SECURITIES PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT (the "Agreement"), dated as of
November __, 2007, by and among Maple Mountain Explorations Inc., a Nevada
corporation having its offices at 507-1313 Xxxx Xxxxx Xxxxxx, Xxxxxxxxxx,
Xxxxxxxxxx 00000 (the "Company") and the investors listed on
the Schedule of Buyers attached hereto (individually, a "Buyer"
and collectively, the "Buyers").
WHEREAS:
· The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of
the
Securities Act of 1933, as amended (the "1933 Act"), and Rule
506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC")
under the 1933 Act.
· Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, that aggregate number of Units set forth
opposite such Buyer's name in column (3) on the Schedule of Buyers attached
hereto (which aggregate number for all Buyers shall be not less than
8,333,333 Units and not more than 16,666,667 Units). As used herein,
a "Unit" shall consist of (i) one share (the shares of the Common Stock to
be
issued hereunder, the "Common Shares") of the Company's common
stock, par value $.001 per share (the "Common Stock") and
(ii) a warrant, in the form attached hereto as Exhibit A (the
"Warrants"), to acquire up to one-half (1/2) additional share
of Common Stock (as exercised, collectively, the "Warrant
Shares").
· Pursuant
to a Share Exchange Agreement (the "Share Exchange Agreement"),
dated as of November __, 2007, by and among the Company, Pegasi Energy Resources
Corporation, a Texas corporation ("OpCo") and each of the
individuals parties thereto, contemporaneously with the Closing, all of the
issued and outstanding capital stock of the OpCo will be exchanged for shares
of
the Company's Common Stock and OpCo will become a wholly-owned subsidiary of
the
Company (such share exchange, the "Share
Exchange").
· Contemporaneously
with the Closing, the Buyers and the Company will execute and deliver a
Registration Rights Agreement, in the form attached hereto as Exhibit B
(as amended or modified from time to time, the "Registration Rights
Agreement"), pursuant to which the Company agrees to provide certain
registration rights with respect to Common Shares and the Warrant Shares under
the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
· The
Units, the Common Shares, the Warrants and the Warrant Shares collectively
are
referred to herein as the "Securities".
· The
Company, the Agents (as defined below) and Signature Bank (the “Escrow
Agent”) have entered into an Escrow Agreement in the form attached
hereto as Exhibit C (the “Escrow Agreement”) to provide
for the safekeeping of funds received (the "Escrow Funds") in
connection with the transactions contemplated by this Agreement. Such
funds shall be held in escrow until the Closing and delivered by the Escrow
Agent on behalf of the Buyers to the Company upon the satisfaction of the
conditions to the Buyers' obligations to purchase.
NOW,
THEREFORE, the Company and each Buyer hereby agree as
follows:
A. PURCHASE
AND SALE OF UNITS.
a. Purchase
of Units. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and
sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), a number of Units
as is
set forth opposite such Buyer's name in column (3) on the Schedule of Buyers
(the "Closing").
b. Closing. The
date and time of the Closing shall be 10:00 a.m., New York City time, on the
Closing Date (or such later date as is mutually agreed to by the Company and
each Buyer) after notification of satisfaction (or waiver) of the conditions
to
the Closing set forth in Sections 6 and 7 below, at the offices of Xxxxxxx
Xxxx
& Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
c. Purchase
Price. The aggregate purchase price for the Units to be purchased
by each Buyer at the Closing (the "Purchase Price") shall be
the amount set forth opposite such Buyer's name in column (4) of the Schedule
of
Buyers. Each Buyer shall pay $1.20 for each Unit to be purchased by
such Buyer at the Closing.
d. Form
of Payment. No later than five (5) Business Days prior to the
Closing Date, each Buyer shall deposit with the Escrow Agent its Purchase Price
for the Units to be sold by the Company to such Buyer, by wire transfer of
immediately available funds in accordance with the Escrow Agent's written wire
instructions. On the Closing Date, (i) the Escrow Agent shall release
the Escrow Funds to the Company in accordance with the terms of the Escrow
Agreement and (ii) the Company shall deliver to each Buyer the Common
Shares and Warrants comprising the Units (allocated in the numbers as such
Buyer
shall request) which such Buyer is then purchasing hereunder duly executed
on
behalf of the Company and registered in the name of such Buyer or its
designee.
B. BUYER'S
REPRESENTATIONS AND WARRANTIES.
Each
Buyer, severally and not jointly, represents and warrants with respect to only
itself that:
a. No
Public Sale or Distribution. Such Buyer is acquiring the Units
and the Common Shares and Warrants comprising the Units, and upon exercise
of
the Warrants (other than pursuant to a Cashless Exercise (as defined in the
Warrants)) will acquire the Warrant Shares issuable upon exercise of the
Warrants, for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does
not
agree to hold any of the Securities for any minimum or other specific term
and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933
Act. Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
b. Accredited
Investor Status. Such Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D.
c. Reliance
on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order
to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
d. Information. Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and its Subsidiaries
and
materials relating to the offer and sale of the Securities that have been
requested by such Buyer. Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on
the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
e. No
Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
2
f. Transfer
or Resale. Such Buyer understands that except as will be provided
in the Registration Rights Agreement: (I) the Securities have not been and
are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion, in generally acceptable form, of counsel selected by the Buyer and
reasonably satisfactory to the Company, to the effect that such Securities
to be
sold, assigned or transferred may be sold, assigned or transferred pursuant
to
an exemption from such registration, or (C) such Buyer provides the Company
with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
rule thereto) (collectively, "Rule 144"); (II) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with
the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the
Securities under circumstances in which the seller (or the Person (as defined
in
Section 3(o)) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some
other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (III) neither the Company nor any other Person is under any obligation
to
register the securities under the 1933 Act or any state securities laws or
to
comply with the terms and conditions of any exemption thereunder. The
Securities may be pledged in connection with a bona fide margin account or
other
loan or financing arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Buyer effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document (as defined in Section 3(b)), including, without limitation, this
Section 2(f).
