EXHIBIT 1.1
STANDBY EQUITY DISTRIBUTION AGREEMENT
AGREEMENT dated as of the 11th day of February 2004 (the "Agreement")
between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"), and CANARGO ENERGY CORPORATION, a corporation organized and
existing under the laws of the State of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase from the
Company up to Twenty Million Dollars ($20,000,000) of the Company's common
stock, par value $0.10 per share (the "Common Stock"); and
WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities Act"), and or upon
such other exemption from the registration requirements of the Securities Act as
may be available with respect to any or all of the investments to be made
hereunder.
WHEREAS, the Company has engaged Newbridge Securities Corporation, to act
as the Company's exclusive placement agent in connection with the sale of the
Company's Common Stock to the Investor hereunder pursuant to the Placement Agent
Agreement dated the date hereof by and among the Company, the Placement Agent
and the Investor substantially in the form attached hereto as Exhibit A(the
"Placement Agent Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.
Section 1.2. "Advance Date" shall mean the date Xxxxxx Xxxxxxxx LLP Escrow
Account is in receipt of the funds from the Investor and Xxxxxx Xxxxxxxx LLP, as
the Investor's Counsel, is in possession of Common Stock, which has been
registered for resale under the Securities Act pursuant to the Registration
Statement filed pursuant to the Registration Rights Agreement dated the date
hereof, from the Company and therefore an Advance by the Investor to the Company
can be made and Xxxxxx Xxxxxxxx LLP can release such shares to the Investor. No
Advance Date shall be less than six (6) Trading Days after an Advance Notice
Date.
Section 1.3. "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.
Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to
the terms of this Agreement. No Advance Notice Date shall be less than seven (7)
Trading Days after the prior Advance Notice Date.
Section 1.5. "Affiliate" shall mean (i) when referring to an Affiliate of
the Investor, a director, officer, member, partner or employee of the Investor,
or any Person that directly, or indirectly through one or more intermediaries,
controls, is controlling or is under common control with the Investor, or any
Person who has "investment discretion" (as defined in Section 3(a)(35) of the
Exchange Act) over any account maintained by the Investor, or any Person over
whose account the Investor has any investment discretion and (ii) when referring
to an Affiliate of any Person, any Person that directly, or indirectly through
one or more intermediaries, controls, is controlling or is under common control
with such other Person.
Section 1.6. "Bid Price" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or
if the Common Stock is not traded on a Principal Market, the highest reported
bid price for the Common Stock, as furnished by the National Association of
Securities Dealers, Inc.
Section 1.7. "Business Day" shall mean any day that is not a Saturday, a
Sunday or other day on which banks are required or authorized by law to be
closed in New York.
Section 1.8. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.
Section 1.9. "Commitment Amount" shall mean the aggregate amount of up to
Twenty Million Dollars ($20,000,000) which the Investor has irrevocably agreed
to provide to the Company in order to purchase the Company's Common Stock
pursuant to the terms and conditions of this Agreement.
Section 1.10. "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of Twenty Million
Dollars ($20,000,000), (y) the date this Agreement is terminated pursuant to
Section 2.4, or 10.2 or (z) the date occurring twenty-four (24) months after the
Effective Date.
Section 1.11. "Common Stock" shall mean the Company's common stock, par
value $0.10 per share.
Section 1.12. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.
Section 1.13. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).
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Section 1.14. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.15. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, and Xxxxxx Xxxxxxxx LLP dated the date hereof in
substantially the form of Exhibit B attached hereto.
Section 1.16. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.17. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of either party hereto to enter into and perform any of its
obligations under this Agreement or the Registration Rights Agreement in any
material respect.
Section 1.18. "Market Price" shall mean the lowest daily closing VWAP of
the Common Stock during the Pricing Period on the Principal Market.
Section 1.19. "Maximum Advance Amount" shall be Six Hundred Thousand
Dollars ($600,000) per Advance Notice.
Section 1.20. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.21 "NOK" shall mean Norwegian Kroner.
Section 1.22. "OSE" Shall mean the Oslo Stock Exchange.
Section 1.23. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.24. "Placement Agent" shall mean Newbridge Securities
Corporation a registered broker-dealer.
Section 1.25. "Pricing Period" shall mean the initial five (5) consecutive
Trading Days immediately after the Advance Notice Date.
Section 1.26. "Principal Market" shall mean the OSE and in the event
the Common Stock is not traded on the OSE, the Nasdaq National Market, the
Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board, or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock, or such other trading exchange or
market the parties may agree as the principal trading exchange or market of the
Company, from time to time.
Section 1.27. "Purchase Price" shall be set at ninety seven percent (97%)
of the Market Price during the Pricing Period.
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Section 1.28. "Registrable Securities" shall mean the shares of Common
Stock to be issued hereunder (i) in respect of which the Registration Statement
has not been declared effective by the SEC, (ii) which have not been sold under
circumstances meeting all of the applicable conditions of Rule 144 (or any
similar rule then in force) under the Securities Act ("Rule 144") or (iii) which
have not been otherwise transferred to a holder who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities bearing a
restrictive legend.
Section 1.29. "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor in substantially the form attached hereto as Exhibit
"C".
