We have acted as special counsel to Delta Petroleum Corporation, a
Colorado corporation ("Company"), in connection with the Investment Agreement,
dated as of July 21, 2000, by and between the Company and Xxxxxx Private
Equity, LLC (the "Investment Agreement"), and the issuance and sale of shares
of the Company's Common Stock, $0.001 par value ("Common Stock"), provided for
thereunder. This opinion is being delivered to you pursuant to Section
2.3.5(b) of the Investment Agreement and speaks only as of the date of this
letter. Capitalized terms used herein without definition have the respective
meanings assigned to them in the Investment Agreement and the Registration
Rights Agreement.
In connection with and as the basis for these opinions, we have examined
originals or copies, certified or otherwise identified to us, of the following
documents: (i) the Articles of Incorporation of the Company, as amended,
certified by the Secretary of the Company; (ii) the By-laws of the Company as
in effect on July 21, 2000 as certified by an officer of the Company; (iii) a
certificate dated July 21, 2000 by the Secretary of State of Colorado
regarding the existence and good standing of the Company as a corporation
under the laws of the State of Colorado; (iv) the Investment Agreement; (v)
the Registration Rights Agreement; (vi) Irrevocable Instructions to Transfer
Agent; and (vii) the Commitment Warrants and Purchase Warrants (the
"Warrants") to purchase the Company's Common Stock to be issued to Xxxxxx
Private Equity, LLC (the "Warrant Holder") in accordance with the Investment
Agreement. The foregoing are sometimes referred to in this opinion as the
"Transaction Documents."
We have examined, relied upon and assumed the accuracy, where
appropriate, of the representations and warranties of the Company and the
other parties thereto contained in the Transaction Documents as to the matters
of fact therein represented. As to certain questions of fact material to the
opinions contained herein, we have, when appropriate, relied upon the
representations of each party made in, and in connection with, the Investment
Agreement and other Transaction Documents and certificates or statements of
public officials and officers and agents of the Company, and we have assumed
that any certificates or statements of public officials dated earlier than the
date hereof are accurate on the date hereof as if made on and as of such date.
In our examination of all of the documents described above, we have
assumed the genuineness of all signatures of parties other than the Company,
the authenticity of all documents submitted to us as originals and the
conformity to authentic originals of all documents submitted to us as copies.
With respect to our opinions in paragraph 3 below that the Common Stock,
upon exercise of the Put Shares and the Warrants and fulfillment of the terms
of the Transaction Documents, respectively, may be validly issued, we have
assumed that (i) such Common Stock will be evidenced by appropriate
certificates, duly executed and delivered; (ii) the Company will maintain a
sufficient number of authorized and unissued shares of Common Stock, at all
times while the Investment Agreement is in effect and the Warrants are
outstanding, to permit the issuance of the Put Shares and the exercise of the
Warrants in accordance with their terms; (iii) the Company is domiciled in the
State of Colorado at the time of the issuance of the Put Shares, the Warrants
and the shares which may be exercised upon issuance of the Warrants; (iv) the
consideration paid and to be paid for the shares of such Common Stock
(including, but not limited to, those shares which may be issued pursuant to
the cashless exercise provisions of the Warrants) is adequate; (v) the
consideration for the shares of such Common Stock will have actually been
received by the Company at the time the shares are issued; and (vi) at the
time of issuance, a valid exemption exists under state and federal laws for
the issuance of the shares to Xxxxxx Private Equity, LLC.
In addition, we have assumed that the representations, warranties and
covenants as to factual matters and acknowledgments made by Xxxxxx Private
Equity, LLC in Sections 3 and 4 of the Investment Agreement are true. We have
also assumed that Xxxxxx Private Equity, LLC has received all of the documents
that Xxxxxx Private Equity, LLC was required to receive under the Investment
Agreement.
Based upon and subject to the foregoing and the qualifications,
limitations and assumptions set forth herein, it is our opinion that, as of
the date hereof:
1. Based solely upon a Certificate of Good Standing issued by the
Secretary of State of the State of Colorado as of July 21, 2000, the Company
is a corporation duly incorporated and validly existing under the laws the
state of Colorado. The Company has the corporate power and authority in the
State of Colorado to carry on its business as currently conducted.
2. The execution, delivery and performance of the Transaction Documents
have been duly approved on the part of the Company and, except for approval by
the Company's shareholders of any required increase in the Company's
authorized capital to facilitate the transactions contemplated by the
Transaction Documents, any necessary approval by the Board of Directors to
elect to exercise a Put and the issuance of Common Stock in excess of the Cap
Amount, no further consents of the Company or its Board of Directors or
shareholders are required under Colorado law. No opinion is expressed with
respect to approvals that may be required under applicable stock exchange
rules.
3. Assuming the Company has received the consideration set forth in the
Investment Agreement for the Put Shares or upon exercise of the Warrants, as
the case may be, when the Put Shares are issued in accordance with the
Investment Agreement, or when shares of Common Stock are issued upon exercise
of the Warrants in accordance with the terms of the Warrants, such shares of
Common Stock will be duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock of the Company, free of all statutory or,
to our knowledge, preemptive or similar rights.
4. The Investment Agreement, the Registration Rights Agreement and the
irrevocable Instructions to Transfer Agent have been duly executed and
delivered and are valid and binding obligations of the Company, enforceable in
accordance with their respective terms.
5. It will not be necessary, in connection with the issuance and sale of
the Put Shares by the Company to Xxxxxx Private Equity, LLC, to register such
securities under the Securities Act of 1933, as amended (the "Securities Act")
and applicable state securities laws, and such issuance and sale are exempt
from such registration under Section 4(2) of the Securities Act. The
foregoing assumes that i) the representations and warranties of Xxxxxx Private
Equity, LLC in the Investment Agreement are accurate; ii) the Securities Act
and the rules and regulations promulgated by the Securities and Exchange
Commission under the Securities Act are not hereafter modified, amended, or
repealed; iii) the execution of the Investment Agreement by Xxxxxx Private
Equity, LLC is for investment purposes and without a view to distribution in
the absence of an effective registration statement covering the resale of the
subject securities; iv) Xxxxxx Private Equity, LLC factually meets the
financial sophistication requirements of a purchaser under Section 4(2); and
v) no other private offers or sales of securities by the Company are
integrated with the sale of the securities contemplated by the Transaction
Documents to Xxxxxx Private Equity, LLC. You are informed, however, that the
Transaction Documents contemplate the filing of a registration statement in
connection with the issuance and sale of the Put Shares by the Company to
Xxxxxx Private Equity, LLC in order to allow Xxxxxx Private Equity, LLC to
publicly resell such shares, and in the event such registration statement is
not declared effective by the Securities and Exchange Commission, the Put
Shares will continue to be deemed to be restricted securities and would not be
eligible for resale by Xxxxxx Private Equity, LLC in the absence of an
effective registration statement covering the resale of such shares or a valid
exemption from registration. Further, as Xxxxxx Private Equity, LLC may be
deemed to be an underwriter for the purposes of the transactions contemplated
by the Transaction Documents, it is likely that Xxxxxx Private Equity, LLC
would not be eligible to resell any of the Put Shares in reliance upon Rule
144 promulgated under the Securities Act of 1933.