g. Legends. Such
Buyer understands that the certificates or other instruments representing the
Common Shares and the Warrants and, until such time as the resale of the Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the Warrant
Shares, except as set forth below, shall bear any legend as required by the
"blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of
such
stock certificates):
[NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR
THE
SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE] HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL SELECTED BY THE HOLDER AND REASONABLY ACCEPTABLE TO THE ISSUER,
IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which
it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with
a sale, assignment or other transfer, such holder provides the Company with
an
opinion of counsel reasonably acceptable to the Company, in a generally
acceptable form, to the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable requirements
of
the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances of the holder's belief that the Securities can be sold, assigned
or
transferred pursuant to Rule 144 or Rule 144A. If the Company shall
fail for any reason or for no reason to issue to the holder of the Securities
within three (3) Trading Days (as defined below) (after the occurrence of any
of
(i) through (iii) above, a certificate without such legend to the holder or
to
issue such Securities to such holder by electronic delivery at the applicable
balance account at DTC or if the Company fails to deliver unlegended Securities
within 3 Trading Days of the Buyer's election to receive such unlegended
Securities pursuant to clause (ii) below, and if on or after such Trading Day
the holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the holder of such
Securities that the holder anticipated receiving without legend from the Company
(a "Buy-In"), then the Company shall, within three (3) Business
Days after the holder's request and in the holder's discretion, either (i)
pay
cash to the holder in an amount equal to the holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the "Buy-In Price"), at which point the Company's
obligation to deliver such unlegended Securities shall terminate, or (ii)
promptly honor its obligation to deliver to the holder such unlegended
Securities as provided above and pay cash to the holder in an amount equal
to
the excess (if any) of the Buy-In Price over the product of (A) such number
of
shares of Common Stock, times (B) the Closing Bid Price (as defined in the
Warrants) on the date of exercise.
3
h. Validity;
Enforcement. This Agreement has been, and when the other
Transaction Documents (as defined below) to which such Buyer is a party are
executed and delivered in accordance with the terms and conditions contemplated
hereby and thereby, such documents shall have been, duly and validly authorized,
executed and delivered on behalf of such Buyer and shall constitute the legal,
valid and binding obligations of such Buyer enforceable against such Buyer
in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, liquidation and other similar
laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such
Buyer is a resident of the jurisdiction specified below its address on the
Schedule of Buyers.
The
Buyer’s representations and
warranties made in this Section 2 are made solely for the purpose of permitting
the Company to make a determination that the offer and sale of the Securities
pursuant to this Agreement complies with applicable U.S. federal and state
securities laws and not for any other purpose. Accordingly, the
Company shall not rely on such representations and warranties for any other
purpose.
C. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing date as follows (which representations and
warranties shall be deemed to apply, as appropriate, to each Subsidiary of
the
Company, including without limitation, OpCo assuming that the Share Exchange
has
been consummated as of the date hereof):
a. Organization
and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any
entity in which the Company, directly or indirectly, owns capital stock or
holds
an equity or similar interest) are entities duly organized and validly existing
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authority to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in
good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except
to
the extent that the failure to be so qualified or be in good standing would
not
reasonably be expected to have a Material Adverse Effect. As used in
this Agreement, "Material Adverse Effect" means any material
adverse effect on the business, properties, assets, operations, results of
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby
and
the other Transaction Documents (as defined below) or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents to which it is a party. The Company has no
Subsidiaries except as set forth on Schedule 3(a).
b. Authorization;
Enforcement; Validity. The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, Escrow Agreement, the Share Exchange Agreement,
the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Warrants and each of the other agreements entered into by the parties hereto
in
connection with the transactions contemplated by this Agreement to which the
Company is a party (collectively, the "Transaction
Documents.") The execution and delivery of the Transaction
Documents to which the Company is a party and the consummation by the Company
of
the transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Units and the Common Share and the Warrants comprising
the
Units, the reservation for issuance and the issuance of the Common Shares and
the reservation for issuance and issuance of Warrant Shares issuable upon
exercise of the Warrants, have been duly authorized by the Company's Board
of
Directors and no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement
and the other Transaction Documents to which the Company is a party have been
duly executed and delivered by the Company, and constitute the legal, valid
and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
4
c. Issuance
of Securities. The issuance of the Units and the Common Shares
and Warrants comprising the Units, are duly authorized and upon issuance in
accordance with the terms of the Transaction Documents shall be free from all
taxes, liens and charges with respect to the issue thereof. As of the
Closing, a number of shares of Common Stock shall have been duly authorized
and
reserved for issuance which equals or exceeds the sum of (i) 100% of the number
of Common Shares issued hereunder and (ii) 120% of the maximum number of shares
of Common Stock issuable upon exercise of the Warrants. Upon exercise
in accordance with the Warrants, the Warrant Shares will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common
Stock. Assuming the accuracy of each of the representations and
warranties set forth in Section 2 of this Agreement, the offer and issuance
by
the Company of the Securities is exempt from registration under the 1933
Act.
d. No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company (and the Share Exchange Agreement by OpCo)
and the consummation by the Company (and OpCo) of the transactions contemplated
hereby and thereby (including, without limitation, the Share Exchange, the
issuance of the Units and the Common Shares and Warrants which comprise such
Units and reservation for issuance and issuance of the Warrant Shares) will
not
(i) result in a violation of any certificate of incorporation, certificate
of
formation, any certificate of designations or other constituent documents of
the
Company or any of its Subsidiaries, any capital stock of the Company or any
of
its Subsidiaries or bylaws of the Company or any of its Subsidiaries or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) in any respect under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the National
Association of Securities Dealer's OTC Bulletin Board (the "Principal
Market")) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in the case of clauses (ii) and (iii) above, to the extent
that such violations conflict, default or right would not reasonably be expected
to have a Material Adverse Effect.
e. Consents. Neither
the Company nor any of its Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, except for the filing with the SEC of one
or
more Registration Statements in accordance with the requirements of the
Registration Rights Agreement (which is not required to be filed before the
Closing). The Company and its Subsidiaries are unaware of any facts
or circumstances that might prevent the Company from obtaining or effecting
any
of the registration, application or filings pursuant to the preceding
sentence. The Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts that would reasonably
lead to delisting or suspension of the Common Stock in the foreseeable
future.
f. Acknowledgment
Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of
an
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company or any of its
Subsidiaries (as defined in Rule 144 of the 0000 Xxx) or (iii) to the knowledge
of the Company, a "beneficial owner" of more than 10% of the shares of Common
Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act
of
1934, as amended (the "1934 Act")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company or any of its Subsidiaries (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby, and any advice given by a Buyer or any of its representatives
or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Buyer's purchase
of
the Securities. The Company further represents to each Buyer that the
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its
representatives.
g. No
General Solicitation; Placement Agent's Fees. None of the
Company, any of its affiliates, or any Person acting on its or their behalf,
has
engaged in any form of general solicitation or general advertising (within
the
meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to
or
arising out of the transactions contemplated hereby. The Company
shall pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney's fees and out-of-pocket expenses)
arising in connection with any such claim. The Company acknowledges
that it has engaged SMH Capital and Clarion Finanz AG as placement agents (the
"Agents") in connection with the sale of the
Securities. Other than the Agents, the Company has not engaged any
placement agent or other agent in connection with the sale of the
Securities.