Section 1.30. "Registration Statement" shall mean a registration statement
on Form S-1 or SB-2 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement and the Registration Rights Agreement, and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.31. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.32. "SEC" shall mean the Securities and Exchange Commission.
Section 1.33. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.34. "SEC Documents" shall mean Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements
of the Company as supplemented to the date hereof, filed by the Company for a
period of at least twelve (12) months immediately preceding the date hereof or
the Advance Date, as the case may be, until such time as the Company no longer
has an obligation to maintain the effectiveness of a Registration Statement as
set forth in the Registration Rights Agreement.
Section 1.35. "Securities Laws" shall (i) have the meaning set forth in
Section 3(a)(47) under the Exchange Act and all rules and regulations
promulgated thereunder; (ii) including all applicable United States state
securities or "blue sky" laws and all rules and regulations promulgated
thereunder, and, (iii) including all laws, rule and regulations promulgated by
any "foreign securities authority" or "foreign financial regulatory authority"
as respectively defined in Sections 3(a)(50) and (52) under the Exchange Act, in
each case as applicable.
Section 1.36. "Subsidiary" shall mean with respect to any Person, any
other corporation, limited liability company, general or limited partnership,
unincorporated association, trust or other business entity of which (i) if a
corporation, a majority of the total
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voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of
the Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association, trust or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof.
Section 1.37. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.38. "US$ or $ or Dollar" shall mean the currency of the United
States.
Section 1.39. "VWAP" shall mean the volume weighted average price of the
Company's Common Stock as quoted by Bloomberg, L.P on the Principal Market. The
VWAP will be converted from NOK to US$ at the mid-market NOK/US$ price quoted by
Bloomberg, L.P., at the time when the Principal Market (equities only) closes,
at the end of the Pricing Period.
Section 1.40 "Other Interpretive Provisions" With reference to this
Agreement, unless otherwise specified herein, the following interpretive
provisions shall apply:
i. the meanings of defined terms are equally applicable to the
singular and plural forms of such defined terms;
ii. where a representation, covenant, or warranty given by a party
hereto is qualified by "to the knowledge of" or "to the best knowledge of" or
words of similar effect than the knowledge of the party giving such
representation, warranty, or covenant shall be the knowledge of its executive
officers;
iii. the words "herein", "hereto", "hereof", and "hereunder" and
words of similar import shall refer to this Agreement as a whole and not to any
particular provision hereof;
iv. Article, Section and Exhibit references are to this Agreement
and any Exhibits thereto;
v. the term "including" is by way of example and not limitation
and "or" has the inclusive meaning of the phrase "and/or";
vi. the term "documents" includes any and all instruments,
documents, agreements, certificates, notices, reports, financial statements and
other writings, however evidenced, whether in physical or electronic form;
vii. in the computation of periods of time from a specified date to
a later specified date, (i) the word "from" shall mean "from and including;" and
the words "to" and "until" each mean "to but excluding;" and (iii) the word
"through" shall mean "to and including";
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viii. Article and Section headings herein are included for
convenience of reference only and shall not affect the interpretation of this
Agreement; and words importing masculine gender shall include feminine and
neuter genders and vice versa and words importing individuals shall include
Persons and vice versa;
ix. whenever anything is required to be done or any action is
required to be taken hereunder on or by a day which is not a Business Day or
Trading Day, then such thing may be validly done and such action may be validly
taken on or by the next succeeding Business Day or Trading Day that is a
Business Day or Trading Day, respectively;
x. any reference to any law, statute, rule or regulation shall
mean such law, statute, rule, or regulation as in effect and amended from time
to time; and
xi. the parties have participated jointly in the negotiation and
drafting of this Agreement. In the event that an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of authorship of any of the
provisions of this Agreement.
ARTICLE II.
ADVANCES
Section 2.1. Investments.
(a) Advances. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Advance Notice Date the Company may request an Advance by the Investor by the
delivery of an Advance Notice. Subject to adjustment as herein provided, the
number of shares of Common Stock that the Investor shall receive for each
Advance shall be determined by dividing the amount of the Advance by the
Purchase Price. No fractional shares shall be issued. Fractional shares shall be
rounded to the next higher whole number of shares. The aggregate maximum amount
of all Advances that the Investor shall be obligated to make under this
Agreement shall not exceed the Commitment Amount.
Section 2.2. Mechanics.
(a) Advance Notice. At any time during the Commitment Period, the
Company may deliver an Advance Notice to the Investor, subject to the conditions
set forth in Section 7.2; provided, however, the amount for each Advance as
designated by the Company in the applicable Advance Notice, shall not be more
than the Maximum Advance Amount. The aggregate amount of the Advances pursuant
to this Agreement shall not exceed the Commitment Amount. The Company
acknowledges that the Investor may sell shares of the Company's Common Stock
corresponding with a particular Advance Notice on the day the Advance Notice is
received by the Investor; provided however, the Investor agrees that it shall
and it shall cause its Affiliates to comply with all applicable Securities Laws
in connection with each such sale, including Rules 3b-3, 10a-1, and 10a-2 under
the Exchange Act. There will be a minimum of seven (7) Trading Days between each
Advance Notice Date.
