SECURITIES PURCHASE AGREEMENT
Exhibit
10.01
This
SECURITIES PURCHASE AGREEMENT (this “Agreement”)
is
dated as of October 31, 2006 and is by and among Xxxxxxx Drilling Corporation.
a
Nevada corporation (the “Company”),
and
each investor listed on Exhibit
A
hereto
(each such investor individually, a “Purchaser”
and,
collectively, the “Purchasers”;
such
Purchasers and their transferors are hereinafter individually referred to
as a
“Holder”
and,
collectively, the “Holders”).
WHEREAS,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to purchase from the Company, (i) up to $500,000 aggregate principal
amount of its 12% Convertible Notes due November 1, 2007 (the “Notes”)
and
(ii) up to 200,000 shares of Common Stock (“Shares”),
all
upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS,
simultaneously with entering into this Agreement, the Company and the Purchasers
are entering into that certain Registration Rights Agreement, dated as of
the
date hereof (the “Registration
Rights Agreement”)
attached as Exhibit
C
hereto,
pursuant to which the Company shall register for resale the Conversion Shares
(as defined below) on the terms set forth therein.
NOW
THEREFORE, in consideration of the mutual agreements, representations,
warranties and covenants herein contained, the parties hereto agree as follows:
1. DEFINITIONS
As
used
in this Agreement, the following terms shall have the following respective
meanings:
“Affiliate”
means any Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
a
Person; as such terms are used and construed under Rule 144.
“Board”
means the board of directors of the Company.
“Business
Day” means any day other than a Saturday, Sunday or a day on which banks and
trust companies in New York, New York are authorized by law, regulation or
executive order to remain closed.
“Closing”
as the has the meaning specified in Section 2.4 hereof.
“Closing
Date” xxxxx the date on which Closing occurs.
“Closing
Price” of a single share of Common Stock on any Trading Day shall mean the
closing sale price per share for the Common Stock (or if no closing sale
price
is reported, the average of the bid and ask prices) on such Trading Day on
the
principal United States national securities exchange on which the Common
Stock
is traded or, if the Common Stock is not listed on a United States national
stock exchange, as reported by the National Association of Securities Dealers
Automated Quotation System OTC Bulletin Board (the “Bulletin Board”) or such
similar quotation system or association, the closing sale price of one share
of
Common Stock on Nasdaq, the Bulletin Board or such other quotation system
or
association on the last trading day or, if no such closing sale price is
available, the average of the high bid and the low asked price quoted thereon
on
the last trading day..
“Common
Stock” means the Company’s common stock, par value $0.002 per
share.
“Conversion
Shares” means the shares of Common Stock into which the Notes are convertible
from time to time.
“Environmental
Protection Laws” means any law, statute or regulation enacted by any
jurisdiction in connection with or relating to the protection or regulation
of
the environment, including, without limitation, those laws, statutes and
regulations regulating the disposal, removal, production, storing, refining,
handling, transferring, processing or transporting of hazardous or toxic
substances, and any orders, decrees or judgments issued by any court of
competent jurisdiction in connection with any of the foregoing.
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“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and all of the rules
and regulations promulgated thereunder.
“Governmental
Authority” means any: (a) nation, principality, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction
of any
nature; (b) federal, state, local municipal, foreign or other government;
(c) governmental or quasi governmental authority of any nature (including
any governmental division, subdivision, department, agency, bureau, branch,
office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or entity and any court or other
tribunal); (d) multinational organization or body; or (e) individual,
entity or body exercising, or entitled to exercise, any executive, legislative,
judicial, administrative, regulatory, police, military or taxing authority
or
power of any nature.
“Indebtedness”
means, as applied to any Person, all indebtedness for borrowed money, whether
current or funded, or secured or unsecured.
“Lien”
means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such property
or asset, whether or not filed, recorded or otherwise perfected under applicable
law, other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and encumbrances that do not materially detract
from
the value of the property or materially impair the operations of the Company
or
materially interfere with the use of such property or asset or (c) those
relating to Indebtedness incurred prior to the date hereof and any replacement
thereof.
“Majority
Purchasers” means the Holders of 50% of the aggregate outstanding principal
amount of the Notes.
“Material
Adverse Effect” means any event, occurrence or development that has had, or that
could reasonably be expected to have, individually or in the aggregate with
other events, occurrences or developments, a material adverse effect on the
assets, liabilities (contingent or otherwise), business, affairs, operations,
prospects or condition (financial or otherwise) of the Company.
“Person”
(whether or not capitalized) means an individual, entity, partnership, limited
liability company, corporation, association, trust, joint venture,
unincorporated organization, and any government, governmental department
or
agency or political subdivision thereof.
“Registration
Rights Agreement” has the meaning specified in the third recital
hereof.
“Rule
144” means Rule 144 promulgated under the Securities Act and any successor or
substitute rule, law or provision.
“SEC”
means the Securities and Exchange Commission.
“Securities”
means the Conversion Shares, Shares and Notes.
“Securities
Act” means the Securities Act of 1933, as amended, and all of the rules and
regulations promulgated thereunder.
“Shares”
has the meaning specified in the second recital hereof.
“Trading
Day” shall mean each day on which the primary securities exchange or quotation
system that is used to determine the Closing Price is open for trading or
quotation.
“Transaction
Documents” means, collectively, this Agreement, the Notes, and the Registration
Rights Agreement.
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2. GENERAL
2.1. Authorization
of Notes.
The
Company has authorized the issue and sale of the Notes, a form of which is
attached as Exhibit
B.
2.2. Sale
and Purchase of Notes.
Subject
to the terms and conditions of this Agreement, the Company will issue and
sell
to each Purchaser, and each Purchaser will purchase from the Company, on
the
Closing Date, Notes in the principal amount specified opposite such Purchaser’s
name in Exhibit
A.
Each
Purchaser’s obligations hereunder are several and not joint obligations and no
Purchaser shall have any obligation hereunder or any liability to any Person
for
the performance or non-performance by any other Purchaser
hereunder.
2.3. Issuance
of Shares.
Subject
to and upon the terms and conditions set forth in this Agreement, the Company
agrees to issue to each Purchaser Shares equal to the amount set forth next
to
each Purchasers name on Exhibit A.
2.4. Closing.
The
sale and purchase of the Notes and Shares to be purchased hereunder shall
occur
at the offices of Xxxxxx & Xxxxxxxxx PC, 0 Xxxxxxxx, 00xx
Xxxxx,
Xxxxxxx, Xxxxx, xx the date hereof (the “Closing”).
At
the Closing, the Company will deliver to each Purchaser (i) the Notes to
be
purchased by such Purchaser in the form of a single Note dated the Closing
Date
and registered in such Purchaser’s name (or in the name of its nominee), against
delivery by such Purchaser to the Company or its order of the aggregate amount
of the purchase price therefor, which may be paid by immediately available
funds
by wire transfer for the account of the Company designated by the Company
for
receipt of such wire transfer, and (ii) the Shares, in accordance with Section
2.3.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to each Purchaser, as of the date
hereof
and except as set forth on the disclosure schedule furnished by the Company
to
each Purchaser (the “Disclosure
Schedule”)
attached hereto, as follows:
3.1. Incorporation.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada and the Subsidiaries’ are each a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of their respective incorporation
and have all requisite corporate power and authority to carry on their business
as now conducted and to own their properties. Except as set forth in
Schedule
3.1
to the
Disclosure Schedule, both the Company and the Subsidiaries are in good standing
as a foreign corporation or other entity in each jurisdiction in which the
nature of the business conducted or the character of the property owned by
it
makes such qualification necessary, except where the failure to be so qualified
would not result in a Material Adverse Effect. Except as set forth in
Schedule
3.1
to the
Disclosure Schedule, each of the Company and the Subsidiaries has all requisite
corporate power and authority to carry on its business as now conducted and
to
carry out the transactions contemplated hereby. Neither the Company nor
Subsidiaries are in violation of any of the provisions of its Articles of
Incorporation (or other charter document) or By-laws.