6. It will not be necessary, in connection with the issuance and sale of
the Warrants, or the issuance of the Common Stock upon exercise of the
Warrants, by the Company to Xxxxxx Private Equity, LLC to register such
securities under the Securities Act of 1933, as amended (the "Securities Act")
and applicable state securities laws, and such issuance and sale are exempt
from such registration under Section 4(2) and/or Regulation D Rule 506 of the
Securities Act. The foregoing assumes that i) Xxxxxx Private Equity, LLC
continues to be an "accredited investor" as defined in the Securities Act; ii)
the Securities Act and the rules and regulations promulgated by the Securities
and Exchange Commission under the Securities Act (specifically Regulation D
and Rule 506) are not hereafter modified, amended or repealed; iii) Xxxxxx
Private Equity, LLC is acquiring the subject securities from the Company for
investment purposes and without a view to distribution in the absence of an
effective registration statement covering the resale of the subject
securities; iv) Xxxxxx Private Equity, LLC factually meets the other
requirements of a purchaser under Section 4(2) and/or Regulation D; and v) no
other offers or sales of securities by the Company are integrated with the
sale of the securities contemplated by the Transaction Documents to Xxxxxx
Private Equity, LLC. You are informed, however, that the Transaction
Documents contemplate the filing of a registration statement in connection
with the issuance of the Common Stock by the Company upon exercise of the
Warrants by Xxxxxx Private Equity, LLC in order to allow Xxxxxx Private
Equity, LLC to publicly resell such shares, and in the event such registration
statement is not declared effective by the Securities and Exchange Commission,
the shares of Common Stock issued upon exercise of the Warrants will continue
to be deemed to be restricted securities and would not be eligible for resale
by Xxxxxx Private Equity, LLC in the absence of an effective registration
statement covering the resale of such shares or a valid exemption from
registration. Further, as Xxxxxx Private Equity, LLC may be deemed to be an
underwriter for the purposes of the transactions contemplated by the
Transaction Documents, it is likely that Xxxxxx Private Equity, LLC would not
be eligible to resell any of the shares of Common Stock issued upon exercise
of the Warrants in reliance upon Rule 144 promulgated under the Securities Act
of 1933.
The opinions set forth herein are subject to the following
qualifications, limitations and assumptions:
(a) Our opinion in paragraph 4 above as to the enforceability of the
Transaction Documents is subject to (i) bankruptcy, insolvency,
reorganization, moratorium and other laws and legal principles of general
application now or hereafter in effect relating to or limiting the rights of
creditors; (ii) general principles of equity, whether such enforceability is
considered a proceeding in equity or at law and the exercise of judicial
discretion in granting equitable remedies; and (iii) such opinion does not
mean that
(x) any particular remedy is available upon a material default, or
(y) that a Court will enforce every provision of a contract exactly
as it is written.
In addition, certain provisions of the Transaction Documents (including,
without limitation, indemnification provisions and provisions in the nature of
liquidated damages or penalties) may not be enforceable in whole or in part
under the laws or public policies of the United States or the State of
Colorado.
(b) We have assumed (i) that the Transaction Documents constitute the
legal, valid and binding obligations of the parties thereto other than the
Company, enforceable in accordance with the respective terms; (ii) that the
parties to the Transaction Documents, other than the Company, have the
requisite power and authority to enter into such agreements and to perform
their respective obligations thereunder; (iii) that each of the parties to the
Transaction Documents, other than the Company, has duly authorized, executed
and delivered the Transaction Documents; (iv) that the actions of parties,
other than the Company, under the Transaction Documents are legal and will not
violate any laws, statutes, rules or interpretations thereof, of any local,
state or federal government or agency thereof; and (v) that the Company is and
remains domiciled in the State of Colorado prior to or at the time of issuance
of any shares under the Investment Agreement or the Warrants. We have also
assumed the legal capacity of all natural persons whose acts are relevant to
the opinions rendered herein.
(c) We express no opinion and assume no responsibility as to the
consequences resulting from any legislative act or other change in law
occurring after the date of this letter.
(d) We express no opinion on the enforceability, under certain
circumstances, of provisions to the effect that failure to exercise or delay
in exercising any right or remedy will not operate as a waiver of that right
or remedy.
(e) We express no opinion on the enforceability, in certain
circumstances, of provisions waiving broadly or vaguely stated rights,
statutory or other rights representing public policy, or unknown future rights
and of provisions that rights or remedies are not exclusive.
(f) We express no opinion on limitations on the exercise of certain
contractual rights and remedies if the defaults are not material or the
penalties bear no reasonable relation to the damage suffered by the aggrieved
party as a result of the delinquencies or defaults.
(g) We express no opinion with respect to any application of the usury
laws of any jurisdiction.
(h) We have made no independent investigation or inquiry and have relied
on the statements of officers of the Company and our examination of the
Company's reports filed under the Exchange Act. No inference as to our
knowledge of any matters bearing on the accuracy of any such statements should
be drawn from the fact of our representation of the Company.
(i) We express no opinion as to the validity, binding effect or
enforceability of the Transaction Documents in connection with willful acts or
negligence of the indemnified party, or any provisions of the Transaction
Documents relating to indemnification.
(j) We express no opinion as to the effect of any laws, rules or
regulations relating to any patent, trademark, copyright or communications
matters.
(k) Our opinions relate solely to the Company and specifically exclude
any and all of its subsidiaries, their respective operations and any
agreements, contracts or instruments (including the articles of incorporation
and bylaws) of such subsidiaries.
These opinions are rendered only with regard to the matters set out in
the numbered paragraphs above. No other opinions are intended nor should they
be inferred. These opinions are based solely upon the laws of the United
States and the State of Colorado as currently in effect, and do not include an
interpretation or statement concerning the laws of any other state or
jurisdiction. Specifically, we call your attention to the fact that the
Transaction Documents are stated therein to be governed by the State of
Georgia and that we are not admitted to practice law in the State of Georgia.
We express no opinion as to the enforceability of the choice of law provisions
of such documents under Georgia law. The enforceability opinions contained
herein are given on the assumption that the internal laws (as opposed to
conflict of law provisions) of the State of Georgia are identical to those of
the State of Colorado.
The opinions expressed herein are given to you solely for your use in
connection with the transactions contemplated by the Transaction Documents and
may not be relied upon by, or delivered to, any other person or entity or for
any other purpose without our prior written consent.
In addition to the legal opinions set forth above, you have asked us to
make certain factual representations to you based upon our present actual
knowledge of certain facts as they pertain to the Company. With respect to
the factual representations set forth below, you are advised that whenever we
state that such representation is made "to the best of our knowledge," we have
made such representation in reliance upon (a) our actual knowledge of only
those facts of which we have actually been made consciously aware in the
course of our representation of the Company as its securities counsel and such
knowledge is limited to matters relating to our representation of the Company
in connection with our engagement; (b) our review of the documents specified
above with respect to the legal opinions expressed in this letter; and (c) our
inquiry of the company to ascertain the accuracy of the factual
representations made by us; however, we have no reason to believe that such
reliance is improper. In addition, our representations are further limited to
matters in which we have been specifically engaged to represent the Company
and our representations specifically exclude any agreements, contracts,
documents or other instruments which have been provided to us in the course of
our representation of the Company, but which we were not engaged to prepare or
negotiate. In making the factual representations referred to below, we have
not undertaken an independent investigation or other examination of the
records of any court, administrative tribunal or similar entity, and, except
for those documents specifically referred to in this letter as having been
reviewed by us for the purposes of expressing the opinions contained herein,
we have not attempted to reevaluate for the purposes of this letter any
agreement, contract or other instrument to which the Company is a party.
Subject to the limitation that no legal opinion is being expressed with
respect to any of the matters set forth below, and subject further to all of
the limitations and qualifications set forth in this letter with respect to
both legal opinions and factual representations, you are advised of the
following:
(a) To the best of our knowledge, the Company is duly qualified as a
foreign corporation in every jurisdiction that such qualification
is necessary, except where the failure to so qualify would not
have a material adverse effect; and
(b) To the best of our knowledge, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending or threatened, with respect
to the Company or any of its operations, businesses, properties,
or assets, except as may be properly described in the Company's
reports or registration statements filed under the Exchange Act,
or such as individually or in the aggregate do not now have, and
will not in the future have, a material adverse effect upon the
operations, business, properties or assets of the Company.