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(b) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 12:00 noon United States
Eastern Time (5:00 pm London, England Time), or (ii) the immediately succeeding
Trading Day if it is received by facsimile or otherwise after 12:00 noon United
States Eastern Time (5:00 pm London, England Time), on a Trading Day or at any
time on a day which is not a Trading Day. No Advance Notice may be deemed
delivered, on a day that is not a Trading Day.
(d) Closing of an Advance Notice. In order to effectuate a closing
of an Advance Notice pursuant to the Escrow Agreement, upon the calculation of
the number of shares of the Company's Common Stock required pursuant to an
Advance Notice the Company shall deliver, such shares of the Company's Common
Stock to the Investor's Counsel equal to the Advance Notice, either in physical
stock certificate form or via credit shares of the Company's Common Stock to the
Investor's Counsel's balance account with The Depository Trust Company through
its Deposit Withdrawal At Custodian system, and the Investor shall deposit with
the Investor's Counsel the amount of such Advance Notice.
(e) Loss. In the event the Investor sells the Company's Common
Stock pursuant to an Advance Notice and the Company fails to perform its
obligations as mandated in Section 2.5 and 2.2 (d) and the Escrow Agreement, and
specifically fails to provide the Investor with the shares of Common Stock for
the applicable Advance, the Company acknowledges that the Investor shall suffer
financial hardship and therefore shall be liable for any and all losses,
commissions, fees, or financial hardship caused to the Investor.
Section 2.3. Closings. On each Advance Date, which shall be six (6)
Trading Days after an Advance Notice Date, (i) the Company shall deliver to the
Investor's Counsel, as defined pursuant to the Escrow Agreement, shares of the
Company's Common Stock, representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein, registered in the name of the Investor which
shall be delivered to the Investor, or otherwise in accordance with the Escrow
Agreement and (ii) the Investor shall deliver to (x) Xxxxxx Xxxxxxxx LLP (the
"Escrow Agent") the amount of the Advance specified in the Advance Notice by
wire transfer of immediately available funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement and (y) to the
Company a written report specifying (1) the aggregate number of shares of Common
Stock beneficially owned by the Investor and its Affiliates on the Advance
Notice Date; (2) each sale (including short sales, puts or other derivative
transactions equivalent to a sale) of shares of Common Stock by the Investor and
its Affiliates during the six (6) Trading Days preceding the Advance Date
specifying the number of shares sold, the sale price per share and the trading
market in which the sales were effected; and (3) the aggregate number of shares
of Common Stock beneficially owned by the Investor and its Affiliates on the
Advance Date (not including the shares acquired in connection with the Advance).
In addition, on or prior to the Advance Date, each of the Company and the
Investor shall deliver to the other through the Investor's Counsel all
documents, instruments and writings required to be delivered by either of them
pursuant to this Agreement or the Registration Rights Agreement in order to
implement and effect the transactions contemplated herein. Payment of funds to
the Company and delivery of the Company's Common Stock to the Investor shall
occur in accordance with the conditions set forth above and those contained in
the Escrow Agreement; provided, however, that to the extent the Company has not
paid the fees, expenses, and disbursements of the Investor and the
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Investor's counsel in accordance with Section 12.4, (provided that the Company
has been furnished with a written invoice specifying such fees, expenses, and
disbursements in reasonable detail at least three (3) Trading Days prior to the
Advance Date) the amount of such fees, expenses, and disbursements may be
deducted by the Investor (and shall be paid to the relevant party) from the
amount of the Advance with no reduction in the amount of shares of the Company's
Common Stock to be delivered on such Advance Date.
Section 2.4. Termination of Investment. The obligation of the Investor to
make an Advance to the Company and the obligation of the Company to issue shares
of the Company's Common Stock to the Investor pursuant to this Agreement shall
terminate permanently (including with respect to an Advance Date that has not
yet occurred) in the event that (i) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an aggregate
of fifty (50) Trading Days, other than due to the acts of the Investor, during
the Commitment Period, or (ii) the Company shall at any time fail materially to
comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor or (iii) this
Agreement is terminated in accordance with the provisions of Section 10.2
hereof, provided, however, that this termination provision shall not apply to
any period commencing upon the filing of a post-effective amendment to such
Registration Statement and ending upon the date on which such post effective
amendment is declared effective by the SEC.
Section 2.5. Agreement to Advance Funds.
(a) The Investor irrevocably agrees to advance the amount
specified in the Advance Notice to the Company after the completion of each of
the following conditions and the other conditions set forth in this Agreement:
(i) the execution and delivery by the Company, and the
Investor, of this Agreement, and the Exhibits hereto;
(ii) Investor's Counsel shall have received the shares of
Common Stock applicable to the Advance in accordance with Section 2.2(d) hereof;
(iii) the Company's Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement shall have been declared effective by the SEC;
(iv) the Company shall have obtained all material permits and
qualifications required by any applicable state identified by the Investor for
the offer and sale of the Registrable Securities, or shall have the availability
of exemptions therefrom. The sale and issuance of the Registrable Securities
shall be legally permitted by all laws and regulations to which the Company is
subject;
(v) the Company shall have filed with the Commission in a
timely manner all reports, notices and other documents required of a "reporting
company" under the Exchange Act and applicable Commission regulations;
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(vi) the fees as set forth in Section 12.4 below shall have
been paid or can be withheld as provided in Section 2.3; and
(vii) the conditions set forth in Section 7.2 shall have been
satisfied.