3.2. Capitalization.
a. The
authorized capital stock of the Company consists of (i) 200,000,000 shares
of
Common Stock, of which 43,351,021 shares were outstanding as of the date
hereof,
and (ii) 12,500,000 shares of preferred stock of which 5,835 shares were
outstanding as of the date hereof. All shares of the Company’s issued and
outstanding capital stock have been duly authorized, are validly issued and
outstanding, and are fully paid and nonassessable. Except as set forth in
Schedule
3.2
to the
Disclosure Schedule, there are no existing options, warrants, calls, preemptive
(or similar) rights, subscriptions or other rights, agreements, arrangements
or
commitments of any character obligating the Company to issue, transfer or
sell,
or cause to be issued, transferred or sold, any shares of the capital stock
of
the Company or other equity interests in the Company or any securities
convertible into or exchangeable for such shares of capital stock or other
equity interests, including the Securities, and there are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of its capital stock or other equity interests. The issuance
and sale of the Securities will not obligate the Company to issue or sell,
pursuant to any pre-emptive right or otherwise, shares of Common Stock or
other
securities to any Person (other than the Purchasers) and will not result
in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
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b. The
Company owns all of the issued and outstanding shares of the common stock
of the
Subsidiaries. No shares of preferred stock of any of the Subsidiaries are
issued
and outstanding. There are no existing options, warrants, calls, preemptive
(or
similar) rights, subscriptions or other rights, agreements, arrangements
or
commitments of any character obligating the Subsidiaries to issue, transfer
or
sell, or cause to be issued, transferred or sold, any shares of the capital
stock of the Subsidiaries or other equity interests in the Subsidiaries or
any
securities convertible into or exchangeable for such shares of capital stock
or
other equity interests and there are no outstanding contractual obligations
of
the Subsidiaries to repurchase, redeem or otherwise acquire any shares of
its
capital stock or other equity interests.
3.3. Registration
Rights.
Except
for the Registration Rights Agreement and as set forth on Schedule
3.3
of the
Disclosure Schedules, the Company has not granted or agreed to grant to any
Person any right (including “piggy-back” and demand registration rights) to have
any capital stock or other securities of the Company registered with the
SEC or
any other government authority.
3.4. Authorization.
All
corporate action on the part of the Company, its officers and directors
necessary for the authorization, execution, delivery and performance of this
Agreement and the Transaction Documents and the consummation of the transactions
contemplated herein and therein has been taken. When executed and delivered
by
the Company, each of this Agreement and the Transaction Documents shall
constitute a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such may be limited
by bankruptcy, insolvency, reorganization or other laws affecting creditors’
rights generally and by general equitable principles. The Company has all
requisite corporate power and authority to enter into this Agreement and
the
Transaction Documents and to carry out and perform its obligations under
their
respective terms.
3.5. Valid
Issuance of the Shares.
The
Conversion Shares and the Shares have been duly authorized, and the Conversion
Shares and the Shares, upon issuance pursuant to the terms hereof will be
validly issued, fully paid and nonassessable and not subject to any
encumbrances, preemptive rights or any other similar contractual rights of
the
stockholders of the Company or any other Person. The Company has reserved
from
its duly authorized capital stock the number of shares of Common Stock issuable
upon execution of this Agreement and upon conversion in full of the
Notes.
3.6. Company
Documents.
The
Company’s Form 8-K filed with the SEC on June 22, 2006 and the Quarterly Reports
on Form 10-QSB as filed with the SEC on July 25, 2006 and October 23, 2006
(together, the “Company
Documents”)
complied in all material respects with the requirements
of the Exchange Act, and the rules and regulations promulgated thereunder.
The
financial statements in the Company Documents (the “Financial
Statements”)
(i)
comply in all material respects with applicable accounting requirements and
the
rules and regulations of the SEC with respect thereto in effect at the time
of
filing, (ii) have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
covered thereby, and (iii) present fairly, in all material respects, the
financial position of the Company and the Subsidiaries and the results of
operations and cash flows as of the date and for the periods indicated therein.
The Company Documents and Financial Statements do not 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 were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets
of
the Company are subject are included as part of or specifically identified
in
the Company Documents to the extent required by the rules and regulations
of the
SEC as in effect at the time of filing.
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3.7. Consents.
Except
for the filing and effectiveness of any registration statement required to
be
filed by the Company under the Securities Act pursuant to the terms of the
Registration Rights Agreement, any required state “blue sky” law filings and in
Form D filings with the SEC in connection with the transactions contemplated
hereunder or under the Transaction Documents, all consents, approvals, orders
and authorizations required on the part of the Company in connection with
the
execution or delivery of, or the performance of the obligations under, this
Agreement and the Transaction Documents, and the consummation of the
transactions contemplated herein and therein, have been obtained and will
be
effective as of the date hereof. The execution and delivery by the Company
of
this Agreement and the Transaction Documents, the consummation of the
transactions contemplated herein and therein, and the issuance of the Conversion
Shares and the Shares do not require the consent or approval of the stockholders
of, or any lender to, the Company.
3.8. No
Conflict;
Compliance
with Laws.
a. The
execution, delivery and performance by the Company of this Agreement and
the
Transaction Documents, and the consummation of the transactions contemplated
hereby and thereby, including the issuance of the Notes, the Conversion Shares,
and the Shares do not and will not (i) conflict with or violate any provision
of
the Article of Incorporation (or other charter documents) or By-laws of the
Company or the Subsidiaries, (ii) breach, conflict with or result in any
violation of or default (or an event that with notice or lapse of time or
both
would become a default) under, or give rise to a right of termination,
amendment, acceleration or cancellation (with or without notice or lapse
of
time, or both) of any obligation, contract, commitment, lease, agreement,
mortgage, note, bond, Agreement or other instrument or obligation to which
the
Company or the Subsidiaries is a party or by which they or any of their
properties or assets are bound, or (iii) result in a violation of any statute,
law, rule, regulation, order, ordinance or restriction applicable to the
Company, the Subsidiaries or any of their properties or assets, or any judgment,
writ, injunction or decree of any court, judicial or quasi-judicial tribunal
applicable to the Company, the Subsidiaries or any of their properties or
assets.
b. Neither
the Company nor the Subsidiaries (i) is in default under or in violation
of (and
no event has occurred that has not been waived that, with notice or lapse
of
time or both, would result in a default by the Company or the Subsidiaries),
nor
has the Company or the Subsidiaries received written notice of a claim that
it
is in default under or that it is in violation of, any indenture, loan or
credit
agreement or any other agreement or instrument to which it is a party or
by
which it or any of its properties or assets is bound (whether or not such
default or violation has been waived), or (ii) is in violation of any statute,
rule or regulation of any governmental authority, including without limitation
all foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as does not, and could
not,
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
3.9. Brokers
or Finders.
Other
than the fee (the “Broker
Fee”)
the
Company will pay to Tejas Securities Group, Inc. (“Tejas”)
upon
the Closing in an amount set forth on Schedule
3.9
to the
Disclosure Schedule, neither the Company nor the Subsidiaries has dealt with
any
broker or finder in connection with the transactions contemplated by this
Agreement or the Transaction Documents, and neither the Company nor the
Subsidiaries has incurred, or shall incur, directly or indirectly, any liability
for any brokerage or finders’ fees or agents’ commissions or any similar charges
in connection with this Agreement or the Transaction Documents, or any
transaction contemplated hereby or thereby.
3.10. Absence
of Litigation.
Except
as set forth on Schedule
3.10
of the
Disclosure Schedules, there are no pending or, to the Company’s knowledge,
threatened actions, suits, claims, proceedings or investigations against
or
involving the Company or the Subsidiaries.
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3.11. No
Undisclosed Liabilities; Indebtedness.