Very truly yours,
XXXX XXXXX XXXXXXXX & XXXXXX, P.C.
By: /s/ Xxxxxxx X. Xxxxxxxx, P.C.
Xxxxxxx X. Xxxxxxxx, P.C.
SFF/emp
EXHIBIT J
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information in this Prospectus, the following:
1. Substantial Debt Obligations and Shortages of Funding. As the
result of debt obligations that we recently incurred in connection with our
purchase of oil and gas properties from Xxxxxxx Petroleum, we are obligated to
make substantial monthly payments to our lender on a loan which encumbers the
production revenue from 11 onshore xxxxx and the offshore Rocky Point and
Point Xxxxxxxx Units. Although we intend to seek outside capital to either
refinance the debt or provide a cushion, at the present time we are almost
totally dependent upon the revenues that we receive from our oil and gas
properties to service the debt. In the event that oil and gas prices and/or
production rates drop to a level that we are unable to pay the $150,000
principal and interest minimum payment per month that is required by the debt
agreements, it is likely that we would lose our interest in the properties
that we recently purchased. In addition, our level of oil and gas activities,
including exploration and development of existing properties, and additional
property acquisition, will be significantly dependent on our ability to
successfully conclude funding transactions. No assurances can be given that
any such funding transactions will be completed successfully.
2. History of Losses; No Assurance of Profitability. We have
incurred substantial losses from our operations to date, and at December 31,
1999 we had an accumulated deficit of $21,049,164. During the six months
ended December 31, 1999, we had total revenues of $733,834, expenses of
$2,204,639 and a net loss for the six months of $1,470,805. During the year
ended June 30, 1999, we had total revenues of $1,717,651, expenses of
$4,716,410 and a net loss for the year of $2,998,759. During the fiscal year
ended June 30, 1998 we had total revenues of $2,163,615, expenses of
$3,125,618 and a net loss for the year of $962,003. There are no assurances
that we will ever achieve profitability on a consistent basis.
3. Substantial Cost to Develop Certain of Our Offshore California
Properties; Development May Be Adversely Affected by the California Offshore
Oil and Gas Energy Resources ("COOGER") Study; Company Holds Minority Interest
in Certain Properties and Generally Will Not Control Timing of Development.
Certain of our offshore California undeveloped properties, in which we have
ownership interests ranging from 2.49% to 24.22%, are attributable to our
interests in four of our five federal units (plus one additional lease)
located offshore California near Santa Xxxxxxx. The cost to develop these
properties will be very substantial. The cost to develop all of these
offshore California properties in which we own a minority interest, including
delineation xxxxx, environmental mitigation, development xxxxx, fixed
platforms, fixed platform facilities, pipelines and power cables, onshore
facilities and platform removal over the life of the properties (assumed to be
38 years), is estimated to be in excess of $3 billion. Our share of such
costs, based on our current ownership interest, is estimated to be over $200
million. Operating expenses for the same properties over the same period of
time, including platform operating costs, well maintenance and repair costs,
oil, gas and water treating costs, lifting costs and pipeline transportation
costs, are estimated to be approximately $3.5 billion, with our share, based
on our current ownership interest, estimated to be approximately $300 million.
There will be additional costs of a currently undetermined amount to develop
the Rocky Point Unit. Each working interest owner will be required to pay its
proportionate share of these costs based upon the amount of the interest that
it owns. If we are unable to fund our share of these costs or otherwise cover
them through farmouts or other arrangements, then we could either forfeit our
interest in certain xxxxx or properties or suffer other penalties in the form
of delayed or reduced revenues under our various unit operating agreements.
There can be no assurance that we can farmout our interests on acceptable
terms.
These units have been formally approved and are regulated by the Minerals
Management Service ("MMS") of the federal government. While the federal
government has recently attempted to expedite the process of obtaining permits
and authorizations necessary to develop the properties, there can be no
assurance that it will be successful in doing so. The MMS has initiated the
California Offshore Oil and Gas Energy Resources (COOGER) study at the request
of the local regulatory agencies of the affected Tri-Counties. The COOGER
study seeks to present a long-term regional perspective of potential onshore
constraints that should be considered when developing existing undeveloped
offshore leases. COOGER will project the economically recoverable oil and gas
production from offshore leases which have not yet been developed. These
projections will be utilized to assist in identifying a potential range of
scenarios for developing these leases. The "worst case" scenario is that no
new development of existing offshore leases would occur. If this scenario
were ultimately to be adopted by governmental decision makers and the industry
as the proper course of action for development, our offshore California
properties would in all likelihood have little or no value. We would seek to
cause the Federal government to reimburse us for all money spent by us and our
predecessors for leasing and other costs and/or for the value of the oil and
gas reserves found on the leases through our exploration activities and those
of our predecessors.
We do not act as operator of and, with the exception of Rocky Point, we
do not own a controlling interest in any of the offshore California properties
and consequently we will generally not control the timing of either the
development of the properties or the expenditures for development unless we
choose to unilaterally propose the drilling of xxxxx under the relevant
operating agreements.
4. Substantial Costs to Develop Reserves. We have significant
undeveloped properties in addition to those in offshore California discussed
in #3 above that will require substantial costs to develop. During the year
ended June 30, 1999, we participated in the drilling and/or
completion/recompletion of four gas xxxxx and seven non-productive xxxxx. We
anticipate that we will participate in the drilling of a total of seven to ten
new xxxxx during the fiscal year ending June 30, 2000. Although we believe
that we will participate in the drilling of additional xxxxx during the
current fiscal year, our level of oil and gas activity, including exploration
and development and property acquisitions, will be to a significant extent
dependent upon our ability to successfully conclude funding transactions, of
which there is no assurance.
We expect to continue incurring costs to acquire, explore and develop oil
and gas properties, and management predicts that these costs (together with
general and administrative expenses) will be in excess of funds available from
revenues from properties owned by us and existing cash on hand. It is
anticipated that the source of funds to carry out such exploration and
development will come from a combination of our sale of working interests in
oil and gas leases, production revenues, sales of our securities and funds
from any funding transactions in which we might engage.
5. Dependence on Oil and Gas Prices. Our current ability to service
our debt and our oil and gas exploration and production activities are
dependent on the market prices of oil and gas. The prices for oil and gas are
dependent on a number of factors, including the extent of domestic production
and imports of oil; the competitive position of oil and gas as a source of
energy as compared with coal, atomic energy, hydroelectric power and other
energy sources; the refining capacity of prospective oil purchasers; the
availability and capacity of pipelines and other means of transportation; and
the effect of federal and state regulation on production, transportation and
sale of oil and gas. Such factors are beyond our control or influence. The
volatility of prices of oil and gas, which has been substantial in the past
and may continue to be high in the future, may have material effects on our
liquidity and capital resources. The Company is currently receiving oil and
gas prices in excess of their respective averages during the prior two years.
In addition, oil prices are at their highest level in the last ten years.
There can be no guarantee that these prices will continue in the future.
Additionally, the valuation of our proven and unproven oil and gas properties
and our production revenues could vary and fluctuate significantly with
changes in oil and gas prices. We have entered into forward sale arrangements
to mitigate the risks associated with lower prices, but these arrangements
also limit our ability to receive increased revenues from potentially higher
prices.