Section 2.6. Lock Up Period.
(i) During the Commitment Period, the Company shall not
without thirty (30) calendar days prior written notice to the Investor, of which
the sending party has a confirmation of good transmission, issue or sell (i) any
Common Stock or Preferred Stock without consideration or for a consideration per
share less than the Bid Price on the date of issuance or (ii) issue or sell any
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration or
for a consideration per share less than the Bid Price on the date of issuance.
(ii) Prior to the Effective Date, as this term is defined in
the Registration Rights Agreement, the Company shall obtain from each executive
officer and director a lock-up agreement, as defined below, in the form annexed
hereto as Exhibit D agreeing to only sell in compliance with the volume
limitation of Rule 144 during the Commitment Period.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to, and agrees with, the Company
that the following are true and correct as of the date hereof and as of each
Advance Date:
Section 3.1. Organization and Authorization. The Investor is duly
organized and validly existing in the jurisdiction of organization and has all
requisite power and authority to purchase and hold the securities issuable
hereunder. The decision to invest in the securities issuable hereunder and
thereunder, and the execution and delivery of this Agreement and the Exhibits
attached hereto by such Investor, the performance by such Investor of its
obligations hereunder and the consummation by such Investor of the transactions
contemplated hereby and thereunder have been duly authorized and require no
other proceedings on the part of the Investor. The undersigned has the right,
power, authority and legal capacity to execute and deliver this Agreement and
all other Exhibits and other instruments (including, without limitations, the
Registration Rights Agreement), on behalf of the Investor. This Agreement and
Exhibits hereto have been duly executed and delivered by the Investor and,
assuming the execution and delivery hereof and thereof and acceptance thereof by
the Company, will constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with their respective
terms.
Section 3.2. Evaluation of Risks. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.
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Section 3.3. No Legal Advice From the Company. The Investor acknowledges
that it had the opportunity to review this Agreement and the Exhibits hereto and
the transactions contemplated by this Agreement with his or its own legal
counsel and investment and tax advisors. The Investor is relying solely on such
counsel and advisors and not on any statements or representations of the Company
or any of its representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this Agreement or
the Exhibits hereto or the Securities Laws.
Section 3.4. Investment Purpose. The securities are being purchased by the
Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor agrees not to assign or in any way transfer the Investor's
rights hereunder or to the securities or any interest therein and acknowledges
that the Company will not recognize any purported assignment or transfer except
in accordance with applicable Securities Laws. No other person has or will have
a direct or indirect beneficial interest in the securities. The Investor agrees
not to sell, hypothecate or otherwise transfer the Investor's securities or
interests therein unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel
satisfactory to the Company, an exemption from such laws is available.
Section 3.5. Accredited Investor. The Investor is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.
Section 3.6. Information. The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision. The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The Investor
understands that its investment involves a high degree of risk. The Investor is
in a position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Investor to
obtain information from the Company in order to evaluate the merits and risks of
this investment. The Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to this transaction.
Section 3.7. Receipt of Documents. The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-K for the year ended year ended December 31, 2002
and Form 10-K for the periods ended March 31, 2003, June 30, 2003 and September
30, 2003; and (iv) answers to all questions the Investor submitted to the
Company regarding an investment in the Company; and the Investor has relied on
the information contained therein and has not been furnished any other
documents, literature, memorandum or prospectus.
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Section 3.8. Registration Rights Agreement and Escrow Agreement. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.
Section 3.9. No General Solicitation. Neither the Company, nor the
Investor, nor any of their respective Affiliates, nor any person acting on its
or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of the shares of Common Stock offered hereby.
Section 3.10. Not an Affiliate. The Investor is not an officer, director
or a Person or an "Affiliate" of the Company . Neither the Investor nor its
Affiliates has an open short position in the Common Stock of the Company, and
the Investor agrees that it will not, and that it will cause its Affiliates not
to, engage in any short sales of or hedging transactions with respect to the
Common Stock, provided that the Company acknowledges and agrees that upon
receipt of an Advance Notice the Investor will sell the Shares to be issued to
the Investor pursuant to the Advance Notice, even if the Shares have not been
delivered to the Investor, provided that all such sales of shares of Common
Stock shall be made in compliance with all Securities Laws..