Since
August 31, 2006, the Company and the Subsidiaries have incurred no material
liabilities or obligations, whether known or unknown, asserted or unasserted,
fixed or contingent, accrued or unaccrued, matured or unmatured, liquidated
or
unliquidated, or otherwise, other than liabilities or obligations arising
in the
ordinary course of business other than as set forth on Schedule
3.11
of the
Disclosure Schedules. Except for indebtedness reflected in the Financial
Statements and on Schedule
3.11
of the
Disclosure Schedules, the Company has no indebtedness outstanding as of the
date
hereof. The Financial Statements include appropriate reserves for liabilities
of
the Subsidiaries as of August 31, 2006. The Company has not been notified
that
it is in default with respect to any outstanding indebtedness or any instrument
relating thereto.
3.12. Contracts.
Each of
the Company’s and the Subsidiaries’ material contracts, agreements, instruments
and other documents are legal, valid, binding and in full force and effect
and
are enforceable by the Company and the Subsidiaries, as applicable, in
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights
generally and by general equitable principles.
3.13. Title
to Assets.
Both
the Company and the Subsidiaries has good and marketable title to all real
and
personal property owned by it that is material to the business of the Company
or
the Subsidiaries, in each case free and clear of all Liens, except those,
if
any, reflected in the Financial Statements or incurred in the ordinary course
of
business. Any real property and facilities held under lease by the Company
or
the Subsidiaries are held by it or them under valid, subsisting and enforceable
leases (subject to laws of general application relating to bankruptcy,
insolvency, reorganization, or other similar laws affecting creditors’ rights
generally and other equitable remedies) with which the Company and the
Subsidiaries are in compliance in all material respects.
3.14. Labor
Relations.
No
labor or employment dispute exists or, to the knowledge of the Company or
the
Subsidiaries, is imminent or threatened, with respect to any of the employees
or
consultants of the Company or the Subsidiaries that has, or could reasonably
be
expected to have, individually or in the aggregate, a Material Adverse Effect.
3.15. Intellectual
Property.
The
Company is the sole and exclusive owner of, or has the exclusive right to
use,
all right, title and interest in and to all material foreign and domestic
patents, patent rights, trademarks, service marks, trade names, brands,
copyrights (whether or not registered and, if applicable, including pending
applications for registration) and other proprietary rights or information,
owned or used by the Company (collectively, the “Rights”),
and
in and to each material invention, software, trade secret, and technology
used
by the Company or the Subsidiaries (the Rights and such other items, the
“Intellectual
Property”),
and,
to the Company’s knowledge, the Company owns and has the right to use the same,
free and clear of any claim or conflict with the rights of others (subject
to
the provisions of any applicable license agreement). There have been no written
claims made against the Company or the Subsidiaries asserting the invalidity,
abuse, misuse, or unenforceability of any of the Intellectual Property, and,
to
the Company’s knowledge, there are no reasonable grounds for any such claims.
3.16. Subsidiaries;
Joint Ventures.
Except
for the entities set for on Schedule
3.16
of the
Disclosure Schedule (the “Subsidiaries”),
the
Company has no other subsidiaries and (i) does not otherwise own or control,
directly or indirectly, any other Person and (ii) does not hold equity
interests, directly or indirectly, in any other Person. Except as described
in
the Company Documents, the Company is not a participant in any joint venture,
partnership, or similar arrangement material to its business.
3.17. Taxes.
The
Company and the Subsidiaries have filed (or has had filed on its behalf),
will
timely file or will cause to be timely filed, or has timely filed for an
extension of the time to file, all Tax Returns (as defined below) required
by
applicable law to be filed by it or them prior to or as of the date hereof,
and
such Tax Returns are, or will be at the time of filing, true, correct and
complete in all material respects. Each of the Company and the Subsidiaries
have
paid (or has had paid on its behalf) or, where payment is not yet due, has
established (or has had established on its behalf and for its sole benefit
and
recourse) or will establish or cause to be established in accordance with
United
States generally accepted accounting principles on or before the date hereof
an
adequate accrual for the payment of, all material Taxes (as defined below)
due
with respect to any period ending prior to or as of the date hereof.
“Taxes”
shall
mean any and all taxes, charges, fees, levies or other assessments, including
income, gross receipts, excise, real or personal property, sales, withholding,
social security, retirement, unemployment, occupation, use, goods and services,
license, value added, capital, net worth, payroll, profits, franchise, transfer
and recording taxes, fees and charges, and any other taxes, assessment or
similar charges imposed by the Internal Revenue Service or any taxing authority
(whether state, county, local or foreign) (each, a “Taxing
Authority”),
including any interest, fines, penalties or additional amounts attributable
to
or imposed upon any such taxes or other assessments. “Tax
Return”
shall
mean any report, return, document, declaration or other information or filing
required to be supplied to any Taxing Authority, including information returns,
any documents with respect to accompanying payments of estimated Taxes, or
with
respect to or accompanying requests for extensions of time in which to file
any
such return, report, document, declaration or other information. There are
no
claims or assessments pending against the Company or the Subsidiaries for
any
material alleged deficiency in any Tax, and neither the Company nor the
Subsidiaries has been notified in writing of any material proposed Tax claims
or
assessments against the Company or the Subsidiaries. No Tax Return of the
Company or the Subsidiaries is or has been the subject of an examination
by a
Taxing Authority. Each of the Company and the Subsidiaries has withheld from
each payment made to any of its past or present employees, officers and
directors, and any other person, the amount of all material Taxes and other
deductions required to be withheld therefrom and paid the same to the proper
Taxing Authority within the time required by law.
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3.18. Pensions
and Benefits.
a. Schedule
3.18(a)
to the
Disclosure Schedule contains a true and complete list of each “employee benefit
plan” within the meaning of Section 3(3) of the United States Employee
Retirement Income Security Act of 1974, as amended (“ERISA”),
including, without limitation, multiemployer plans within the meaning of
Section
3(37) of ERISA, and all retirement, profit sharing, stock option, stock bonus,
stock purchase, severance, fringe benefit, deferred compensation, and other
employee benefit programs, plans, or arrangements, whether or not subject
to
ERISA, under which (i) any current or former directors, officers, employees
or
consultants of the Company has any present or future right to benefits and
which
are contributed to, sponsored by or maintained by the Company or the
Subsidiaries, or (ii) the Company or the Subsidiaries has any present or
future
liability. All such programs, plans, or arrangements shall be collectively
referred to as the “Company
Plans.”
Each
Company Plan is included as part of or specifically identified in the Company
Documents to the extent required by the rules and regulations of the SEC
as in
effect at the time of filing.
b. (i) Each
Company Plan has been established and administered in all material respects
in
accordance with its terms and in compliance with the applicable provisions
of
ERISA, the Internal Revenue Code of 1986, as amended (the “Code”),
and
other applicable laws, rules and regulations; (ii) each Company Plan which
is
intended to be qualified within the meaning of Section 401(a) of the Code
is so
qualified and has received a favorable determination letter as to its
qualification (or if maintained pursuant to a prototype form of instrument
the
sponsor thereof has received a favorable opinion letter as to its
qualification), and to the Company’s knowledge nothing has occurred, whether by
action or failure to act, that could reasonably be expected to cause the
loss of
such qualification; and (iii) no Company Plan provides retiree health or
life
insurance benefits (whether or not insured), and neither the Company nor
the
Subsidiaries have any obligations to provide any such retiree benefits other
than as required pursuant to Section 4980B of the Code or other applicable
law.
c. No
Company Plan is a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA
or a plan subject to the minimum funding requirements of Section 302 or ERISA
or
Section 412 of the Code or Title IV of ERISA, and neither the Company, the
Subsidiaries, nor any member of their Controlled Group has any liability
or
obligation in respect of, any such multiemployer plan or plan. With respect
to
any Company
Plan and to the Company’s knowledge, (i) no actions, suits or claims (other than
routine claims for benefits in the ordinary course) are pending or threatened,
and (ii) no administrative investigation, audit or other administrative
proceeding by the Department of Labor, the Internal Revenue Service or other
governmental agencies are pending, threatened or in progress.