5
h. No
Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, or any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to
buy any security, under circumstances that would require registration of any
of
the Securities under the 1933 Act or cause this offering of the Securities
to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system
on
which any of the securities of the Company are listed or
designated. None of the Company, its Subsidiaries, their affiliates
and any Person acting on their behalf will take any action or steps referred
to
in the preceding sentence that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
i. Dilutive
Effect. The Company understands and acknowledges that the number
of Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute
and
unconditional regardless of the dilutive effect that such issuance may have
on
the ownership interests of other stockholders of the Company.
j. Application
of Takeover Protections; Rights Agreement. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation (as defined
in
Section 3(r)) or the laws of the state of its incorporation which is or could
become applicable to any Buyer as a result of the transactions contemplated
by
this Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company
and its board of directors have taken all necessary action, if any, in order
to
render inapplicable any stockholder rights plan or similar arrangement relating
to accumulations of beneficial ownership of Common Stock or a change in control
of the Company.
k. SEC
Documents; Financial Statements. During the 12 months prior to
the date hereof, the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act (all of the foregoing filed prior
to
the date hereof and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC Documents"). As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to the SEC Documents, and none
of
the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in
the light of the circumstances under which they were made, not
misleading.
l. Absence
of Certain Changes. Since July 31, 2007, there has been no change
or development in the business, properties, operations, condition (financial
or
otherwise) or results of operations of the Company or its Subsidiaries that
has
had or could reasonably be expected to have a Material Adverse
Effect. Since July 31, 2007, the Company has not (i) declared or paid
any dividends, (ii) sold any assets, individually or in the aggregate, in excess
of $100,000 outside of the ordinary course of business, (iii) had capital
expenditures, individually or in the aggregate, in excess of $250,000 or (iv)
waived any material rights with respect to any Indebtedness or other rights
in
excess of $100,000 owed to it. The Company has not taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its
Subsidiaries, taken as a whole, is not as of the date hereof, and after giving
effect to the transactions contemplated hereby to occur at the Closing will
not
be, Insolvent (as defined below). For purposes of this Section 3(m),
"Insolvent" means (i) the present fair saleable value of the
assets of the Company and its Subsidiaries is less than the amount required
to
pay the total Indebtedness (as defined in Section 3(r)) of the Company and
its
Subsidiaries, (ii) the Company or any of its Subsidiaries is unable to pay
its
debts and liabilities, subordinated, contingent or otherwise, as such debts
and
liabilities become absolute and matured, (iii) the Company or any of its
Subsidiaries intends to incur or believes that it will incur debts that would
be
beyond its ability to pay as such debts mature or (iv) the Company and its
Subsidiaries, taken as a whole, has unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
m. No
Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance
has occurred or exists with respect to the Company, its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws
on a
registration statement on Form S-1 filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
announced.
6
n. Conduct
of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or the Bylaws or their organizational
charter or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries,
and
neither the Company nor any of its Subsidiaries will conduct its business in
violation of any of the foregoing, except for possible violations which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, the
Company is not in violation of any of the rules, regulations or requirements
of
the Principal Market and has no knowledge of any facts or circumstances that
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. Since September 5, 2006,
(i) the Common Stock has been designated for quotation on the Principal Market,
(ii) trading in the Common Stock has not been suspended by the SEC or the
Principal Market and (iii) the Company has received no communication, written
or
oral, from the SEC or the Principal Market regarding the suspension or delisting
of the Common Stock from the Principal Market. The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by
the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate,
a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of
any such certificate, authorization or permit.
o. 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 of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or
employee.
x. Xxxxxxxx-Xxxxx
Act. The Company is in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the
date
hereof, and any and all applicable rules and regulations promulgated by the
SEC
thereunder that are effective as of the date hereof.
q. Transactions
With Affiliates. Other than the grant of restricted stock or
stock options disclosed on Schedule 3(r), none of the officers, directors
or employees of the Company or any of its Subsidiaries is presently a party
to
any transaction with the Company or any of its Subsidiaries (other than for
ordinary course services as employees, officers or 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 such officer, director or
employee or, to the knowledge of the Company or OpCo, any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.
r. Equity
Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 75,000,000 shares of common stock, $.001
par value, of which as of the date hereof, 21,000,000 are issued and
outstanding, 1,170,000 shares of which are reserved for issuance pursuant to
the
Company's stock option and purchase plans and no other shares are reserved
for
issuance pursuant to securities (other than the Common Shares and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common
Stock. All of such outstanding shares have been, or upon issuance
will be, validly issued and are fully paid and nonassessable. Except
as disclosed in Schedule 3(r): (i) none of the Company's capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
or
exercisable or exchangeable for, any capital stock of the Company or any of
its
Subsidiaries, or contracts, commitments, understandings or arrangements by
which
the Company or any of its Subsidiaries is or may become bound to issue
additional capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (iv) there are
no
financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any
of
their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (viii)
the
Company does not have any stock appreciation rights or "phantom stock" plans
or
agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in
the
SEC Documents but not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company's or its Subsidiaries' respective
businesses and which, individually or in the aggregate, do not or would not
have
a Material Adverse Effect. The Company has furnished to the Buyers
true, correct and complete copies of the Company's Certificate of Incorporation,
as amended and as in effect on the date hereof (the "Certificate of
Incorporation"), and the Company's Bylaws, as amended and as in effect
on the date hereof (the "Bylaws"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect
thereto.