Section 3.11. No Conflict. To the best of the Investor's knowledge the
execution, delivery and performance of this Agreement and the Exhibits hereto by
the Investor and the consummation by the Investor of the transactions
contemplated hereby will not (i) result in a material violation of the
organizational documents of the Investor or (ii) conflict with or constitute a
material default (or an event which with notice of lapse of time or both would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the investor is a party, or (iii) result in a material violation of any
law, rule regulation, order, judgment or decree (including any Securities Laws,
including the rules and regulations of the NASD) applicable to the Investor or
by which any material property or asset of the Investor is bound or affected and
which would reasonably be likely to cause a Material Adverse Effect. To the Best
of the Investor's knowledge, neither the Investor nor any Affiliate is in
material violation of or has breached or is in material default under any term
of (i) its organizational documents, or (ii) any material contract, agreement,
mortgage, indebtedness, indenture or other instrument, or (iii) any material
judgment, decree or order or (iv) any statute, rule or regulation applicable to
the Investor or such Affiliate. To the best of the Investor's knowledge the
business of the Investor is not being conducted in violation of any material
law, ordinance, regulation of any governmental entity, including any Securities
Laws. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable United States state securities laws,
and to the best of the Investor's knowledge the Investor is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order to execute, deliver
or perform any of its obligations under or contemplated by this Agreement or the
Registration Rights Agreement in accordance with the terms hereof or thereof. To
the best of the Investor's knowledge all consents, authorizations, orders,
filings and registrations which the Investor is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. To the best of the Investor's knowledge the Investor and its Affiliates
are unaware of any fact or circumstance which might give rise to any of the
foregoing.
11
Section 3.12 Opinion of Counsel. The Company shall receive an opinion
letter from Xxxxxx Xxxxxxxx, LLP, counsel to the Investor on the date hereof,
confirming the Investor's power and authority to enter into this Agreement and
the Exhibits attached hereto.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as stated below, on the disclosure schedules attached hereto or in
the SEC Documents (as defined herein), the Company hereby represents and
warrants to, and covenants with, the Investor that the following are true and
correct as of the date hereof:
Section 4.1. Organization and Qualification. The Company is duly
incorporated and validly existing in the State of Delaware and has all requisite
corporate power and authority to own its properties and to carry on its business
as now being conducted. Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole.
Section 4.2. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and the Exhibits attached hereto to which
it is a party and any related agreements, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement and the Exhibits
attached hereto to which it is a party and any related agreements by the Company
and the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders, except to the extent that the approval of the stockholders
will be required in the future, to increase the number of authorized but
unissued shares of the Company's Common Stock, (iii) this Agreement and the
Exhibits attached hereto to which it is a party, and any related agreements have
been duly executed and delivered by the Company, assuming the execution and
delivery thereof and acceptance by the Investor and constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
Section 4.3. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 150,000,000 shares of Common Stock, par value
$0.10 per share and 5,000,000 shares of Preferred Stock of which 105,617,958
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the SEC Documents, no
shares of Common Stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company. Except
as disclosed in the SEC
12
Documents, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities (iii) there are no outstanding registration statements other than on
Form S-8 and (iv) 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 Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
any related agreement or the consummation of the transactions described herein
or therein. The Company has furnished to the Investor true and correct copies of
the Company's Certificate of Incorporation, as amended and as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as
in effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
Section 4.4. No Conflict. To the best of the Company's knowledge, the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a material violation of the Certificate of Incorporation, any
certificate of designations of any outstanding series of preferred stock of the
Company or By-laws or (ii) conflict with or constitute a material default (or an
event which with notice or lapse of time or both would become a material
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party, or result in a
material violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of the Principal Market on which the Common Stock is quoted)
applicable to the Company or any of its Subsidiaries in any material respect or
by which any material property or asset of the Company or any of its
subsidiaries is bound or affected and which would reasonably would be likely to
cause a Material Adverse Effect. Except as disclosed in the SEC Documents, to
the best of the Company's knowledge, neither the Company nor its Subsidiaries is
in material violation of any term of or in material default under its
Certificate of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, or instrument, or in material violation of any
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries which would reasonably be likely to have a Material
Adverse effect on the business, financial condition or assets of the Company and
it Subsidiaries, taken as a whole. To the best of the Company's knowledge, the
business of the Company and its Subsidiaries is not being conducted in material
violation of any law, ordinance, regulation of any governmental entity in a
manner which would reasonably be likely to have a Material Adverse Effect on the
business, financial condition or assets of the Company and it Subsidiaries,
taken as a whole. Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, to
the best of the Company's knowledge, the Company is not required to obtain any
13
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. To the best of
the Company's knowledge, all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. To the
best of the Company's knowledge, the Company and its Subsidiaries are unaware of
any fact or circumstance which might give rise to any of the foregoing.
Section 4.5. SEC Documents; Financial Statements. Since January 1, 2003,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the Exchange Act. The
Company has delivered to the Investor or its representatives, or made available
through the SEC's website at xxxx://xxx.xxx.xxx, true and complete copies of the
SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "Financial Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 4.6. 10b-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 4.7. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. The executive officers of the Company do
not have any knowledge of any infringement by the Company or its Subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, and, to the knowledge of the executive
officers of the Company, there is no claim, action or proceeding being made or
brought against, or being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service xxxx registrations, trade secret
or other infringement which if adversely decided would reasonably be likely to
have a Material Adverse Effect on the business, financial
14
condition or assets of the Company and its Subsidiaries, taken as a whole; and
the executive officers of the Company are unaware of any facts or circumstances
which might give rise to any of the foregoing.