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3.19. Private
Placement; Communications with Purchasers.
Neither
the Company nor any Person acting on the Company’s behalf has sold or offered to
sell or solicited any offer to buy the Notes, the Conversion Shares, or the
Shares by means of any form of general solicitation or advertising. Neither
the
Company nor any of its Affiliates nor any person acting on the Company’s behalf
has, directly or indirectly, at any time within the past six (6) months,
made
any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would (i) eliminate the availability of
the
exemption from registration under Regulation D under the Securities Act in
connection with the sale or issuance of the Securities as contemplated hereby
or
(ii) cause the offering or issuance of the Securities pursuant to this Agreement
or any of the Transaction Documents to be integrated with a prior offerings
by
the Company for purposes of any applicable law, regulation or stockholder
approval provision. Neither the Company nor the Subsidiary is, or is an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. No consent, license, permit, waiver, approval
or authorization of, or designation, declaration, registration or filing
with,
the SEC or any state securities regulatory authority is required in connection
with the offer, sale, issuance or delivery of the Securities other than the
possible filing of Form D with the SEC or any blue sky filings. The Company
does
not have any agreement or understanding with any Purchaser with respect to
the
transactions contemplated by this Agreement or the Registration Rights
Agreement, other than as specified in this Agreement or the Registration
Rights
Agreement.
3.20. Material
Changes.
Except
as set forth on Schedule
3.20
of the
Disclosure Schedule, since August 31, 2006, the Company has conducted its
business only in the ordinary course, consistent with past practice, and
since
such date there has not occurred:
a. a
Material Adverse Effect;
b. any
amendments or changes in the charter documents or by-laws of the Company
or the
Subsidiaries:
c.
any of
the following:
| i. |
incurrence,
assumption or guarantee by the Company or the Subsidiaries of any
debt for
borrowed money other than (1) equipment leases made in the ordinary
course
of business, consistent with past practice and (2) any such incurrence,
assumption or guarantee with respect to an amount of $50,000 or less
that
has been disclosed in the Company Documents;
|
| ii. |
An
issuance or sale of any securities convertible into or exchangeable
for
securities of the Company other than to directors, employees and
consultants;
|
| iii. |
issuance
or sale of options or other rights to acquire from the Company or
the
Subsidiaries, directly or indirectly, securities of the Company or
any
securities convertible into or exchangeable for any such securities,
other
than options issued to directors, employees and consultants in the
ordinary course of business, consistent with past practices;
|
| iv. |
issuance
or sale of any stock, bond or other corporate security other than
equity
securities to directors, employees and consultants pursuant to existing
equity compensation or stock purchase plans of the
Company;
|
| v. |
declaration
or making of any payment or distribution to stockholders or purchase
or
redemption of any share of its capital stock or other security other
than
to or from directors, officers and employees of the Company or the
Subsidiaries as compensation for or in connection with services rendered
to the Company or the Subsidiaries (as applicable) or for reimbursement
of
expenses incurred on behalf of the Company or the Subsidiaries (as
applicable);
|
| vi. |
sale,
assignment or transfer of any of its intangible assets except in
the
ordinary course of business, consistent with past practice, or
cancellation of any debt or claim except in the ordinary course of
business, consistent with past practice;
|
| vii. |
any
waiver of any right of substantial value whether or not in the ordinary
course of business;
|
| viii. |
any
material change in officer compensation;
or
|
| ix. |
any
other commitment (contingent or otherwise) to do any of the
foregoing;
|
8
d. any
creation, sufferance or assumption by the Company or of the Subsidiaries
of any
Lien on any asset or any making of any loan, advance or capital contribution
to
or investment in any Person, in an aggregate amount which exceeds $50,000
outstanding at any time;
e. any
entry
into, amendment of, relinquishment, termination or non-renewal by the Company
or
the Subsidiaries of any material contract, license, lease, transaction,
commitment or other right or obligation, other than in the ordinary course
of
business, consistent with past practice; or
f.
any
transfer or grant of a material right with respect to the intellectual property
owned or licensed by the Company or the Subsidiaries, except as among the
Company and the Subsidiaries.
3.21. Regulatory
Permits.
Except
as set forth on Schedule
3.1
to the
Disclosure Schedule, the Company and the Subsidiaries possess all certificates,
approvals, authorizations and permits issued by the appropriate federal,
state,
local or foreign regulatory authorities necessary to conduct their businesses
as
described in the Company Documents, except where the failure to possess such
permits does not, and could not have, individually or in the aggregate, a
Material Adverse Effect (the “Material
Permits”),
and
the Company has not received any written notice of proceedings relating to
the
revocation or modification of any Material Permits except as described in
the
Company Documents.
3.22. Transactions
with Affiliates and Employees.
Except
as set forth in the Company Documents, none of the officers or directors
of the
Company or the Subsidiaries and, to the knowledge of the Company and
Subsidiaries, none of the employees of the Company or Subsidiaries, is presently
a party to any transaction or agreement with the Company or the Subsidiaries,
as
applicable (other than for services as employees, officers and directors)
exceeding $60,000, 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 and
Subsidiaries, any entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, agent or partner.
3.23. Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary for the business in which the Company and the Subsidiaries
are
engaged. The Company has no reason to believe that it will not be able to
renew
existing insurance coverage for itself and the Subsidiaries as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be
necessary or appropriate to continue business.
3.24. Internal
Accounting Controls.
The
Company maintains a system of internal accounting controls sufficient to
provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity
with
United States generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management’s general or specific authorizations; (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences;
and
(v) the Company is otherwise in compliance with the Securities Act, the Exchange
Act and all other rules and regulations promulgated by the SEC and applicable
to
the Company, including such rules and regulations to implement the
Xxxxxxxx-Xxxxx Act of 2002, as amended.
9
3.25. Solvency.
(i) The
fair saleable value of the Company’s assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known and contingent liabilities) as they mature;
(ii)
the Company’s assets do not constitute unreasonably small capital to carry on
its business for the current fiscal year as now conducted and as proposed
to be
conducted, including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, projected
capital
requirements and capital availability thereof; and (iii) the current cash
flow
of the Company, together with the proceeds the Company would receive were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, would be sufficient to pay all amounts on or in respect of its
debts
when such amounts are required to be paid. The Company has no present intention
to incur debts beyond its ability to pay such debts as they mature (taking
into
account the timing and amounts of cash to be payable on or in respect of
its
debt).
3.26. Environmental
Compliance.
a. Compliance.
Each of
the Company and the Subsidiaries are in compliance with all Environmental
Protection Laws in effect in each jurisdiction where it is currently doing
business and no material expenditures will be required in order to comply
with
any Environmental Protection Law.
b. Liability.
Neither
the Company nor the Subsidiaries is subject to any liability under any
Environmental Protection Law that, in the aggregate for all such liabilities,
would reasonably be expected to have a Material Adverse Effect.
c. Notices.
Neither
the Company nor the Subsidiaries has received any:
| i. |
notice
from any Governmental Authority by which any of its currently or
previously owned or leased properties has been identified in any
manner by
any Governmental Authority as a hazardous substance disposal or removal
site, “Super Fund” clean-up site, or candidate for removal or closure
pursuant to any Environmental Protection
Law,
|
| ii. |
notice
of any Lien arising under or in connection with any Environmental
Protection Law that has attached to any revenues of, or to, any of
its
currently or previously owned or leased properties,
or
|
| iii. |
communication,
written or oral, from any Governmental Authority concerning any action
or
omission in connection with its currently or previously owned or
leased
properties resulting in the release of any hazardous substance resulting
in any violation of any Environmental Protection Law, in each case
where
the effect of which, in the aggregate for all such notices and
communications, would reasonably be expected to have a Material Adverse
Effect.
|
3.27. Ranking
of Notes.