7
s. Share
Exchange. OpCo has the requisite power and authority to enter
into and perform its obligations under the Share Exchange
Agreement. The execution and delivery of the Share Exchange Agreement
and the consummation by OpCo of the transactions contemplated by the Share
Exchange Agreement has been duly authorized by OpCo's Board of Directors and
no
further filing, consent, or authorization is required by OpCo, its Board of
Directors or its stockholders. The Share Exchange Agreement has been
duly executed and delivered by OpCo, and constitute the legal, valid and binding
obligations of OpCo, enforceable against OpCo in accordance with their
respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, liquidation or similar laws relating to,
or
affecting generally, the enforcement of applicable creditors' rights and
remedies. Immediately after giving effect to the Share Exchange, (i)
all of the OpCo's issued and outstanding capital stock shall be owned by the
Company and (ii) all other securities issued by OpCo shall have been exchanged
for shares of the Company.
t. Indebtedness
and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement
or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating
to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is
a
party to any contract, agreement or instrument relating to any Indebtedness,
the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. Schedule 3(s)
provides a detailed description of the material terms of any such outstanding
Indebtedness. For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under
any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby,
is
classified as a capital lease, (G) all indebtedness referred to in clauses
(A)
through (F) above secured by (or for which the holder of such Indebtedness
has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "Contingent
Obligation" means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will
be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or
in
part) against loss with respect thereto; and (z) "Person" means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
u. Absence
of Litigation. . Except as set forth in Schedule
3(t), there is no action, suit, proceeding, inquiry or investigation before
or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or OpCo, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company's or its Subsidiaries' officers or
directors.
v. Insurance. The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason
to
believe that it will not be able to renew its existing insurance coverage as
and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have
a
Material Adverse Effect.
w. Employee
Relations.
i. Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are
good. No executive officer of the Company or any of its Subsidiaries
(as defined in Rule 501(f) of the 0000 Xxx) has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company. No executive officer of the Company or
any of 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 such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters.
8
ii. The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or
in
the aggregate, reasonably be expected to result in a Material Adverse
Effect.
x. Title. The
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects or such as
do
not materially affect the value of such property and do not interfere with
the
use made and proposed to be made of such property by the Company and any of
its
Subsidiaries. Any real property and facilities held under lease by
the Company and any of its Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.
y. Intellectual
Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, service marks, and all
applications and registrations therefor, trade names, patents, patent rights,
copyrights, original works of authorship, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights ("Intellectual Property Rights") necessary to conduct
their respective businesses as now conducted. None of the Company's
Intellectual Property Rights have expired or terminated, or are expected to
expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any
infringement by the Company or its Subsidiaries of Intellectual Property Rights
of others. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company or OpCo, being threatened, against
the Company or its Subsidiaries regarding its Intellectual Property
Rights. The Company is unaware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all
of
their Intellectual Property Rights.
z. Environmental
Laws. The Company and its Subsidiaries (i) are in compliance with
any and all applicable Environmental Laws (as hereinafter defined), (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license
or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or
in
the aggregate, a Material Adverse Effect. The term
"Environmental Laws" means all federal, state, local or foreign
laws relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating
to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
aa. Subsidiary
Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or each Subsidiary.
bb. Tax
Status. The Company and each of its Subsidiaries (i) has made or
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii)
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 (iii) has set
aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim.
cc. Internal
Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a-14 under the 0000 Xxx) that are effective
in ensuring that information required to be disclosed by the Company in the
reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the rules and
forms of the SEC, including, without limitation, controls and procedures
designed in to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is accumulated and
communicated to the Company's management, including its principal executive
officer or officers and its principal financial officer or officers, as
appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither
the Company nor any of its Subsidiaries have received any notice or
correspondence from any accountant relating to any potential material weakness
in any part of the system of internal accounting controls of the Company or
any
of its Subsidiaries.
9
dd. Transfer
Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and
all
laws imposing such taxes will be or will have been complied with.
ee. Manipulation
of Price. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) other than the Agents, sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities, or
(iii) other than the Agents, paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
ff. Off
Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its
1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a Material Adverse Effect.
gg. Investment
Company Status. The Company is not, and upon consummation of the
sale of the Securities will not be, an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such
terms
are defined in the Investment Company Act of 1940, as amended.
hh. Bank
Holding Company Act. Neither the Company nor any of its
affiliates is subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA") and to regulation by the Board of Governors of the
Federal Reserve System (the "Federal
Reserve"). Neither the Company nor any of its affiliates
owns or controls, directly or indirectly, five percent (5%) or more of the
outstanding shares of any class of voting securities or twenty-five percent
or
more of the total equity of a bank or any entity that is subject to the BHCA
and
to regulation by the Federal Reserve. Neither the Company affiliates
exercises a controlling influence over the management or policies of a bank
or
any entity that is subject to the BHCA and to regulation by the Federal
Reserve.
ii. Acknowledgement
Regarding Buyers' Trading Activity. Anything in this Agreement or
elsewhere herein to the contrary notwithstanding, but subject to compliance
by
the Buyers with applicable law, it is understood and acknowledged by the Company
(i) that none of the Buyers have been asked by the Company or its Subsidiaries
to agree, nor has any Buyer agreed with the Company or its Subsidiaries, to
desist from purchasing or selling, long and/or short, securities of the Company,
or "derivative" securities based on securities issued by the Company or to
hold
the Securities for any specified term; (ii) that past or future open market
or
other transactions by any Buyer, including, without limitation, short sales
or
"derivative" transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Buyer, and counter parties in
"derivative" transactions to which any such Buyer is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and
(iv)
that each Buyer shall not be deemed to have any affiliation with or control
over
any arm's length counter-party in any "derivative" transaction. The
Company further understands and acknowledges that (a) one or more Buyers may
engage in hedging and/or trading activities at various times during the period
that the Securities are outstanding, including, without limitation, during
the
periods that the value of the Warrant Shares deliverable with respect to
Securities are being determined and (b) such hedging and/or trading activities
(if any) could reduce the value of the existing stockholders' equity interests
in the Company at and after the time that the hedging and/or trading activities
are being conducted.
jj. Share
Exchange Agreement. The Share Exchange Agreement has not been
amended in any way and no provisions thereof have been waived.
kk. Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf
has
provided any of the Buyers or their agents or counsel with any information
that
constitutes or could reasonably be expected to constitute material, nonpublic
information. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions
in
securities of the Company. All disclosure provided to the Buyers
regarding the Company or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company is true and correct and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the
circumstances under which they were made, not misleading. Each press
release issued by the Company or any of its Subsidiaries during the twelve
(12)
months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary in order to make the statements
therein, in 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 any of its Subsidiaries or its or their
business, properties, 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.