Section 4.8. Employee Relations. The executive officers of the Company do
not have any knowledge that either the Company or any of its Subsidiaries is
involved in any labor dispute nor, to the knowledge of the executive officers of
the Company is any such dispute threatened. None of the Company's or its
Subsidiaries' employees is a member of a union and the executive officers of the
Company believe that the Company's and its Subsidiaries with their respective
relations with their employees are good.
Section 4.9. Environmental Laws. Except as set forth in the SEC Documents,
the Company and its Subsidiaries are (i) in material compliance with any and all
applicable material foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all material permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses as they are currently being conducted and (iii) are
in material compliance with all terms and conditions of any such permit, license
or approval.
Section 4.10. Title. Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere in any material
respect with the current use made of such property and buildings by the Company
and its Subsidiaries.
Section 4.11. 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 by similarly situated companies. 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 as presently being conducted at a
cost that would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and its
Subsidiaries, taken as a whole.
Section 4.12 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls reasonably
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the
15
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
Section 4.13. Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect (ii) materially adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein,
or (iii) except as expressly disclosed in the SEC Documents, have a material
adverse effect on the business, operations, properties, financial condition or
results of operation of the Company and its subsidiaries taken as a whole.
Section 4.14. Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity,
which is not a Subsidiary.
Section 4.15. Tax Status. The Company and each of its Subsidiaries has
made or filed all United States federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject and (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes or the failure so to file will not
have a material adverse effect on the business, operations, properties,
financial condition or results of operation of the Company and its Subsidiaries,
taken as a whole) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. To the knowledge of the executive officers of the Company
there are no unpaid taxes in any material amount claimed to be due by the
Company to the taxing authority of any jurisdiction
Section 4.16. Certain Transactions. Except as set forth in the SEC
Documents none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the executive officers of the Company, any corporation, partnership, trust or
other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
Section 4.17. Fees and Rights of First Refusal. Except as set forth in the
SEC Documents, the Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.
16
Section 4.18. Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for general corporate purposes.
However, in no event shall the net proceeds from this offering be used by the
Company for the payment (or loaned to any such person for the payment) of any
judgment, or other liability, incurred by any executive officer, officer,
director or employee of the Company, except for any liability owed to such
person for services rendered, or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.
Section 4.19. Further Representation and Warranties of the Company. For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will use its commercially reasonable best efforts to maintain the listing of its
Common Stock on the Principal Market; provided however, nothing in the foregoing
shall prevent the Company from entering into a merger, consolidation, going
private or other similar transaction or a transaction involving the sale of all
or substantially all of the assets of the Company, in which the Investor shall
receive consideration for its shares on the same basis as all other Common
Stockholders and the shares of Common Stock shall cease to be listed on the
Principal Market.
Section 4.20. Opinion of Counsel. Investor shall receive opinion letters
from Xxxxxxxxx Xxxxxxxx Xxxxx & Xxxxx LLP and XxXxxxxx Xxxxxx, counsel to the
Company on the date hereof.
Section 4.21. Opinion of Counsel. The Company will use its commercially
reasonable efforts to obtain for the Investor, at the Company's expense, any and
all opinions of counsel which may be reasonably required in order to sell the
securities issuable hereunder without restriction.
Section 4.22. Dilution. The Company is aware and acknowledges that
issuance of shares of the Company's Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.
ARTICLE V.
INDEMNIFICATION
The Investor and the Company represent to the other the following with
respect to itself:
Section 5.1. Indemnification.
(a) In consideration of the Investor's execution and delivery of
this Agreement, and in addition to all of the Company's other obligations under
this Agreement, the Company shall defend, protect, indemnify and hold harmless
the Investor, and all of its officers, directors, partners, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Investor
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 Investor Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), actually incurred by the Investor Indemnitees or any of them as a
17
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Company in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Investor Indemnitee not arising out of any action or inaction of an
Investor Indemnitee, and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Investor
Indemnitees. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(b) In consideration of the Company's execution and delivery of
this Agreement, and in addition to all of the Investor's other obligations under
this Agreement, the Investor shall defend, protect, indemnify and hold harmless
the Company and all of its officers, directors, shareholders, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified Liabilities actually
incurred by the Company Indemnitees or any of them as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty made by the Investor in this Agreement, the Registration Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant, agreement or obligation of the
Investor(s) contained in this Agreement, the Registration Rights Agreement or
any other certificate, instrument or document contemplated hereby or thereby
executed by the Investor, or (c) any cause of action, suit or claim brought or
made against such Company Indemnitee based on misrepresentations or due to a
breach by the Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
(c) All representations and warranties set forth in this Agreement
shall expire and terminate on the first (1st) anniversary of the expiration of
the Commitment Period (the "Termination Date"). The obligations to indemnify and
hold harmless any Person pursuant to Article V shall terminate on the
Termination Date; provided that such obligations to indemnify and hold harmless
shall not terminate as to any item with respect to which the Person to be
indemnified shall have, prior to the Termination Date, delivered to the
indemnifying party a bona fide Officer's Certificate or, in the event of a Third
Party Proceeding ("Third Party Proceeding"), given notice to the Indemnifying
Party of such Third Party Proceeding in accordance with Section 5.1(e).