The
Notes are unsecured indebtedness and are not subordinate in right to any
secured
indebtedness of the Company.
3.28. Disclosure.
Neither
the Company nor, to the Company’s knowledge, any other Person acting on its
behalf and at the direction of the Company, has provided to any Purchaser
or its
agents or counsel any information that in the Company’s reasonable judgment, at
the time such information was furnished, constitutes material, non-public
information. The Company understands and confirms that each Purchaser will
rely
on the representations and covenants contained herein in effecting the
transactions contemplated by this Agreement and the Transaction Documents,
and
in the securities of the Company after the Closing. All disclosure provided
to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement furnished
by or
on behalf of the Company, taken as a whole is true and correct and does not
contain any untrue statement of material fact or omit to state any material
fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company
or
the Subsidiaries or its or their business, properties, prospects, operations
or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed. The Company acknowledges and agrees that
no
Purchaser makes or has made any representations or warranties with respect
to
the transactions contemplated hereby other than those specifically set forth
in
Section 4.
10
4. REPRESENTATIONS
AND WARRANTIES OF THE PURCHASERS.
Each
Purchaser represents and warrants, severally (as to itself) and not jointly,
to
the Company as follows:
4.1. Organization
and Existence.
Such
Purchaser is either an individual or a validly existing corporation, limited
partnership or limited liability company and has all requisite corporate,
partnership or limited liability company power and authority to invest in
the
Securities pursuant to this Agreement.
4.2. Authorization.
All
action on the part of such Purchaser and, if applicable, its officers,
directors, managers, members, shareholders and/or partners necessary for
the
authorization, execution, delivery and performance of this Agreement and
the
Registration Rights Agreement, and the consummation of the transactions
contemplated herein and therein, has been taken. When executed and delivered,
each of this Agreement and the Registration Rights Agreement will constitute
the
legal, valid and binding obligation of such Purchaser, enforceable against
such
Purchaser in accordance with its terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights
generally and by general equitable principles. Such Purchaser has all requisite
corporate power and authority to enter into each of this Agreement and the
Registration Rights Agreement, and to carry out and perform its obligations
under the terms of hereof and thereof.
4.3. Purchase
Entirely for Own Account.
The
Securities to be received by such Purchaser hereunder will be acquired for
such
Purchaser’s own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the Securities
Act,
and such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same in violation of the
Securities Act without prejudice, however, to such Purchaser’s right at all
times to sell or otherwise dispose of all or any part of such Securities
in
compliance with applicable federal and state securities laws.
Nothing
contained herein shall be deemed a representation or warranty by such Purchaser
to hold the Securities for any period of time. Such Purchaser is not a
broker-dealer registered with the SEC under the Exchange Act or an entity
engaged in a business that would require it to be so registered.
4.4. Investor
Status; Etc.
Such
Purchaser certifies and represents to the Company that it is an “accredited
investor” as defined in Rule 501 of Regulation D promulgated under the
Securities Act and was not organized for the purpose of acquiring any of
the
Shares and the Shares. Such Purchaser’s financial condition is such that it is
able to bear the risk of holding the Shares for an indefinite period of time
and
the risk of loss of its entire investment. Such Purchaser has sufficient
knowledge and experience in investing in companies similar to the Company
so as
to be able to evaluate the risks and merits of its investment in the Company.
4.5. Securities
Not Registered.
Such
Purchaser understands that the Securities have not been registered under
the
Securities Act, by reason of their issuance by the Company in a transaction
exempt from the registration requirements of the Securities Act, and that
the
Securities must continue to be held by such Purchaser unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration. Such Purchaser understands that the exemptions from
registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Securities Act depend on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts.
4.6. No
Conflict.
The
execution and delivery of this Agreement and the Registration Rights Agreement
by such Purchaser, and the consummation of the transactions contemplated
hereby
and thereby, will not conflict with or result in any violation of or default
by
such Purchaser (with or without notice or lapse of time, or both) under any
provision of the organizational documents of such Purchaser.
11
4.7. Brokers.
Such
Purchaser has not retained, utilized or been represented by any broker or
finder
in connection with the transactions contemplated by this Agreement.
4.8. Consents.
All
consents, approvals, orders and authorizations required on the part of such
Purchaser in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated herein have
been
obtained and are effective as of the date hereof.
4.9. Disclosure
of Information.
Such
Purchaser believes it has received all the information it considers necessary
or
appropriate for deciding whether to purchase the Securities. Such Purchaser
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering
of
the Securities and the business, properties, prospects and financial condition
of the Company. Such Purchaser acknowledges that it relied solely on this
Purchase Agreement and the Company Filings and is not relying upon any other
written representations in making the decision to enter into the offering
of the
Securities.
4.10. No
General Advertisement.
Such
Purchaser did not learn of the investment in the Securities as a result of
any
public advertisement, article, notice or other communication regarding the
Securities published in any newspaper, magazine or similar media or broadcast
over television, radio or internet or presented at any seminar or other general
advertisement.
4.11. Prohibited
Transactions.
During
the last thirty (30) days prior to the date hereof, neither such Purchaser
nor
any Affiliate of such Purchaser which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to such Purchaser’s
investments or trading or information concerning such Purchaser’s investments,
including in respect of the Securities, or (z) is subject to such Purchaser’s
review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”) has, directly or indirectly, effected or
agreed to effect any short sale, whether or not against the box, established
any
“put equivalent position” (as defined in Rule 16a-1(h) under the 0000 Xxx) with
respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (each, a “Prohibited Transaction”). Prior to the
termination of this Agreement, such Purchaser shall not, and shall cause
its
Trading Affiliates not to, engage, directly or indirectly, in a Prohibited
Transaction. Such Purchaser acknowledges that the representations, warranties
and covenants contained in this Section 4.11 are being made for the benefit
of
the Purchasers as well as the Company and that each of the other Purchasers
shall have an independent right to assert any claims against such Purchaser
arising out of any breach or violation of the provisions of this Section
4.11.
4.12. Patriot
Act.
Neither
such Purchaser nor any of its Affiliates has been designated, and is not
owned
or controlled, by a “suspected terrorist” as defined in Executive Order 13224.
None of the cash used to fund the Notes has been derived from, any activity
that
could cause the Company to be in violation of the United States Bank Secrecy
Act, the United States International Money Laundering Control Act of 1986
or the
United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001.
12
5. CONDITIONS
PRECEDENT
5.1. Conditions
to the Obligation of the Purchasers to Consummate the Closing.
The
obligation of each Purchaser to consummate at the Closing the purchase and
payment for the Notes and Shares to be purchased by such Purchaser is subject
to
the satisfaction (or waiver by such Purchaser) of the following conditions
precedent:
a. The
representations and warranties of the Company contained herein shall be true
and
correct on and as of the date hereof. The Company shall have performed or
complied with all obligations and conditions herein required to be performed
or
complied with by the Company on or prior to the date hereof.
b. No
proceeding challenging this Agreement or the Transaction Documents, or the
transactions contemplated hereby or thereby, or seeking to prohibit, alter,
prevent or materially delay the Closing, shall have been instituted before
any
court, arbitrator or governmental body, agency or official or shall be pending
against or involving the Company.
c. The
sale
of the Notes (and the issuance of the Conversion Shares) and the issuance
of the
Shares to the Purchasers shall not be prohibited by any law, rule, governmental
order or regulation. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings
with,
any governmental or administrative agency or of or with any other Person
with
respect to any of the transactions contemplated hereby shall have been duly
obtained or made and shall be in full force and effect.
d. All
instruments and corporate proceedings of the Company in connection with the
transactions contemplated by this Agreement and the Transaction Documents
shall
be satisfactory in form and substance to such Purchaser, and such Purchaser
shall have received copies (executed or certified, as may be appropriate)
of all
documents which any Purchaser may have reasonably requested in connection
with
such transactions.