10
D. COVENANTS.
a. Best
Efforts. Each party shall use its best efforts timely to satisfy
each of the conditions to be satisfied by it as provided in Sections 6 and
7 of
this Agreement.
Form
D and Blue
Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to
each
Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities
for
sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyers on or prior to the Closing Date. The
Company shall make all filings and reports relating to the offer and sale of
the
Securities required under applicable securities or "Blue Sky" laws of the states
of the United States following the Closing Date.
b. Reporting
Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Common Shares and Warrant
Shares and none of the Warrants is outstanding, (the
"Reporting Period"), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under
the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination.
c. Use
of
Proceeds. The Company will use the proceeds from the sale of the
Securities as set forth on Schedule 4(d), and not for any other
purposes.
d. Financial
Information. The Company agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period (i) unless the following are filed with the SEC through XXXXX and are
available to the public through the XXXXX system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports and
Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports
or
any consolidated balance sheets, income statements, stockholders' equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on
Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as
the
release thereof, facsimile or e-mailed copies of all press releases issued
by
the Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to
the
stockholders. As used herein, "Business Day" means
any day other than Saturday, Sunday or other day on which commercial banks
in
The City of New York are authorized or required by law to remain
closed.
e. Listing. The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock
is
then listed (subject to official notice of issuance) and shall maintain, in
accordance with the Warrants, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stocks'
authorization for quotation on the Principal Market. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common
Stock
on the Principal Market. The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section
4(f).
f. Fees. The
Company shall reimburse Investcorp Interlachen Multi-Strategy Master Fund (a
Buyer) or its designee(s) for all reasonable costs and expenses (in addition
to
any amounts previously paid) incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable and
documented legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction Documents
and due diligence in connection therewith), which amount shall not exceed
$50,000 in the aggregate and may be, at the sole option of Investcorp
Interlachen Multi-Strategy Master Fund, withheld by such Buyer from its Purchase
Price at the Closing. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby, including, without limitation,
any
fees or commissions payable to the Agents. The Company shall pay and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any such
payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with
the
sale of the Securities to the Buyers.
11
g. Pledge
of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities. The pledge
of Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall
be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that
an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by an
Investor.
h. Disclosure
of Transactions and Other Material Information. On or before 8:30
a.m., New York City time, on the first Business Day following the Closing Date,
the Company shall issue a press release and file a Current Report on Form 8-K
within four Business Days following the Closing Date describing the terms of
the
transactions contemplated by the Transaction Documents and the Exchange
Agreement in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement, the form
of Warrant, the form of Escrow Agreement and the form of the Registration Rights
Agreement and such financial statements and other information as required in
connection with the Exchange Agreement) as exhibits to such filing (including
all attachments, the "8-K Filing"). From and after
the filing of the 8-K Filing with the SEC, no Buyer shall be in possession
of
any material, nonpublic information received from the Company, any of its
Subsidiaries or any of their respective officers, directors, employees or agents
that is not disclosed in the 8-K Filing. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express
written consent of such Buyer. If a Buyer has, or believes it has,
received any such material, nonpublic information regarding the Company or
any
of its Subsidiaries, it shall provide the Company with written notice
thereof. The Company shall, within five (5) Trading Days (as defined
in the Warrants) of receipt of such notice, make public disclosure of such
material, nonpublic information. In the event of a breach of the
foregoing covenant by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents, in addition to
any
other remedy provided herein or in the Transaction Documents, a Buyer shall
have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without
the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents. No Buyer shall
have any liability to the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees, stockholders or agents for any such
disclosure. Subject to the foregoing, neither the Company, its
Subsidiaries nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of
any
Buyer, to make any press release or other public disclosure with respect to
such
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written
consent of any applicable Buyer, neither the Company nor any of its Subsidiaries
or affiliates shall disclose the name of such Buyer in any filing, announcement,
release or otherwise, unless required by law.
i. Variable
Securities; Dilutive Issuances. So long as any Buyer beneficially
owns any Warrants, the Company will not issue any other securities that would
cause a breach or default under the Warrants. For so long as any
Warrants remain outstanding, the Company shall not, in any manner, issue or
sell
any rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security cannot be less
than the then applicable Exercise Price (as defined in the Warrants) with
respect to the Common Stock into which any Warrant is
exercisable. For so long as any Warrants remain outstanding, the
Company shall not, in any manner, enter into or affect any Dilutive Issuances
(as defined in the Warrants) if the effect of such Dilutive Issuance is to
cause
the Company to be required to issue upon exercise of any Warrant any shares
of
Common Stock in excess of that number of shares of Common Stock which the
Company may issue upon exercise of the Warrants without breaching the Company's
obligations under the rules or regulations of the Principal Market.
j. Corporate
Existence. So long as any Buyer beneficially owns any Securities,
the Company shall not to be party to any Fundamental Transaction (as defined
in
the Warrants) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Warrants.
k. Reservation
of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than
(i) 100% of the number of Common Shares issuable hereunder and (ii) 120% of
the
maximum number of shares of Common Stock issuable upon exercise of the Warrants
issued at the Closing (without taking into account any limitations on the
exercise of the Warrants set forth in the Warrants).
l. Conduct
of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of
any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.