6. Shares Available for Resale. Of our presently outstanding shares
of Common Stock, 914,880 shares of "restricted securities" (the "UFG Owned
Shares") are owned by our former parent, Underwriters Financial Group, Inc.
("UFG"), which has filed for protection under federal bankruptcy laws. Under
the terms of a settlement agreement reached among us, UFG and Xxxxxx Oil
Corporation ("SOCO"), UFG granted a lien to SOCO on the UFG Owned Shares.
While the settlement agreement imposes certain restrictions upon the sales of
the UFG Owned Shares into the public market in addition to any restrictions
provided by SEC Rule 144 for affiliates, SOCO and the Trustee in bankruptcy
for UFG intend to effectuate the sale of the UFG Owned Shares as soon as
practicable. Subject to these restrictions, all of the UFG Owned Shares are
currently eligible for resale. Investors should be aware that such sales of
the UFG Owned Shares may, in the future, have a depressive effect on the price
of our Common Stock.
7. Competition. Oil and gas exploration and acquisition of
undeveloped properties is a highly competitive and speculative business. We
compete with a number of other companies, including major oil companies and
other independent operators which may be more experienced and may have greater
financial resources. We do not hold a significant competitive position in the
oil and gas industry.
8. Governmental Regulation and Control. Our activities are subject
to extensive federal, state, and local laws and regulations controlling not
only the exploration for and sale of oil, but also the possible effects of
such activities on the environment. Present as well as future legislation and
regulations could cause additional expenditures, restrictions and delays in
our business, the extent of which cannot be predicted, and may require us to
cease operations in some circumstances. In addition, the production and sale
of oil and gas are subject to various governmental controls. Because federal
energy policies are still uncertain and are subject to constant revisions, no
prediction can be made as to the ultimate effect on us of such governmental
policies and controls.
9. Dependence Upon Operators. We currently operate only a small
portion of the xxxxx in which we own an interest, and we are dependent upon
the operator of the xxxxx that we do not operate to make most decisions
concerning such things as whether or not to drill additional xxxxx, how much
production to take from such xxxxx, or whether or not to cease operation of
certain xxxxx. While we, as a working interest owner, may have some voice in
the decisions concerning the xxxxx, we are not the primary decision maker
concerning them. Therefore we may be unable to cause xxxxx to be drilled even
though we may have the funds with which to pay our proportionate share of the
expenses of such drilling.
10. General Risks Inherent in Oil and Gas Exploration and Operations.
Our business is subject to risks inherent in the exploration, development and
operation of oil and gas properties, including but not limited to
environmental damage, personal injury, and other occurrences that could result
in our incurring substantial losses and liabilities to third parties. In our
own activities, we purchase insurance against risks customarily insured
against by others conducting similar activities. Nevertheless, we are not
insured against all losses or liabilities which may arise from all hazards
because such insurance is not available at economic rates, because the
operator has not purchased such insurance or because of other factors. Any
uninsured loss could have a material adverse effect on us.
11. No Long-Term Contracts. We do not have any long-term supply or
similar agreements with governments or authorities pursuant to which we act as
producer. We are therefore dependent upon our ability to sell oil and gas at
the prevailing well head market price. There can be no assurance that
purchasers will be available or that the prices they are willing to pay will
remain stable.
12. Lack of Diversification. Since all of our resources are devoted
to one industry, purchasers of our Common Stock will be risking essentially
their entire investment in a company that is focused only on oil and gas
activities.
13. Voting Rights. Holders of our Common Stock are not entitled to
accumulate their votes for the election of directors or otherwise.
Accordingly, the present shareholders will be able to elect all of our
directors, and holders of the Common Stock offered hereby will not be able to
elect a representative to our Board of Directors. See "DESCRIPTION OF COMMON
STOCK."
14. Lack of Prospective Dividends. There can be no assurance that
our proposed operations will result in sufficient revenues to enable us to
operate at profitable levels or to generate a positive cash flow. For the
foreseeable future, it is anticipated that any earnings which may be generated
from our operations will be used to finance our growth and that dividends will
not be paid to holders of Common Stock. See "DESCRIPTION OF COMMON STOCK."
15. No Assurance of a Public Market. Our Common Stock is listed on
the Nasdaq Small-Cap Market and trades under the symbol "DPTR." To date,
trading volume for our Common Stock has been relatively light. The high sales
price during the past year was $5, while the low sales price during the same
period was $1-5/8
16. Agreement with Xxxxxx. We have limited cash resources and would
need additional capital to pay our operating costs and service our debt if oil
and gas prices drop significantly. It is possible that we might find
ourselves in a situation where we might need to rely on the money that we
would receive from Xxxxxx under our Investment Agreement if prices fall, but
our ability to obtain these funds is subject to certain conditions. These
conditions include the effectiveness of this registration statement covering
the resale of the shares sold under the Investment Agreement and a limitation
on our ability to issue shares based on the volume of trading in our Common
Stock. Although we are currently planning to satisfy our future cash
requirements from revenues, there can be no assurance that any funds required
during the next twelve months or thereafter will be generated from operations
or from any of the other potential sources. The lack of additional capital
might cause us to lose some of our most productive properties, which would
have a material adverse effect on our business.
17. Dependence on Key Personnel. We currently only have three
employees that serve in management roles, and the loss of any one of them
could severely harm our business. In particular, Xxxxx Xxxxxx is responsible
for the operation of our oil and gas business and Xxxxxx X. Xxxxxx, Xx. is
responsible for our finances. We don't have key man insurance on the lives of
either of these individuals.
EXHIBIT K
DELTA PETROLEUM CORPORATION
CAPITALIZATION SCHEDULE
JUNE 30, 2000
Common Stock Authorized: 300,000
Common Stock Outstanding: 8,422,079
Preferred Stock Authorized: 3,000,000
Preferred Stock Outstanding: 0
Warrants and Options:
Outside of Incentive Plan 1,172,500 (see schedule 1)
Under Incentive Plan: 1,665,866 (see schedule 2)
SCHEDULE 1
Delta Petroleum Corporation
OptIons/Warrants Outstanding
June 30, 2000
Outside Incentive Plan
Expiration Options/Warrants Option/Warrant Cash to
Name Date Granted Price Delta
1 Xxxxxxxx X. Xxxx 08/31/04 100,000 3.0000 300,000.00
2 Dublin Holdings, Inc. 09/01/97 (1) 50,000 6.0000 300,000.00
3 Xxxxx X. Xxxxxxx 06/09/03 10,000 3.5000 35,000.00
4 Estate of Xxx Xxxxxxx 06/09/03 10,000 3.5000 35,000.00
5 Xxxxxx Xxxxxxx - (2) 50,000 6.0000 300,000.00
7 Xxxxx X. & Xxxxx Xxxxx 11/06/00 21,438 6.1250 131,307.75
Xxxxx X. Xxxxxxxx 11/06/00 625 6.1250 3,823.13
Xxxxxx Xxxxxxx 11/06/00 35,219 6.1250 215,716.38
Xxxx X. Xxxxxxx 11/06/00 1,531 6.1250 9,377.38
Xxxxx X. Xxxxx 11/06/00 1,531 6.1250 9,377.38
Xxxxx X. Xxxxxxx 11/06/00 625 6.1250 3,828.13
Xxxxx X. Xxxxxx 11/06/00 1,531 6.1250 9,377.38 62,500
8 Globe Media 04/10/01 27,500 2.5000 68,750.00
04/10/01 62,500 3.0000 187,500.00
04/10/01 37,500 3.5000 131,250.00
04/10/01 37,500 4.0000 150,000.00
04/10/02 200,000 2.5000 500,000 00 365,000
9 Ambir Properties, Inc 10/09/03 250,000 3.5000 875,000.00
Shareholders 10/09/03 100,000 4.0000 400,000.00
10/09/03 100,000 4.5000 450,000.00
10/09/03 50,000 5.0000 250,000.00 500,000
10 Xxx Xxxxxxx 02/11/01 25,000 2.1250 53,125.00
--------- ------------
1,172,500 $4,418,437.50
========= =============
Average Price per Option outside the Plan $3.77
=============
(1) Option expires either the date of expiration or one year after
registration whichever is later.