e. Such
Purchaser shall have received from Xxxxxx & Xxxxxxxxx PC, counsel to the
Company, an opinion addressed to such Purchaser, dated the Closing Date and
substantially in the form of Exhibit
D
hereto.
f. The
Registration Rights Agreement shall have been executed and delivered to such
Purchaser by the Company.
g. Such
Purchaser shall have received from the Company an original Note, in each
case in
the original principal amount set forth opposite such Purchaser’s name on
Exhibit
A
hereto.
h. The
Company shall have delivered, in form and substance satisfactory to such
Purchaser, a certificate dated the Closing Date and signed by the secretary
or
another appropriate executive officer of the Company, certifying (i) that
attached copies of the Articles of Incorporation, the By-Laws and resolutions
of
the Board approving this Agreement and the Transaction Documents are all
true,
complete and correct and remain in full force and effect as of the date hereof,
and (ii) as to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the Transaction Documents and any other
document delivered in connection herewith on behalf of the Company.
i. The
Company shall have delivered, a certificate signed by the Company’s chief
executive officer certifying that (i) the representations and warranties
of the
Company contained in Section 3 hereof are true and correct in all respects
on
the Closing Date and (ii) the Company has performed and complied with all
of the
agreements and conditions set forth or contemplated herein that are required
to
be performed or complied with by the Company on or before the Closing Date.
13
5.2. Conditions
to the Obligation of the Company to Consummate the Closing.
The
obligation of the Company to consummate the Closing and to issue and sell
the
Notes and the Shares to any Purchaser at the Closing is subject to the
satisfaction of the following conditions precedent:
a. The
representations and warranties of such Purchaser contained herein shall be
true
and correct in all respects on and as of the Closing Date.
b. The
Registration Rights Agreement shall have been executed and delivered by such
Purchaser.
c. Such
Purchaser shall have performed all obligations and conditions herein required
to
be performed or complied with by such Purchaser on or prior to the Closing
Date.
d. No
proceeding challenging this Agreement or the Transaction Documents, or the
transactions contemplated hereby or thereby, or seeking to prohibit, alter,
prevent or materially delay the Closing, shall have been instituted before
any
court, arbitrator or governmental body, agency or official or shall be pending
against or involving such Purchaser.
e. The
sale
of the Notes (and the issuance of the Conversion Shares) and the issuance
of the
Shares by the Company shall not be prohibited by any law, rule, governmental
order or regulation. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings
with,
any governmental or administrative agency or of any other Person with respect
to
any of the transactions contemplated hereby shall have been duly obtained
or
made and shall be in full force and effect.
f. All
instruments and corporate proceedings in connection with the transactions
contemplated by this Agreement to be consummated at the Closing shall be
satisfactory in form and substance to the Company, and the Company shall
have
received counterpart originals, or certified or other copies of all documents,
including without limitation records of corporate or other proceedings, which
it
may have reasonably requested in connection therewith.
6. CERTAIN
COVENANTS AND AGREEMENTS.
6.1. Existence.
The
Company will do or cause to be done all things necessary to preserve and
keep in
full force and effect the corporate existence of the Company and the
Subsidiaries, and their respective rights (charter and statutory) and
franchises, except to the extent that the Board shall determine that the
failure
to do so would not have a Material Adverse Effect; provided,
however,
that
the Company shall not be required to preserve any right or franchise if the
Board shall determine that the preservation thereof is no longer desirable
in
the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
6.2. Payment
of Taxes and Other Claims.
The
Company will pay or discharge or cause to be paid or discharged, before the
same
shall become delinquent, (a) all Taxes, assessments and governmental charges
levied or imposed upon it or the Subsidiaries or upon the income, profits
or
property of the Company or the Subsidiaries, and (b) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a Lien
upon
the property of the Company or the Subsidiaries and have a Material Adverse
Effect; provided,
however,
that
the Company shall not be required to pay or discharge or cause to be paid
or
discharged any such Tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate
proceedings.
6.3. Transfer
of Securities.
Each
Purchaser agrees severally (as to itself only) and not jointly that it shall
not
sell, assign, pledge, transfer or otherwise dispose of or encumber any of
the
Notes, the Conversion Shares or the Shares, except (a) pursuant to an effective
registration statement under the Securities Act, (b) to an Affiliate (so
long as
such Affiliate agrees to be bound by the terms and provisions of this Agreement
as if, and to the fullest extent as, such Purchaser), or (c) pursuant to
an
available exemption from registration under the Securities Act (including
sales
permitted pursuant to Rule 144) and applicable state securities laws and,
if
requested by the Company, upon delivery by such Purchaser of either an opinion
of counsel of such Purchaser reasonably satisfactory to the Company to the
effect that the proposed transfer is exempt from or does not require
registration under the Securities Act and applicable state securities laws
or a
representation letter of such Purchaser reasonably satisfactory to the Company
setting forth a factual basis for concluding that such proposed transfer
is
exempt from or does not require registration under the Securities Act and
applicable state securities laws. Any transfer or purported transfer of the
Notes in violation of this Section 6.3 shall be void. The Company shall not
register any transfer of the Notes in violation of this Section 6.3. The
Company
may, and may instruct any transfer agent for the Company, to place such stop
transfer orders as may be required on the transfer books of the Company in
order
to ensure compliance with the provisions of this Section 6.3.
14
6.4. Legends
a. To
the
extent applicable, each certificate or other document evidencing the Notes,
the
Conversion Shares and the Shares shall be endorsed with the legend set forth
below, and each Purchaser covenants that, except to the extent such restrictions
are waived by the Company, it shall not transfer the shares represented by
any
such certificate without complying with the restrictions on transfer described
in this Agreement and the legends endorsed on such certificate:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT
TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, REGISTRATION
UNDER
SAID ACT.”
b. Upon
the
earlier of (i) registration for resale pursuant to the Registration Rights
Agreement or (ii) Rule 144(k) becoming available the Company shall (A) deliver
to the transfer agent for the Common Stock (the “Transfer Agent”) irrevocable
instructions that the Transfer Agent shall reissue a certificate representing
shares of Common Stock without legends upon receipt by such Transfer Agent
of
the legended certificates for such shares, together with either (1) a customary
representation by the Purchaser that Rule 144(k) applies to the shares of
Common
Stock represented thereby or (2) a statement by the Purchaser that such
Purchaser has sold the shares of Common Stock represented thereby in accordance
with the Plan of Distribution contained in the Registration Statement and,
if
applicable, in accordance with any prospectus delivery requirements, and
(B)
cause its counsel to deliver to the Transfer Agent one or more blanket opinions
to the effect that the removal of such legends in such circumstances may
be
effected under the Securities Act.
6.5. Publicity.
Except
to the extent required by applicable laws, rules, regulations or stock exchange
requirements, neither (a) the Company, the Subsidiaries or any of their
Affiliates nor (b) any Purchaser or any of its Affiliates shall, without
the
written consent of the other, make any public announcement or issue any press
release with respect to the transactions contemplated by this Agreement.
In no
event will either (a) the Company, the Subsidiaries or any of their Affiliates
or (b) any Purchaser or any of its Affiliates make any public announcement
or
issue any press release with respect to the transactions contemplated by
this
Agreement without consulting with the other party and giving the other party
a
reasonable opportunity to review and, to the extent such party is specially
named in such announcement or press release, approve, the content of such
public
announcement or press release. The Company shall, on or before 8:30 a.m.,
New York City Time, within one (1) Business Day after the date of this
Agreement, issue a press release (the “Press Release”) disclosing all material
terms of the transactions contemplated hereby. On or before 8:30 a.m., New
York
City Time, within one (1) Business Day following the Closing Date, the Company
shall file a Current Report on Form 8-K describing the terms of the transactions
contemplated by the Transaction Documents in the form required by the Exchange
Act, and attaching the material Transaction Documents (including this Agreement
and all schedules and exhibits to this Agreement) as exhibits to such filing
(including all attachments, the “8-K Filing”).