12
m. Additional
Issuances of Securities.
i. For
purposes of this Section 4(n), the following definitions shall
apply.
a. "Convertible
Securities" means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for shares of Common
Stock.
b. "Options"
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.
c. "Common
Stock Equivalents" means, collectively, Options and Convertible
Securities.
ii. From
the
date hereof until the date that is the earlier of (i) one hundred and eighty
(180) Trading Days (as defined in the Warrants) following the Initial Effective
Date (as defined in the Registration Rights Agreement) and (ii) thirty (30)
months following the Closing Date (the "Trigger Date"), the
Company will not, directly or indirectly, file any registration statement (other
than on Form S-8) with the SEC other than the Registration Statement (as defined
in the Registration Rights Agreement). From the date hereof until the
Trigger Date, the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or its
Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is,
at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a "Subsequent Placement").
iii. From
the
Trigger Date until the second anniversary of the Closing Date, the Company
will
not, directly or indirectly, effect any Subsequent Placement unless the Company
shall have first complied with this Section 4(n)(iii).
a. The
Company shall deliver to each Buyer an irrevocable written notice
(the "Offer Notice") of any proposed or intended issuance
or sale or exchange (the "Offer") of the securities being
offered (the "Offered Securities") in a Subsequent Placement,
which Offer Notice shall (w) identify and describe the Offered Securities,
(x) describe the price and other terms upon which they are to be issued,
sold or exchanged, and the number or amount of the Offered Securities to be
issued, sold or exchanged, (y) identify the persons or entities (if known)
to which or with which the Offered Securities are to be offered, issued, sold
or
exchanged and (z) offer to issue and sell to or exchange with such Buyers the
Offered Securities, allocated among such Buyers (a) based on such Buyer's pro
rata portion of the number of Common Shares purchased hereunder (the
"Basic Amount"), and (b) with respect to each Buyer that elects
to purchase its Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Buyers as such Buyer shall indicate
it will purchase or acquire should the other Buyers subscribe for less than
their Basic Amounts (the "Undersubscription Amount"), which
process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
b. To
accept
an Offer, in whole or in part, such Buyer must deliver a written notice to
the
Company prior to the end of the tenth (10th) Business
Day
after such Buyer's receipt of the Offer Notice (the "Offer
Period"), setting forth the portion of such Buyer's Basic Amount that
such Buyer elects to purchase and, if such Buyer shall elect to purchase all
of
its Basic Amount, the Undersubscription Amount, if any, that such Buyer elects
to purchase (in either case, the "Notice of
Acceptance"). If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer
who
has set forth an Undersubscription Amount in its Notice of Acceptance shall
be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however,
that if the Undersubscription Amounts subscribed for exceed the difference
between the total of all the Basic Amounts and the Basic Amounts subscribed
for
(the "Available Undersubscription Amount"), each Buyer who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount
of
such Buyer bears to the total Basic Amounts of all Buyers that have subscribed
for Undersubscription Amounts, subject to rounding by the Company to the extent
its deems reasonably necessary.
13
c. The
Company shall have fifteen (15) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the "Refused Securities"), but only to the offerees described
in the Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less favorable to the
Company than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b) either (x)
the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent
Placement Agreement and any documents contemplated therein filed as exhibits
thereto.
d. In
the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(n)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified
in
its Notice of Acceptance to an amount that shall be not less than the number
or
amount of the Offered Securities that such Buyer elected to purchase pursuant
to
Section 4(n)(iii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(n)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of
the
Offered Securities. In the event that any Buyer so elects to reduce
the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities
have
again been offered to the Buyers in accordance with Section 4(n)(iii)(1)
above.
e. Upon
the
closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the number or amount of Offered Securities specified in
the
Notices of Acceptance, as reduced pursuant to Section 4(n)(iii)(3) above if
the
Buyers have so elected, upon the terms and conditions specified in the
Offer. Notwithstanding anything to the contrary contained in this
Agreement, if the Company does not consummate the closing of the issuance,
sale
or exchange of all or less than all of the Refused Securities within fifteen
(15) Business Days of the expiration of the Offer Period, the Company shall
issue to the Buyers the number or amount of Offered Securities specified in
the
Notices of Acceptance, as reduced pursuant to Section 4(n)(iii)(4) above if
the
Buyers have so elected, upon the terms and conditions specified in the
Offer. The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their respective
counsel.
f. Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(n)(iii)(3) above may not be issued, sold or exchanged until
they
are again offered to the Buyers under the procedures specified in this
Agreement.
g. The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, (x) neither the Subsequent Placement Agreement with respect to such
Offer
nor any other transaction documents related thereto (collectively, the
"Subsequent Placement Documents") shall include any term or
provisions whereby any Buyer shall be required to agree to any restrictions
in
trading as to any securities of the Company owned by such Buyer prior to such
Subsequent Placement, and (y) any registration rights set forth in such
Subsequent Placement Documents shall be similar in all material respects to
the
registration rights contained in the Registration Rights Agreement.
h. Notwithstanding
anything to the contrary in this Section 4(n) and unless otherwise agreed to
by
the Buyers, the Company shall either confirm in writing to the Buyers that
the
transaction with respect to the Subsequent Placement has been abandoned or
shall
publicly disclose its intention to issue the Offered Securities, in either
case
in such a manner such that the Buyers will not be in possession of material
non-public information, by the fifteen (15th) Business
Day
following delivery of the Offer Notice. If by the fifteen (15th) following
delivery of the Offer Notice no public disclosure regarding a transaction with
respect to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by the Buyers, such
transaction shall be deemed to have been abandoned and the Buyers shall not
be
deemed to be in possession of any material, non-public information with respect
to the Company. Should the Company decide to pursue such transaction
with respect to the Offered Securities, the Company shall provide each Buyer
with another Offer Notice and each Buyer will again have the right of
participation set forth in this Section 4(n)(iii). The Company shall
not be permitted to deliver more than one such Offer Notice to the Buyers in
any
60 day period.
iv. The
restrictions contained in subsections (ii) and (iii) of this Section 4(n) shall
not apply in connection with (i) the issuance of any Excluded Securities (as
defined in the Warrants) and (ii) the issuance of the warrants to purchase
shares of Common Stock to SMH Capital at the Closing.
n. Share
Exchange Agreement. Neither the Company nor OpCo may amend or
waive any provision of the Share Exchange Agreement without the consent of
the
Buyers holding at least a majority of the number of Registrable Securities
issued and issuable hereunder.
14
o. D&O
Insurance; Corporate Governance. As soon as practicable, but in
no event later than 90 days after the Closing Date, the Company shall (i) obtain
directors and officers insurance coverage for its directors and officers in
coverage and amounts determined reasonably sufficient by the Company's Board
of
Directors, consistent with other similarly situated companies in the same
industry and (ii) institute corporate governance procedures necessary to effect
the listing of the Company's Common Stock on The NASDAQ Capital
Market.
p. Integration. None
of the Company, their Subsidiaries, their affiliates and any Person acting
on
their behalf will take any action or steps referred to in Section 3(h) that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other
offerings.
q. Lock-Up. The
Company shall not amend or waive any provision of any of the Lock-Up Agreements
(as defined below).
r. Issued
and Outstanding Shares. For so long as any Purchaser holds any of the
Securities, the Company shall not reduce the number of shares of Common Stock
issued and outstanding or otherwise alter the capitalization of the Company
in a
manner that would cause any of the Purchasers to own more than 4.99% of the
issued and outstanding Common Stock.