(2) Option expires either the date of expiration or thirty days after
registration whichever is later.
SCHEDULE 2
Delta Petroleum Corporation
Options/Warrants Outstanding
June 30, 2000
Inside Incentive Plan
Expiration Options/Warrants Option/Warrant Cash to
Name Date Granted Price Delta
1 Xxxxxx X. Xxxxxx, Xx. 09/01/08 519,500 0.0500 25,975.00
11/05/09 100,000 1.7500 175,000.00 619,500
2 Xxxxx X. Xxxxxx 09/01/08 280,236 0.0500 14,011.80
11/05/09 100,000 1.7500 175,000.00 38O,236
3 Xxxxxx Xxxxxxx 05/12/09 35,000 1.7500 61,250.00
11/05/09 50,000 1.7500 87,500.00 85,000
4 Leihonie Xxxxxx 12/10/08 1,000 1.5625 1,562.50 1,000
5 Xxxxx Xxxxx 09/01/08 8,900 1.1250 10,012.50
09/01/08 20,000 1.1250 22,500.00
09/01/08 20,000 1.1250 22,500.00
09/01/08 20,000 1.1250 22,500.00
09/01/08 30,000 1.1250 33,750.00
12/10/08 25,000 1.5625 39,062.50
05/12/09 100,000 1.7500 175,000.00
11/05/09 75,000 1.7500 131,250.00 298,900
6 Xxxxx Xxxxxxxxx 11/14/06 50,000 2.7500 137,500.00
11/14/06 25,000 2.7500 68,750.00
11/14/06 25,000 3.7500 93,750.00
11/14/06 25,000 4.7500 118,750.00
11/14/06 25,000 5.5000 137,500.00
11/14/06 50,000 6.0000 300,000.00
11/14/06 25,000 9.7500 243,750.00 225,000
7 Xxx Xxxxxx 11/11/06 7,500 3.3000 24,750.00
11/11/06 5,625 3.2100 18,056.25 13,125
8 Xxxxx X. Xxxxxxx 11/11/06 7,500 3.3000 24,750.00
12/31/06 7,500 3.1500 23,625.00 15,000
9 Xxxxxx Xxxxxxxxxxx 12/31/06 1,875 2.9800 5,587.50
12/31/07 7,500 1.8800 14,100.00
08/30/09 8,750 1.3600 11,900.00
11/20/10 10,000 1.3000 13,000.00 28,125
--------- -------------
1,665,886 $2.232,643.05
========= =============
Average Price per Option inside the Plan $1.34
=============
Average Price per Option inside and outside the Plan $2.34
=============
EXHIBIT L
USE OF PROCEEDS STATEMENT
The Company plans to use the proceeds of this Offering for working capital,
debt retirement, property acquisitions and such other uses as the Company may
deem appropriate.
EXHIBIT M
INTELLECTUAL PROPERTY SCHEDULE
None
EXHIBIT N
DELTA PETROLEUM CORPORATION
KEY EMPLOYEES
Xxxxxx X. Xxxxxx, Xx. Chairman, Secretary, Treasurer, CEO
Xxxxx X. Xxxxxx President, COO
EXHIBIT Q
PUT CANCELLATION NOTICE
DELTA PETROLEUM CORPORATION (the "Company") hereby cancels the Put specified
below, pursuant to that certain Investment Agreement (the "Investment
Agreement") by and between the Company and Xxxxxx Private Equity, LLC dated on
or about July 21, 2000, as of the close of trading on the date specified below
(the "Cancellation Date," which date must be on or after the date that this
notice is delivered to the Investor), provided that such cancellation shall
not apply to the number of shares of Common Stock equal to the Truncated Put
Share Amount (as defined in the Investment Agreement).
Cancellation Date: _______________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: ________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration
Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
DELTA PETROLEUM CORPORATION
By:_____________________________________
Xxxxxx X. Xxxxxx, Xx., CEO
Address:
Attn: Xxxxxx X. Xxxxxx, Xx.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
EXHIBIT R
[ LETTERHEAD ]
Xxxxxx Private Equity, LLC
0000 Xxxxxxx Xxxxxx Xxxx
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Re: Delta Petroleum Corporation/ Private Equity Line
Registration Factual Certificate
We have acted as special counsel to Delta Petroleum Corporation, a
Colorado corporation (the "Company"), in connection with certain aspects of
that certain Investment Agreement dated July 21, 2000 by and between you and
the Company (the "Investment Agreement"), including, but not limited to, the
issuance and sale of shares of the Company's common stock to you pursuant to
the terms and conditions thereof.
In connection with the Investment Agreement, you have asked us to make
certain factual representations to you based upon our present actual knowledge
of certain facts as they pertain to the Company. You have informed us that
the sole purpose of this letter is for you to have written assurance from us
as counsel to the Company that we are not consciously acting in concert with
the Company to make some misstatement of a material fact in the Company's
registration statement to be filed with the Securities and Exchange Commission
pursuant to the Investment Agreement that we actually know at the time is
false, or consciously acting in concert with the Company to omit to state a
material fact of which we are aware and which we know at the time is necessary
to be disclosed in order to make the statements made in such registration
statement, in light of the circumstances under which they are made, not
misleading. We have informed you that we would not be willing to make these
requested factual representations unless you execute and deliver the "Covenant
Not to Xxx" which is attached hereto as Exhibit A.
With respect to the factual representation set forth herein, you are
advised that we have made such representation in reliance upon our actual
knowledge of only those facts of which we have actually been made consciously
aware in the course of our representation of the Company as its counsel. In
making the factual representation below, we have not undertaken an independent
investigation or other examination of the records of any court, administrative
tribunal or similar entity, and we have not attempted to reevaluate for the
purposes of this letter any agreement, contract or other instrument to which
the Company is a party.
Subject to the limitation that no legal opinion is being expressed, and
subject further to all of the limitations and qualifications set forth in this
letter, you are advised that during the course of our representation of the
Company in connection with the Company's registration statement, nothing has
come to our attention which causes us to believe that the registration
statement contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading. In addition, you are informed that we have been
notified by the Securities and Exchange Commission that the Registration
Statement has become effective under the Securities Act, and to the best of
our knowledge, no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for that purpose have been
instituted or are pending before, or are threatened by the Securities and
Exchange Commission.
This letter speaks only as of its date, is for your use only in
accordance with your representations to us and is not to be relied upon or
provided to any other person without our express written consent.
Very truly yours,
XXXX XXXXX XXXXXXXX & XXXXXX, P.C.
By
/s/ Xxxxxxx X. Xxxxxxxx, P.C.
Xxxxxxx X. Xxxxxxxx, P.C.
Exhibit A
COVENANT NOT TO XXX
This Covenant Not to Xxx is made by Xxxxxx Private Equity, LLC ("Xxxxxx")
to and for the benefit of the law firm of Xxxx Xxxxx Xxxxxxxx & Xxxxxx, P.C.