15
6.6. Filing
of Information.
The
Company covenants to use its best efforts to timely file (or obtain extensions
in respect thereof and file within the applicable grace period) all reports
required to be filed by the Company pursuant to all applicable securities
laws,
including the Exchange Act. At any time if the Company is not required to
file
reports pursuant to such laws, it will prepare and furnish to the Purchasers
and
make publicly available in accordance with paragraph (c) of Rule 144 such
information as is required for the Purchasers to sell the Notes, the Conversion
Shares and the Shares under Rule 144. The Company further covenants that
it will
take such further action as any holder of the Notes, the Conversion Shares
or
Shares may reasonably request to satisfy the provisions of Rule 144 applicable
to the issuer of securities relating to transactions for the sale of securities
pursuant to Rule 144.
6.7. Integration.
The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Notes in a manner
that would require the registration under the Securities Act of the sale
of the
Notes, the Conversion Shares or Shares to the Purchasers.
6.8. Reservation
of Common Stock for Issuance.
The
Company agrees to reserve from its duly authorized capital stock the total
number of shares of Common Stock issuable upon execution of this Agreement
and
upon conversion of the Notes.
6.9. Required
Approvals.
As
promptly as practicable after the date of this Agreement, the Company shall
make, or cause to be made, all filings permitted to be made post-closing
with
any governmental or administrative agency or any other Person necessary to
consummate the transactions contemplated hereby.
6.10.
Use
of
Proceeds.
The
proceeds from the sale of the Notes may be used for building a rig in Odessa,
Texas and other general corporate purposes, including the payment of all
expenses incurred in connection with the offering of the Notes, and will
not be
used for repayment of debt.
6.11.
Placement
Agent Fees and Arrangements.
The
Company shall not amend or change its fee and expense reimbursement arrangements
with Tejas Securities Group, Inc. or its affiliates without the consent of
a
majority in interest of the Holders.
7. INDEMNIFICATION.
7.1. Indemnification. The
Company agrees to indemnify and hold harmless each Purchaser and its Affiliates
and their respective directors, officers, employees and agents from and against
any and all losses, claims, damages, liabilities and expenses (including
without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which such Person may become subject as a result of
any breach of representation, warranty, covenant or agreement made by or
to be
performed on the part of the Company under the Transaction Documents, and
will
reimburse any such Person for all such amounts as they are incurred by such
Person.
7.2. Conduct
of Indemnification Proceedings. Promptly
after receipt by any Person (the “Indemnified
Person”) of notice of any demand, claim or circumstances which would or might
give rise to a claim or the commencement of any action, proceeding or
investigation in respect of which indemnity may be sought pursuant to Section
7.2, such Indemnified Person shall promptly notify the Company in writing
and
the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person, and shall assume
the
payment of all fees and expenses; provided,
however, that
the
failure of any Indemnified Person so to notify the Company shall not relieve
the
Company of its obligations hereunder except to the extent that the Company
is
materially prejudiced by such failure to notify. In any such proceeding,
any
Indemnified Person shall have the right to retain its own counsel, but the
fees
and expenses of such counsel shall be at the expense of such Indemnified
Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed
to
the retention of such counsel; or (ii) in the reasonable judgment of counsel
to
such Indemnified Person representation of both parties by the same counsel
would
be inappropriate due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Company shall indemnify and hold harmless such Indemnified
Person
from and against any loss or liability (to the extent stated above) by reason
of
such settlement or judgment. Without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld, the
Company shall not effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Person is or could have been a party
and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.
16
8. CONVERSION
8.1. Conversion
Privilege, Conversion Price.
Subject
to and upon compliance with the provisions of this Section 8, at the option
of
the Holder thereof, any Note may be converted at any time after the date
hereof
into that number of fully paid and non-assessable shares of Common Stock
obtained by dividing the amount of principal and/or interest of the Notes
surrendered for conversion by $2.00 (the “Conversion Price”). Notwithstanding
the foregoing, no Notes will be convertible into shares of Common Stock to
the
extent that such conversion will result in the Holder (together with its
Affiliates) owning, holding or beneficially owning more than 9.99% of the
Common
Stock (the “Ownership Limit”),
and
at any time, and from time to time, if the Holder (together with its Affiliates)
owns, holds or beneficially owns a percentage less than the Ownership Limit,
then such Notes shall then be convertible into shares of Common Stock pursuant
to this Section 8 to the extent that it would not result in the Holder (together
with its Affiliates) owning, holding or beneficially owning more than the
Ownership Limit.
8.2. Exercise
of Conversion Privilege.
In
order to exercise the conversion privilege with respect to any Note, the
Holder
of any Note to be converted shall surrender such Note, duly endorsed or assigned
to the Company or in blank, at any office or agency maintained by the Company
pursuant to this Agreement, accompanied by (a) written notice to the Company
stating that the Holder elects to convert such Note or, if less than the
entire
principal amount thereof is to be converted, the portion thereof to be
converted, (b) the funds, if any, required by this Section, and (c) if Common
Stock or any portion of such Note not to be converted are to be issued in
the
name of a Person other than the Holder thereof, the name of the Person in
which
to issue such Common Stock or portion of the Note and the transfer taxes,
if
any, required to be paid by the Holder pursuant to this Agreement.
a. As
promptly as practicable after satisfaction of the requirements for conversion
set forth above, the Company shall issue and shall deliver to such Holder
a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Note or portion thereof in accordance
with
the provisions of this Section and a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such conversion,
as
provided in Section 8.3. In case any Note of a denomination shall be surrendered
for partial conversion, the Company shall execute and deliver to the Holder
of
the Note so surrendered, without charge, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.
b. Each
conversion shall be deemed to have been effected as to any such Note (or
portion
thereof) on the date on which the requirements set forth above in this Section
8.2 have been satisfied as to such Note (or portion thereof), and the Person
in
whose name any certificate or certificates for shares of Common Stock issuable
upon such conversion shall be deemed to have become on said date the holder
of
record of the shares represented thereby; provided
however
that any
such surrender on any date when the stock transfer books of the Company shall
be
closed shall constitute the Person in whose name the certificates are to
be
issued as the record holder thereof for all purposes on the next succeeding
day
on which such stock transfer books are open, but such conversion shall be
at the
Conversion Price in effect on the date upon which such Note shall be
surrendered.
17
8.3. Fractions
of Shares.
No
fractional shares of Common Stock shall be issued upon conversion of Notes.
If
more than one Note shall be surrendered for conversion at one time by the
same
Holder, the number of full shares that shall be issuable upon conversion
thereof
shall be computed on the basis of the aggregate principal amount of the Notes
(or specified portions thereof) so surrendered. Instead of any fractional
share
of Common Stock that would otherwise be issuable upon conversion of any Note
(or
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the Closing Price
per share of the Common Stock at the close of business on the Trading Day
immediately preceding such day.
8.4. Adjustment
of Conversion Price.
The
Conversion Price in effect shall be subject to adjustment from time to time
as
follows:
a. Stock
Splits, Dividends and Combinations.
In the
event that the Company shall at any time subdivide the outstanding shares
of
Common Stock, or shall pay or make a dividend or distribution on any class
of
capital stock of the Company in Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall
be
proportionately decreased, and in case the Company shall at any time combine
the
outstanding shares of Common Stock, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased, effective at
the
close of business on the date of such subdivision, dividend or combination,
as
the case may be.
b. Non-Cash
Dividends, Stock Purchase Rights, Capital Reorganization.