E. REGISTER;
TRANSFER AGENT INSTRUCTIONS.
a. Register. The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Units and the Common Shares and the Warrants
that comprise the Units in which the Company shall record the name and address
of the Person in whose name the Units, Common Shares
and Warrants have been issued (including the name and
address of each transferee) and the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person. The Company shall keep
the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.
b. Transfer
Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of
each Buyer or its respective nominee(s), for the Warrant Shares issued upon
exercise of the Warrants in such amounts as specified from time to time by
each
Buyer to the Company upon exercise of the Warrants in the form of Exhibit
D attached hereto (the "Irrevocable Transfer Agent
Instructions"). The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records
of
the Company as and to the extent provided in this Agreement and the other
Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue
one
or more certificates or credit shares to the applicable balance accounts at
DTC
in such name and in such denominations as specified by such Buyer to effect
such
sale, transfer or assignment. In the event that such sale, assignment
or transfer involves Warrant Shares sold, assigned or transferred pursuant
to an
effective registration statement or pursuant to Rule 144, the transfer agent
shall issue such Securities to the Buyer, assignee or transferee, as the case
may be, without any restrictive legend.
c. Breach. The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5
will
be inadequate and agrees, in the event of a breach or threatened breach by
the
Company of the provisions of this Section 5, that a Buyer shall be entitled,
in
addition to all other available remedies, to an order and/or 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.
15
F. CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Units to each Buyer
at
the Closing is subject to the satisfaction, at or before the Closing Date,
of
each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its
sole
discretion by providing each Buyer with prior written notice
thereof:
a. Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
b. Such
Buyer and each other Buyer shall have delivered to the Escrow Agent the Purchase
Price (less, in the case of Investcorp Interlachen Multi-Strategy Master Fund,
the amounts withheld pursuant to Section 4(g)) of the Units being purchased
by
such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
c. The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
d. Contemporaneously
with the Closing, the transactions contemplated in the Share Exchange Agreement
shall have been consummated.
e. Buyers
shall have purchased Units representing not less than $10 million and not more
than $20 million of the aggregate Purchase Price.
G. CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Units at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion
by
providing the Company with prior written notice thereof:
a. The
Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Common Shares (allocated in such number
as
such Buyer shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement, and (iii) the related Warrants (allocated in such amounts
as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.
b. Such
Buyer shall have received the opinion of Sichenzia Xxxx Xxxxxxxx & Xxxxxxx
LLP, the Company's outside counsel, dated as of the Closing Date, in
substantially the form of Exhibit E attached hereto.
16
c. The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit D attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company's transfer agent.
d. The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company and each of its Subsidiaries
(including OpCo) in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within 10 days of the Closing Date.
e. The
Company shall have delivered to such Buyer a certificate evidencing the
Company's and OpCo's qualification as a foreign corporation and good standing
issued by the Secretary of State (or comparable office) of each jurisdiction
in
which the Company and OpCo conducts business, as of a date within 10 days of
the
Closing Date.
f. The
Company shall have delivered to such Buyer a certified copy of (i) the
Certificate of Incorporation as certified by the Secretary of State of the
State
of Nevada within ten (10) days of the Closing Date and (ii) the certificate
of
incorporation of OpCo as certified by the Secretary of State of the State of
Texas within ten (10) days of the Closing Date.
g. The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company's Board
of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate
of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit F.
h. The
representations and warranties of the Company shall be true and correct in
all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date
(after giving effect to the transactions contemplated hereby to occur at the
Closing, including without limitation, the Share Exchange) as though made at
that time (except for representations and warranties that speak as of a specific
date, which shall be true and correct as of such specified date) and the Company
shall have performed, satisfied and complied in all material respects with
the
covenants, agreements and conditions required by the Transaction Documents
to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested
by
such Buyer in the form attached hereto as Exhibit G.
i. The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of shares of Common Stock outstanding as of a date
within five days of the Closing Date.
j. The
Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
by
falling below the minimum listing maintenance requirements of the Principal
Market, if any.
k. The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities.
l. Each
of
Xxxx Xxxxxxx, Xxxxxxx Xxxxxxxxxxx, Xxxx Sudderith, Xxxxx Xxxx and Xxxx Xxxxxxx
shall have entered into a Lock-Up Agreement in the form attached hereto as
Exhibit H (the "Lock-Up Agreements").
17
m. Contemporaneously
with the Closing, the transactions contemplated by the Share Exchange Agreement
shall have been consummated and none of the conditions to closing contained
in
the Share Exchange Agreement shall have been waived or amended unless the Buyers
holding at least a majority of the number of Registrable Securities issued
and
issuable hereunder shall have approved such waiver or amendment.
n. Buyers
shall have purchased Units representing not less than $10 million and not more
than $20 million of the aggregate Purchase Price.
o. There
shall not have developed, occurred, or come into effect or existence after
the
date hereof any change, or any development involving a prospective change,
in or
affecting the position of the Company or OpCo, financial or otherwise, that
has
had, or would be expected to have, a Material Adverse Effect on the Company's
or
OpCo’s general affairs, management, financial condition, shareholders’ equity or
results of operations.
p. The
financing documents securing a senior debt facility reasonably satisfactory
to
the Buyers and attached hereto as Exhibit I shall have been executed by
Pegasi Energy Resources Corporation and the other parties thereto.
q. The
Company shall have delivered to such Buyer such other customary documents
relating to the transactions contemplated by this Agreement as such Buyer or
its
counsel may reasonably request.
H. TERMINATION. In
the event that the Closing shall not have occurred with respect to a Buyer
on or
before December 31, 2007 due to the Company's or such Buyer's failure to satisfy
the conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party
at the close of business on such date without liability of any party to any
other party, except as set forth below; provided, however, if this Agreement
is
terminated pursuant to this Section 8, the Company shall remain obligated to
reimburse the non-breaching Buyers for the amounts described in Section 4(g)
above.