(the "Law Firm") in order to induce the Law Firm to make certain factual
representations to Xxxxxx (the "Factual Representations") based upon the
present actual knowledge of employees of the Law Firm of certain facts as they
pertain to Delta Petroleum Corporation ("Delta") in connection with its
preparation of a registration statement to be filed with the Securities and
Exchange Commission (the "Registration Statement") pursuant to an Investment
Agreement between Delta and Xxxxxx (the Investment Agreement"). Xxxxxx
represents and warrants that the sole purpose of having the Law Firm make
these Factual Representations is for Xxxxxx to have written assurance from the
Law Firm as Delta's legal counsel that the Law Firm is not acting in concert
with Delta to knowingly make some misstatement of a material fact in Delta's
Registration Statement that employees of the Law Firm actually know at the
time is false, or is acting in concert with Delta to knowingly omit to state a
material fact of which it is then aware and which employees of the Law Firm
know at the time is necessary to be disclosed in order to make the statements
made in such Registration Statement, in light of the circumstances under which
they are made, not misleading. The Law Firm would not be willing to make
these Factual Representations to Xxxxxx in the absence of this Covenant Not to
Xxx by Xxxxxx.
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Xxxxxx hereby covenants and agrees that neither Xxxxxx nor any
of its owners, officers, directors, employees, agents, successors or assigns
will assert any claim of any kind or commence any action, whether in court or
by arbitration, mediation or otherwise, or demand or otherwise seek any
damages or expenses of any kind from the Law Firm or any of its owners,
officers, directors, employees, agents, successors or assigns, in connection
with or arising out of or in reliance upon any Factual Representations, unless
all of such claims arose directly and proximately from specific Factual
Representations that were materially false and misleading at the time they
were made and that either (a) the Law Firm was acting in concert with Delta to
knowingly make a misstatement of a material fact in Delta's Registration
Statement that employees of the Law Firm actually knew at the time to be
false, or (b) the Law Firm was acting in concert with Delta to knowingly omit
to state a material fact of which employees of the Law Firm knew at the time
was necessary to be disclosed in order to make the statements made in such
Registration Statement, in light of the circumstances under which they are
made, not misleading.
Xxxxxx further covenants and agrees that it will indemnify and hold
harmless the Law Firm and each of its owners, officers, directors, employees,
agents, successors and assigns from any and all expenses and other damages
incurred by any of them as a result of a breach of the terms of this Covenant
Not to Xxx by Xxxxxx or any of its owners, officers, directors, employees,
agents, successors or assigns. In addition, in the event of any litigation or
other proceeding arising from or relating to this Covenant Not to Xxx, in
addition to such other relief as may be awarded, the Law Firm shall be
entitled to recover all of its costs and expenses, including without
limitation, attorneys fees and expenses, expert witness fees and expenses,
deposition fees and expenses, travel expenses and any and all other fees,
costs and expenses incurred by the Law Firm in connection with such action.
XXXXXX PRIVATE EQUITY, LLC
By: _____________________________________
Duly Authorized Member
XXXX XXXXX XXXXXXXX & XXXXXX, P.C.
By: ____________________________________
Xxxxxxx X. Xxxxxxxx, P.C.
EXHIBIT S
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Delta Petroleum Corporation's, and Xxxxxx
Private Equity, LLC dated on or about July 21, 2000, hereby confirms receipt
of Delta Petroleum Corporation's (the "Company") Put Cancellation Notice, and
confirms the following:
Date of this Confirmation: _______________
Put Cancellation Date: ___________________
INVESTOR(S)
___________________________________
Investor's Name
By: _______________________________
(Signature)
Address: ___________________________________
___________________________________
___________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
EXHIBIT T
July 21, 2000
Attn: Xxxxx Xxxxxx/Xxxxxxx Xxxx
Corporate Stock Transfer, Inc.
0000 Xxxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Dear Xxxxx Xxxxxx/Xxxxxxx Xxxx:
Reference is made to that certain Investment Agreement (the "Investment
Agreement") Registration Rights Agreement and Escrow Agreement, each dated on
or about July 21, 2000, by and among Delta Petroleum Corporation, a Colorado
corporation (the "Company"), Xxxxxx Private Equity, LLC (the "Investor") and
the other signatories thereto (the "Holders") pursuant to which the Company,
at times and amounts chosen by the Company, as further described in the
Investment Agreement, may issue to the Holder up to Twenty Million Dollars
($20,000,000) in aggregate principal amount of Common Stock of the Company
(the "Put Shares"), and warrants (the "Warrants") to purchase Common Stock
(the "Warrant Shares") of the Company's.
A. Issuance of Put Shares. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent
of the Company at such time) to issue unlegended Put Shares in the name of the
Holder (or in the name of its nominee, at the Holder's request) and deliver
such shares in accordance with the Escrow Agreement, from time to time, upon
surrender to you of (i) a letter from the Company, instructing you to issue a
specified number of Put Shares to the Holder, (ii) a properly completed and
duly executed Put Notice, in the form attached hereto as Exhibit 1, which has
been properly agreed and acknowledged by the Company as indicated by the
signature of a duly authorized officer of the Company thereon, (iii)
Confirmation (as defined below) and (iv) an opinion of counsel ("Put Opinion
of Counsel") in substantially the form of the Put Opinion of Counsel in
Composite Exhibit 2.
B. Issuance of Warrant Shares. This letter shall serve as our
irrevocable authorization and direction to you (provided that you are the
transfer agent of the Company at such time) to issue unlegended Warrant Shares
in the name of the Holder (or in the name of its nominee, at the Holder's
request) from time to time upon surrender to you of (i) a letter from the
Company, instructing you to issue a specified number of Warrant Shares to the
Holder, (ii) a properly completed and duly executed Warrant Exercise Form, in
the form attached hereto as Exhibit 3, which has been properly agreed and
acknowledged by the Company as indicated by the signature of a duly authorized
officer of the Company thereon, (iii) Confirmation (as defined below) and (iv)
an opinion of counsel ("Warrant Opinion of Counsel") in substantially the form
of the Commitment Opinion of Counsel (in the case of the Commitment Warrant)
or the Put Opinion of Counsel (in the case of the Purchase Warrant), each in
Composite Exhibit 4.
C. Legend Free Certificates. So long as you have previously received
either: (A)(i) written confirmation from counsel to the Company (which counsel
may be in-house legal counsel) that a registration statement covering resales
of the Put Shares and Warrant Shares has been declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and (ii) a copy of such registration statement, or (B) written
confirmation from counsel to the Company (which counsel may be in-house legal
counsel) that a public sale or transfer of such Security may be made without
registration under the Act, ((A) or (B) above, as applicable, is referred to
as a "Confirmation"), certificates representing the Put Shares and Warrant
Shares shall not bear any legend restricting transfer of the Put Shares or
Warrant Shares and should not be subject to any stop-transfer restriction.
If you have not previously received Confirmation, then the Put Shares
shall not be issued, and the certificates representing the Warrant Shares
shall be issued, but shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS."
provided, however, that the Company may from time to time notify you to place
a stop-transfer restriction on the certificates for outstanding Put Shares and
Warrant Shares in the event a registration statement covering resales of the
Put Shares and the Warrant Shares is subject to amendment for events then
current.
Please be advised that the Holders are relying upon this letter as an
inducement to enter into the Investment Agreement.
Very truly yours,
DELTA PETROLEUM CORPORATION
By:____________________________
Xxxxxx X. Xxxxxx, Xx. CEO
Agreed and Acknowledged:
INVESTOR
XXXXXX PRIVATE EQUITY, LLC
By: __________________________
Xxxx X. Xxxxxx, Manager
Date: July 21, 2000
Enclosures
ATTACHED EXHIBITS 1 - 4
EXHIBIT U
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.