In the
event:
| i. |
that
the Company shall take a record of the holders of its Common Stock
for the
purpose of entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash;
or
|
| ii. |
that
the Company shall take a record of the holders of its Common Stock
for the
purpose of entitling them to subscribe for or purchase any shares
of stock
of any class or other securities, or to receive any other
rights;
|
then,
and
in any such case, provision shall be made so that the Holders shall be entitled,
upon conversion, to receive the number and kind of securities of other property
of the Company, or successor corporation, to which such Holder would have
been
entitled to receive had he converted immediately prior to such event.
8.5. Notice
of Certain Corporate Action.
The
Company shall provided the Holders notice if the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock.
8.6. Taxes
on Conversions.
The
Holder will pay any and all Taxes that may be payable in respect of the issue
or
delivery of shares of Common Stock on conversion of Notes pursuant hereto.
The
Company shall not be required to pay any Tax that may be payable in respect
of
any transfer involved in the issue and delivery of shares of Common Stock
in a
name other than that of the Holder of the Notes to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such Tax, or has established
to
the satisfaction of the Company that such Tax has been paid.
8.7. Cancellation
of Converted Notes.
All
Notes delivered for conversion shall be delivered to the Company to be cancelled
upon such conversion.
8.8. Provisions
in Case of Reclassification, Consolidation, Merger or Sale of
Assets.
In the
event that the Company shall be a party to any transaction (including any
(i)
recapitalization or reclassification of the Common Stock (other than a change
in
par value, or from par value to no par value, or from no par value to par
value,
or as a result of a subdivision or combination of the Common Stock), (ii)
any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger
that
does not result in a reclassification, conversion, exchange or cancellation
of
outstanding shares of Common Stock of the Company), (iii) any sale or transfer
of all or substantially all of the assets of the Company or (iv) any compulsory
share exchange) pursuant to which the Common Stock is converted into the
right
to receive other securities, cash or other property, then lawful provision
shall
be made as part of the terms of such transaction whereby the Holder of each
Note
shall have the right thereafter to convert such Note only into (subject to
funds
being legally available for such purpose under applicable law at the time
of
such conversion) the kind and amount of securities, cash and other property
receivable upon such transaction by a holder of the number of shares of Common
Stock into which such Note might have been converted immediately prior to
such
transaction. The Company or the Person formed by such consolidation or resulting
from such merger or that acquired such assets or that acquired the Company’s
shares of Common Stock, as the case may be, shall expressly assume these
obligations.
18
9. MISCELLANEOUS
PROVISIONS.
9.1. Rights
Cumulative.
Each
and all of the various rights, powers and remedies of the parties shall be
considered to be cumulative with and in addition to any other rights, powers
and
remedies which such parties may have at law or in equity in the event of
the
breach of any of the terms of this Agreement. The exercise or partial exercise
of any right, power or remedy shall neither constitute the exclusive election
thereof nor the waiver of any other right, power or remedy available to such
party.
9.2. Pronouns.
All
pronouns or any variation thereof shall be deemed to refer to the masculine,
feminine or neuter, singular or plural, as the identity of the person, persons,
entity or entities may require.
9.3. Any
notices, reports or other correspondence (hereinafter collectively referred
to
as “correspondence”) required or permitted to be given hereunder shall be given
in writing and shall be deemed given if sent by certified or registered mail
(return receipt requested), overnight courier or telecopy (with confirmation
of
receipt), or delivered by hand to the party to whom such correspondence is
required or permitted to be given hereunder. An electronic communication
(“Electronic
Notice”)
shall
be deemed written notice for purposes of this Section 9.3 if sent with return
receipt requested to the electronic mail address specified by the receiving
party either in this Section 9.3 or on Exhibit
A
hereto.
Electronic Notice shall be deemed received at the time the party sending
Electronic Notice receives verification of receipt by the receiving
party.
a. All
correspondence to the Company shall be addressed as follows:
Xxxxxxx
Drilling Corporation
0000
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Fax:
(000) 000-0000
Email: xxx@xxxxxxxxxxxxxxx.xxx
with
a
copy (which shall not constitute notice) to:
Xxxxxx
& Xxxxxxxxx PC
0
Xxxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx00000
Attention:
Xxxxxx Xxxxxxxxx
Fax:
(000) 000-0000
Email:
xxxxxxxxxx@xxxxx.xxx
19
b. All
correspondence to the Purchasers shall be addressed pursuant to the contact
information set forth on Exhibit
A attached
hereto.
c. Any
entity may change the address to which correspondence to it is to be addressed
by notification as provided for herein.
9.4. Captions.
The
captions and paragraph headings of this Agreement are solely for the convenience
of reference and shall not affect its interpretation.
9.5. Severability.
Should
any part or provision of this Agreement be held unenforceable or in conflict
with the applicable laws or regulations of any jurisdiction, the invalid
or
unenforceable part or provisions shall be replaced with a provision which
accomplishes, to the extent possible, the original business purpose of such
part
or provision in a valid and enforceable manner, and the remainder of this
Agreement shall remain binding upon the parties hereto.
9.6. Governing
Law.
This
Agreement shall be governed by and construed and enforced in accordance with
the
laws of the State of Texas, as such laws are applied to contracts entered
into
and wholly to be performed within the State of Texas and without giving effect
to any principles of conflicts or choice of law that would result in the
application of the laws of any other jurisdiction.
9.7. Waiver.
No
waiver of any term, provision or condition of this Agreement, whether by
conduct
or otherwise, in any one or more instances, shall be deemed to be, or be
construed as, a further or continuing waiver of any such term, provision
or
condition or as a waiver of any other term, provision or condition of this
Agreement.
9.8. Assignment.
The
rights and obligations of any party hereto shall inure to the benefit of
and
shall be binding upon the authorized successors and permitted assigns of
such
party. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Purchasers who hold a majority
of
the principal amount of all Notes then outstanding (the “Majority
Purchasers”).
Each
Purchaser may assign or transfer any or all of its rights under this Agreement
to any Person provided that such assignee or transferee agrees in writing
to be
bound, with respect to the transferred Notes, by the provisions hereof that
apply to such assigning or transferring Purchaser; whereupon such assignee
or
transferee shall be deemed to be a “Purchaser”
for
all
purposes of this Agreement.
9.9. Survival.
The
respective representations and warranties given by the parties hereto shall
survive the Closing Date and the consummation of the transactions contemplated
herein for a period of time equal to the time for which indemnification may
be
sought hereunder, without regard to any investigation made by any party.
The
respective covenants and agreements agreed to by a party hereto shall survive
the Closing Date and the consummation of the transactions contemplated herein
in
accordance with their respective terms and conditions.
9.10. Entire
Agreement.
This
Agreement constitutes the entire agreement between the parties hereto respecting
the subject matter hereof and supersedes all prior agreements, negotiations,
understandings, representations and statements respecting the subject matter
hereof, whether written or oral.
9.11. Amendments.
Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provisions of this Agreement shall be effective only if
made
or given in writing and signed by the Company and the Majority Purchasers;
provided that any amendment, supplement, modification or waiver that is
materially and disproportionately adverse to any particular Purchaser (as
compared to all Purchasers as a group) shall require the consent of such
Purchaser.
20
9.12. No
Third Party Rights.
This
Agreement is intended solely for the benefit of the parties hereto and is
not
intended to confer any benefits upon, or create any rights in favor of, any
Person (including, without limitation, any stockholder or debt holder of
the
Company) other than the parties hereto; provided, that each of the Purchaser
Indemnitees that are not Purchasers are entitled to all rights and benefits
as
third party beneficiaries of Section 7 of this Agreement.
9.13. Counterparts.
This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
document. The parties hereto confirm that any facsimile copy of another party’s
executed counterpart of this Agreement (or its signature page thereof) will
be
deemed to be an executed original thereof.
IN
WITNESS WHEREOF, the parties hereto have executed this Securities Purchase
Agreement as of the day and year first above written.
XXXXXXX
DRILLING CORPORATION
By:
Name:
Title:
PURCHASERS:
By:
Name:
Title:
21