I. MISCELLANEOUS.
a. Governing
Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of
the
laws of any jurisdictions other than the State of New York. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state
and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that
the
venue of such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by
law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR
ANY
TRANSACTION CONTEMPLATED HEREBY.
b. Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if
the
signature were an original, not a facsimile signature.
c. Headings. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.
18
d. Severability.
If any provision of this Agreement is prohibited by law or otherwise determined
to be invalid or unenforceable by a court of competent jurisdiction, the
provision that would otherwise be prohibited, invalid or unenforceable shall
be
deemed amended to apply to the broadest extent that it would be valid and
enforceable, and the invalidity or unenforceability of such provision shall
not
affect the validity of the remaining provisions of this Agreement so long as
this Agreement as so modified continues to express, without material change,
the
original intentions of the parties as to the subject matter hereof and the
prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or
unenforceable provision(s) with a valid provision(s), the effect of which comes
as close as possible to that of the prohibited, invalid or unenforceable
provision(s).
e. Entire
Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to
this
Agreement made in conformity with the provisions of this Section 9(e) shall
be
binding on all Buyers and holders of Securities as applicable. No
provision hereof may be waived other than by an instrument in writing signed
by
the holders of at least two thirds (2/3) of the aggregate number of Registrable
Securities issued and issuable hereunder. No such amendment shall be
effective to the extent that it applies to less than all of the holders of
the
applicable Securities then outstanding. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification
of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents, and the
holders of the Warrants. The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of
the
transactions contemplated by the Transaction Documents except as set forth
in
the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has
made
any commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.
19
f. Notices. Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of transmission
is mechanically or electronically generated and kept on file by the sending
party); or (iii) one Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications
shall be:
If
to the
Company:
#507,
0000 Xxxx Xxxxx Xxxxxx, Xxxxx #000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000)
000-0000
Attention: Xxxxxx
Xxxx, President
Copy
to:
Sichenzia
Xxxx Xxxxxxxx & Xxxxxxx LLP
00
Xxxxxxxx
Xxx
Xxxx,
XX 00000
Telephone:
000-000-0000
Facsimile:
212-930-9725
Attention:
Xxxxx X. Xxxxxxxxx
If
to the
Transfer Agent:
Xxxxxxxx
Stock Transfer, Inc.
0000
X
00xx
Xxxxx
Xxxxxxxxxx,
XX, 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
20
If
to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers,
Copy
(for
informational purposes only) to:
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
or
to
such other address and/or facsimile number and/or to the attention of such
other
Person as the recipient party has specified by written notice given to each
other party five days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively; provided however that the foregoing clause (B) shall only be
valid
if such communication contained in the facsimile is delivered by an overnight
courier service within 24 hours of the transmission of facsimile.
g. Successors
and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares or the Warrants. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the holders of at least a majority of
the
aggregate number of Registrable Securities issued and issuable hereunder,
including by way of a Fundamental Transaction (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions
set
forth in the Warrants). A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee
shall
be deemed to be a Buyer hereunder with respect to such assigned
rights
h. No
Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
i. Survival. Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3 and the agreements
and covenants set forth in Sections 4, 5, 8 and 9 shall survive the
Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Further
Assurances. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as any
other
party may reasonably request in order to carry out the intent and accomplish
the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
21
k. Indemnification. In
consideration of each Buyer's execution and delivery of 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 each Buyer and each other holder
of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents 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 attorneys' 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 document 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 or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status
of
such Buyer or holder of the Securities as an investor in the Company pursuant
to
the transactions contemplated by the Transaction Documents. 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 that is permissible under
applicable law. Except as otherwise set forth herein, the mechanics
and procedures with respect to the rights and obligations under this Section
9(k) shall be the same as those set forth in Section 6 of the Registration
Rights Agreement.
l. No
Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party.
m. Remedies. Each
Buyer and each holder of the Securities shall have all rights and remedies
set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract
and
all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security),
to
recover damages by reason of any breach of any provision of this Agreement
and
to exercise all other rights granted by law. Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge
any
or all of its obligations under the Transaction Documents, any remedy at law
may
prove to be inadequate relief to the Buyers. The Company therefore
agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.
n. Rescission
and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind
or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
o. Payment
Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation,
any
bankruptcy law, foreign, state or federal law, common law or equitable cause
of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued
in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
22
p. Independent
Nature of Buyers' Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way
for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall
be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company will not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company
acknowledges and each Buyer confirms that it has independently participated
in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation,
the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Buyer to be joined as an additional
party in any proceeding for such purpose.
[Signature
Page Follows]
23
IN
WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
|
COMPANY:
|
|
By:
Name:
Title:
|
IN
WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
|
BUYERS:
|
|
INVESTCORP
INTERLACHEN MULTI-STRATEGY MASTER FUND
By:
Name:
Title:
|
IN
WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
|
OTHER
BUYERS:
|
|
By:
Name:
Title:
|
SCHEDULE
OF BUYERS
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
|
Buyer
|
Address
and
Facsimile
Number
|
Number
of Units
|
Purchase
Price
|
Legal
Representative's Address and Facsimile Number
|
|
Investcorp
Interlachen Multi-Strategy Master Fund
|
c/o
Interlachen Capital Group LP
000
Xxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxxx,
XX 00000-0000
Attention: Xxxxx
X. Xxxxxxx
Facsimile: (000)
000-0000
Telephone:
(000) 000-0000
Residency:
Cayman Islands
|
Xxxxxxx
Xxxx & Xxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx
Xxxxx, Esq.
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
|
||
|
[Other
Buyers]
|
|
10524331.9 |
27
EXHIBITS
| Exhibit A | Form of Warrants | |
| Exhibit B | Form of Registration Rights Agreement | |
| Exhibit C | Form of Escrow Agreement | |
| Exhibit D | Irrevocable Transfer Agent Instructions | |
| Exhibit E | Form of Company Counsel Opinion | |
| Exhibit F | Form of Secretary's Certificate | |
| Exhibit G | Form of Officer's Certificate | |
| Exhibit H | Form of Lock-Up Agreement | |
| Exhibit I | Financing Agreement | |
|
|
28