Reference herein to the "Indemnified Party" shall mean the party entitled to
indemnification under Section 5.1(a) or (b) and references herein to the
"Indemnifying Party" shall mean the party obligated to indemnify an Indemnified
Party against Indemnified Liabilities pursuant to Section 5.1 (a) or (b).
18
(d) If the existence or amount of any Indemnified Liability cannot
be ascertained until conclusion of any litigation or other proceeding involving
any court governmental authority or Third Party Proceeding, the Indemnified
Party shall give written notice of such Third Party Proceeding to the
Indemnifying Party within five (5) business days of the Indemnified Party's
receipt of notice of commencement of such Third Party Proceeding. Such written
notice shall describe in reasonable detail the facts constituting the basis for
such Third Party Proceeding and the amount of the potential Indemnified
Liability. Within twenty (20) calendar days after the delivery of such
notification, the Indemnifying Party may upon written thereof to the Indemnified
Party, assume control of such Third Party Proceeding with counsel reasonably
satisfactory to the Indemnified Party. If the Indemnifying Party elects not to
assume control, the Indemnified shall retain control of such Third Party
Proceeding. The party not controlling such Third Party Proceeding (the
"Non-controlling Party") may participate therein at its own expense. The party
controlling such Third Party Proceeding (the "Controlling Party") shall keep the
Non-controlling Party advised of the status of such Third Party Proceeding and
shall consider in good faith recommendations made by the Non-Controlling Party
with respect thereto. The Non-controlling Party shall furnish the Controlling
Party with such information as it may have with respect to such Third Party
Proceeding (including copies of any summons, complaint or other pleading which
may have been served on such party and any written claim, demand, invoice,
billing, or other document evidencing or asserting the same) and shall otherwise
cooperate with and assist the Controlling Party in such Third Party Proceeding.
The Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such Third Party Proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld,
conditioned or delayed; provided that the consent of the Indemnified Party shall
not be required if the Indemnifying Party agrees in writing to pay any amounts
payable pursuant to such settlement or judgment and such Third Party Proceeding
includes a complete release of the Indemnified Party from further liability and
has no other adverse effect on the Indemnified Party. The Indemnified Party
shall not agree to any settlement of, or the entry of any judgment arising from
any such Third Party Proceeding without the prior written consent of the
Indemnifying Party.
(e) An Indemnified Party shall make any claims for indemnification
pursuant to Sections 5.1 (a) or (b) by delivering an Officer's Certificate to
the Indemnifying Party. For purposes hereof, "Officer's Certificate" shall mean
a certificate signed by any officer of the Company, in the case of a Company
Indemnitee, and an officer, manager or equivalent individual, in the case of a
Investor Indemnitee; and such certificate shall (A) state the party claiming
indemnification has paid incurred or properly accrued or reasonably anticipates
that it will have to pay, incur or accrue Indemnified Liabilities, and (B)
specifying in reasonable detail the individual items of Indemnified Liabilities
in the amount so stated, the date each such item was paid, incurred or properly
accrued, or the basis for such anticipated liability. An Indemnifying Party may
make a written objection (the "Objection") to any claim for indemnification. The
Objection shall be delivered to the Indemnified Party within thirty (30)
calendar days after delivery of the Officer's Certificate to the Indemnifying
Party. The Indemnifying Party and the Indemnified Party shall attempt in good
faith to resolve any claim for indemnification to which an Objection is made. If
such parties are able to resolve any such claim for indemnification, they shall
prepare and sign a memorandum setting forth such agreement. The Indemnifying
Party shall pay to the applicable Indemnified Party by wire transfer of
immediately available funds to an account designated by such Indemnified Party
the agreed upon
19
amount of the Indemnified Liability (if any) within fifteen (15) calendar days
of the date of the written memorandum described in the preceding sentence.
Neither any Investor Indemnitees nor any Company Indemnitees shall have any
right of set-off against any Indemnified Liabilities against any payments to be
made by any of them pursuant to this Agreement. Neither any Investor Indemnitee
nor any Company Indemnitee shall have a right for indemnification with respect
to any incidental, special, punitive or consequential damages incurred or
suffered by an indemnified party hereunder.
ARTICLE VI.
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect in accordance with its terms
and the Company shall comply in all material respects with the terms thereof.
Section 6.2. Listing of Common Stock. During the Commitment Period,
provided that this Agreement has not been terminated pursuant to Section 10.2
herein, the Company shall use commercially reasonable efforts to maintain the
Common Stock's authorization for quotation on the National Association of
Securities Dealers Inc's Over the Counter Bulletin Board and the Oslo Stock
Exchange, provided however, nothing in the foregoing shall prevent the Company
from entering into a merger, consolidation, going private or other similar
transaction or a transaction involving the sale of all or substantially all of
the assets of the Company, in which the Investor shall receive consideration for
its shares on the same basis as all other Common Stockholders and the shares of
Common Stock shall cease to be listed on the Principal Market.