Warrant to Purchase
500,000 shares
Warrant to Purchase Common Stock
of
DELTA PETROLEUM CORPORATION
THIS CERTIFIES that Xxxxxx Private Equity, LLC or any subsequent holder
hereof pursuant to Section 8 hereof ("Holder"), has the right to purchase from
DELTA PETROLEUM CORPORATION, a Colorado corporation (the "Company"), up to
500,000 fully paid and nonassessable shares of the Company's common stock,
$0.01 par value per share ("Common Stock"), subject to adjustment as provided
herein, at a price equal to the Exercise Price as defined in Section 3 below,
at any time beginning on the Date of Issuance (defined below) and ending at
5:00 p.m., New York time the date that is five (5) years after the Date of
Issuance (the "Exercise Period").
Holder agrees with the Company that this Warrant to Purchase Common Stock
of the Company (this "Warrant") is issued and all rights hereunder shall be
held subject to all of the conditions, limitations and provisions set forth
herein.
1. Date of Issuance and Term.
This Warrant shall be deemed to be issued on May 31, 2000 ("Date of
Issuance"). The term of this Warrant is five (5) years from the Date of
Issuance.
Of this Warrant to purchase five hundred thousand (500,000) shares of
Common Stock of the Company, the Warrant is exercisable as to one hundred
fifty thousand (150,000) shares of Common Stock of the Company after the
fifteen (15) business day document review period (the "Review Period")
referenced in the Equity Line Letter of Agreement dated on or about May 31,
2000, between Xxxxxx Private Equity, LLC and Company (the "Letter of
Agreement") has ended, shall be further exercisable as to the an additional
one hundred seventy-five thousand (175,000) shares of Common Stock of the
Company upon the execution by the Company and Xxxxxx Private Equity, LLC of an
Investment Agreement, pursuant to the Letter of Agreement ("Investment
Agreement") and shall be further exercisable as to the remaining one hundred
seventy-five thousand (175,000) shares of Common Stock of the Company upon the
earlier of (i) the date of effectiveness of Company's registration statement
(the "Registration Statement") to be filed pursuant to the Investment
Agreement and related documents, or (ii) November 31, 2000.
Anything in this Warrant to the contrary notwithstanding, if the
Company delivers written notice to Xxxxxx Private Equity, LLC prior to the
expiration of the Review Period that the legal documents for the transaction
are unacceptable and the Company wishes to terminate the transaction (a
"Company Termination Notice"), Holder shall return this Warrant to the Company
and all of Holder's rights under this Warrant shall be null and void and of no
effect, provided that, if the Company has not delivered a Company Termination
Notice to Xxxxxx Private Equity, LLC, prior to the expiration of the Review
Period, ownership of this Warrant shall irrevocably vest to the Holder,
regardless of whether a Company Termination Notice is delivered anytime
thereafter.
Notwithstanding the above, this Warrant shall terminate with respect to
two hundred fifty thousand (250,000) shares of Common Stock if both (A) the
Company notifies Xxxxxx that it chooses to terminate the transaction
contemplated by the Investment Agreement on or prior to October 31, 2000, and
(B) ALL of the following are true on or prior to the date of such termination:
(i) the Company and Xxxxxx Private Equity, LLC have executed an
Investment Agreement;
(ii) the Company enters into a settlement with the State of California
and/or the U.S. Government prior to October 31, 2000 for an amount equal to
$40 million or more, and
(iii) a Registration Statement covering the Equity Line transaction
contemplated by the Letter of Agreement is not yet effective.
In the event Company chooses to cancel the Equity Line subject to the
above referenced conditions and this Warrant terminates as to 250,000 shares
of Common Stock, the Company shall file a registration statement covering the
resale of the Common Stock underlying the remaining 250,000 shares of this
Warrant within 30 days of the date of such cancellation and shall use
commercially reasonable efforts to have the registration statement declared
effective within 60 days from the date of filing.
2. Exercise.
(a) Manner of Exercise. During the Exercise Period, this Warrant may be
exercised as to all or any lesser number of full shares of Common Stock
covered hereby (the "Warrant Shares") upon surrender of this Warrant, with the
Exercise Form attached hereto as Exhibit A (the "Exercise Form") duly
completed and executed, together with the full Exercise Price (as defined
below) for each share of Common Stock as to which this Warrant is exercised,
at the office of the Company, Attention: Xxxxxx X. Xxxxxx, Xx., CEO/Chairman,
000 00xx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000; Telephone: (303)
000-0000, Facsimile: (000) 000-0000, or at such other office or agency as the
Company may designate in writing, by overnight mail, with an advance copy of
the Exercise Form sent to the Company and its Transfer Agent by facsimile
(such surrender and payment of the Exercise Price hereinafter called the
"Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the completed and executed
Exercise Form is sent by facsimile to the Company, provided that the original
Warrant and Exercise Form are received by the Company as soon as practicable
thereafter. Alternatively, the Date of Exercise shall be defined as the date
the original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon the
Exercise of this Warrant, and, as soon as practical after the Date of
Exercise, Holder shall be entitled to receive Common Stock for the number of
shares purchased upon such Exercise of this Warrant, and if this Warrant is
not exercised in full, Holder shall be entitled to receive a new Warrant
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares
of Common Stock is issued shall, for all purposes, be deemed to be the Holder
of record of such shares on the Date of Exercise of this Warrant, irrespective
of the date of delivery of the Common Stock purchased upon the Exercise of
this Warrant. Nothing in this Warrant shall be construed as conferring upon
Holder any rights as a stockholder of the Company.
3. Payment of Warrant Exercise Price.
The Exercise Price per share ("Exercise Price") shall equal $3.00
(the "Exercise Price").
Payment of the Exercise Price may be made by either of the following, or
a combination thereof, at the election of Holder:
(i) Cash Exercise: cash, bank or cashiers check or wire transfer; or
(ii) Cashless Exercise: The Holder, at its option, may exercise this
Warrant in a cashless exercise transaction. In order to effect a Cashless
Exercise, the Holder shall surrender this Warrant at the principal office of
the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using
the following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is
being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average Closing Price of the Common Stock for the
five (5) trading days prior to the Date of Exercise of this
Warrant (the "Average Closing Price"), as reported by the O.T.C.
Bulletin Board, National Association of Securities Dealers
Automated Quotation System ("Nasdaq") Small Cap Market, or if the
Common Stock is not traded on the Nasdaq Small Cap Market, the
Average Closing Price in any other over-the-counter market;
provided, however, that if the Common Stock is listed on a stock
exchange, the Market Price shall be the Average Closing Price on
such exchange for the five (5) trading days prior to the date of
exercise of the Warrants. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date of Exercise,
then the closing price for the last publicly traded day shall be
deemed to be the closing price for any and all (if applicable)
days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is
intended, understood and acknowledged that the Common Stock issuable upon
exercise of this Warrant in a cashless exercise transaction shall be deemed to
have been acquired at the time this Warrant was issued. Moreover, it is
intended, understood and acknowledged that the holding period for the Common
Stock issuable upon exercise of this Warrant in a cashless exercise
transaction shall be deemed to have commenced on the date this Warrant was
issued.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender
and, as soon as practicable thereafter, the person to whom such transfer is
made shall be entitled to receive a new Warrant or Warrants as to the portion
of this Warrant transferred, and Holder shall be entitled to receive a new
Warrant as to the portion hereof retained.
(b) Registrable Securities. In addition to any other registration rights
of the Holder, if the Common Stock issuable upon exercise of this Warrant is
not registered for resale at the time the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its Common Stock under the Act
(other than a registration relating solely for the sale of securities to
participants in a Company stock plan or a registration on Form S-4 promulgated
under the Act or any successor or similar form registering stock issuable upon
a reclassification, upon a business combination involving an exchange of
securities or upon an exchange offer for securities of the issuer or another
entity)(a "Piggyback Registration Statement"), the Company shall cause to be
included in such Piggyback Registration Statement ("Piggyback Registration")
all of the Common Stock issuable upon the exercise of this Warrant
("Registrable Securities") to the extent such inclusion does not violate the
registration rights of any other securityholder of the Company granted prior
to the date hereof. Nothing herein shall prevent the Company from withdrawing
or abandoning the Piggyback Registration Statement prior to its effectiveness.
(c) Limitation on Obligations to Register under a Piggyback
Registration. In the case of a Piggyback Registration pursuant to an
underwritten public offering by the Company, if the managing underwriter
determines and advises in writing that the inclusion in the registration
statement of all Registrable Securities proposed to be included would
interfere with the successful marketing of the securities proposed to be
registered by the Company, then the number of such Registrable Securities to
be included in the Piggyback Registration Statement, to the extent such
Registrable Securities may be included in such Piggyback Registration
Statement, shall be allocated among all Holders who had requested Piggyback
Registration pursuant to the terms hereof, in the proportion that the number
of Registrable Securities which each such Holder seeks to register bears to
the total number of Registrable Securities sought to be included by all
Holders. If required by the managing underwriter of such an underwritten
public offering, the Holders shall enter into a reasonable agreement limiting
the number of Registrable Securities to be included in such Piggyback
Registration Statement and the terms, if any, regarding the future sale of
such Registrable Securities.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then Holder, upon Exercise of this
Warrant after the record date for the determination of holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise
of this Warrant, in addition to the number of shares of Common Stock as to
which this Warrant is exercised, such additional shares of Common Stock as
such Holder would have received had this Warrant been exercised immediately
prior to such record date and the Exercise Price will be proportionately
adjusted.
(b) Recapitalization or Reclassification.
(i) Stock Split. If the Company shall at any time effect a
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger number of shares (a "Stock Split"), then upon the
effective date thereof, the number of shares of Common Stock which Holder
shall be entitled to purchase upon Exercise of this Warrant shall be increased
in direct proportion to the increase in the number of shares of Common Stock
by reason of such recapitalization, reclassification or similar transaction,
and the Exercise Price shall be proportionally decreased.
(ii) Reverse Stock Split. If the Company shall at any time effect
a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a smaller number of shares (a "Reverse Stock Split"), then
upon the effective date thereof, the number of shares of Common Stock which
Holder shall be entitled to purchase upon Exercise of this Warrant shall be
proportionately decreased and the Exercise Price shall be proportionally
increased. The Company shall give Holder the same notice it provides to
holders of Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute for
no consideration to holders of Common Stock cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or preceding years) then,
in any such case, Holder shall be entitled to receive, upon Exercise of this
Warrant, with respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or other securities
or assets which Holder would have been entitled to receive with respect to
each such share of Common Stock as a result of the happening of such event had
this Warrant been exercised immediately prior to the record date or other date
fixing shareholders to be affected by such event (the "Determination Date")
or, in lieu thereof, if the Board of Directors of the Company should so
determine at the time of such distribution, a reduced Exercise Price
determined by multiplying the Exercise Price on the Determination Date by a
fraction, the numerator of which is the result of such Exercise Price reduced
by the value of such distribution applicable to one share of Common Stock
(such value to be determined by the Board of Directors of the Company in its
discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or another class or
classes of stock or securities or other assets of the Company or another
entity or there is a sale of all or substantially all the Company's assets (a
"Corporate Change"), then this Warrant shall be exerciseable into such class
and type of securities or other assets as Holder would have received had
Holder exercised this Warrant immediately prior to such Corporate Change;
provided, however, that Company may not affect any Corporate Change unless it
first shall have given thirty (30) days notice to Holder hereof of any
Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in Section
3 of this Warrant, until the occurrence of an event stated in subsection (a),
(b) or (c) of this Section 5, and thereafter shall mean said price as adjusted
from time to time in accordance with the provisions of said subsection. No
such adjustment under this Section 5 shall be made unless such adjustment
would change the Exercise Price at the time by $.01 or more; provided,
however, that all adjustments not so made shall be deferred and made when the
aggregate thereof would change the Exercise Price at the time by $.01 or more.
(f) Adjustments: Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
Section 5, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall
be issuable upon the Exercise of this Warrant, but on Exercise of this
Warrant, Holder may purchase only a whole number of shares of Common Stock.
If, on Exercise of this Warrant, Holder would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon exercise shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities
substituted therefor as herein above provided) as shall be sufficient for the
Exercise of this Warrant and payment of the Exercise Price. The Company
covenants and agrees that upon the Exercise of this Warrant, all shares of
Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to preemptive rights, rights of
first refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant has been
issued in a transaction exempt from the registration requirements of the Act
by virtue of Regulation D and exempt from state registration under applicable
state laws. The Warrant and the Common Stock issuable upon the Exercise of
this Warrant may not be pledged, transferred, sold or assigned except pursuant
to an effective registration statement or unless the Company has received an
opinion from the Company's counsel to the effect that such registration is not
required, or the Holder has furnished to the Company an opinion of the
Holder's counsel, which counsel shall be reasonably satisfactory to the
Company, to the effect that such registration is not required; the transfer
complies with any applicable state securities laws; and, if no registration
covering the resale of the Warrant Shares is effective at the time the Warrant
Shares are issued, the Holder consents to a legend being placed on
certificates for the Warrant Shares stating that the securities have not been
registered under the Securities Act and referring to such restrictions on
transferability and sale.
(b) Assignment. If Holder can provide the Company with reasonably
satisfactory evidence that the conditions of (a) above regarding registration
or exemption have been satisfied, Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment
attached hereto as Exhibit B, indicating the person or persons to whom the
Warrant shall be assigned and the respective number of warrants to be assigned
to each assignee. The Company shall effect the assignment within ten (10)
days, and shall deliver to the assignee(s) designated by Holder a Warrant or
Warrants of like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and Holder any legal or equitable right, remedy
or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and Holder.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of
Colorado, without giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made
by Holder to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, to
the address set forth in Section 2(a) above. Notices or demands pursuant to
this Warrant to be given or made by the Company to or on Holder shall be
sufficiently given or made if sent by certified or registered mail, return
receipt requested, postage prepaid, and addressed, to the address of Holder
set forth in the Company's records, until another address is designated in
writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
____ day of June, 2000.
DELTA PETROLEUM CORPORATION
By: ______________________________________
Xxxxxx X. Xxxxxx, Xx., President & CEO
EXHIBIT A
EXERCISE FORM FOR WARRANT
TO: DELTA PETROLEUM CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock (the "Common Stock") of DELTA
PETROLEUM CORPORATION a Colorado corporation (the "Company"), evidenced by the
attached warrant (the "Warrant"), and herewith makes payment of the exercise
price with respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of the Common Stock obtained on exercise of the Warrant, except in
accordance with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, if appropriate, and a warrant representing any
unexercised portion hereof be issued, pursuant to the Warrant in the name of
the undersigned and delivered to the undersigned at the address set forth
below:
Dated: __________________
________________________________________________________________________
Signature
_______________________________________________________________________
Print Name
________________________________________________________________________
Address
_______________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
"Warrant") hereby sells, assigns and transfers unto the person or persons
below named the right to purchase _______ shares of the Common Stock of DELTA
PETROLEUM CORPORATION, evidenced by the attached Warrant and does hereby
irrevocably constitute and appoint _______________________ attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution in the premises.
Dated: ______________________________
Signature
Fill in for new registration of Warrant:
_________________________________________
Name
_________________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)
_______________________________________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
________________________________________________________________________