Section 6.3. Exchange Act Registration. During the Commitment Period, the
Company will use commercially reasonable efforts to cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
use commercially reasonable efforts to file in a timely manner all reports and
other documents required of it as a reporting company under the Exchange Act and
will not take any action or file any document (whether or not permitted by
Exchange Act to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Exchange Act, provided
however, nothing in the foregoing shall prevent the Company from entering into a
merger, consolidation, going private or other similar transaction or a
transaction involving the sale of all or substantially all of the assets of the
Company, in which the Investor shall receive consideration for its shares on the
same basis as all other Common Stockholders and the shares of Common Stock shall
cease to be listed on the Principal Market.
Section 6.4. Transfer Agent Instructions. Not later than two (2) Business
Days after each Advance Notice Date and prior to each Closing resale of the
Common Stock issued by the Company in connection with an Advance by the
Investor, the Company will deliver instructions to its transfer agent to issue
shares of Common Stock free of restrictive legends.
Section 6.5. Corporate Existence. During the Commitment Period, the
Company will take all commercially reasonable steps necessary to preserve and
continue the corporate existence of the Company; provided however, nothing in
the foregoing shall prevent the Company from entering into a merger,
consolidation, going private or other similar transaction
20
or a transaction involving the sale of all or substantially all of the assets of
the Company, in which the Investor shall receive consideration for its shares on
the same basis as all other Common Stockholders and the Company shall cease to
exist.
Section 6.6. Notice of Certain Events Affecting Registration; Suspension
of Right to Make an Advance. The Company and the Investor will each immediately
notify the other upon its becoming aware of the occurrence of any of the
following events in respect of a registration statement or related prospectus
relating to an offering of Registrable Securities: (i) receipt of any request
for additional information by the SEC or any other Federal or state governmental
authority during the period of effectiveness of the Registration Statement for
amendments or supplements to the registration statement or related prospectus;
(ii) the issuance by the SEC or any other Federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
of any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (v) the issuance by the SEC or any other United States Federal or
state or foreign governmental authority of any investigative order to the
Investor, or the initiation of any proceedings involving the Investor, which
would reasonably be likely to have a Material Adverse Effect and (vi) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to the Investor any Advance Notice
during the continuation of any of the foregoing events.
Section 6.7. Expectations Regarding Advance Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.
Section 6.8. Restriction on Sale of Capital Stock. During the Commitment
Period, the Company shall not issue or sell (i) any Common Stock or Preferred
Stock without consideration
21
or for a consideration per share less than the Bid Price of the Common Stock
determined immediately prior to its issuance, or (ii) issue or sell any
Preferred Stock warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock without
consideration or for a consideration per share less than such Common Stock's Bid
Price determined immediately prior to its issuance; provided however, nothing in
the foregoing shall restrict the Company from issuing additional shares of
equity securities at or above the Bid Price in arms length acquisitions or
otherwise and the Company may issue stock at, or convertible securities, stock
options or warrants to purchase stock convertible or exercisable at a discount
to the Bid Price then obtaining provided that no more than ten percent (10%) of
the Company's then outstanding shares of Common Stock may be so issued or issued
upon such conversion or exercise.
Section 6.9. Consolidation; Merger. During the Commitment Period, the
Company shall not, at any time after the date hereof, effect any merger or
consolidation of the Company with or into, or a transfer of all or substantially
all the assets of the Company to another entity (a "Consolidation Event") unless
the Investor shall receive consideration for its shares of Common Stock on the
same basis as all other Common Stockholders of the Company. Any such
Consolidation Event shall automatically terminate this Agreement and the
Investor's Commitment hereunder unless the parties hereto agree otherwise in
writing.
Section 6.10. Issuance of the Company's Common Stock. The sale of the
shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable United States state securities
laws; provided however, upon written request by the Company the Investor shall
notify the Company of each state of the United States in which it intends to
sell any shares of Common Stock issued hereunder.
ARTICLE VII.
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING
Section 7.1. Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.
(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, and the Exhibits hereto to
be performed, satisfied or complied with by the Investor at or prior to such
Closing. In addition in no event shall the number of shares issuable to the
Investor pursuant to an Advance cause the Investor to own in excess of nine and
9/10 percent (9.9%) of the then outstanding Common Stock of the Company.
(c) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, promulgated or endorsed by any court or
governmental authority of competent jurisdiction that prohibits or directly and
adversely affects any of the transactions
22
contemplated by this Agreement, and no proceeding shall have been commenced that
may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(d) All necessary disclosures to and agreements and consents to
any governmental authority or self regulatory body, including the SEC and the
NASD, to the extent required in connection with the transactions contemplated
hereby, shall have been obtained and true and complete copies thereof delivered
to the Company. The Company shall have obtained all permits and qualifications
required by any applicable state in accordance with the Registration Rights
Agreement for the offer and sale of the shares of Common Stock, or shall have
the availability of exemptions therefrom. The sale and issuance of the shares of
Common Stock shall be legally permitted by all laws and regulations to which the
Company is subject.
(e) As set forth in the Registration Rights Agreement, the
Registration Statement shall have previously become effective and shall remain
effective on each Condition Satisfaction Date (as hereinafter defined) and (i)
neither the Company nor the Investor shall have received notice that the SEC has
issued or intends to issue a stop order with respect to the Registration
Statement or that the SEC otherwise has suspended the effectiveness or withdrawn
the Registration Statement, either temporarily or permanently, or intends or has
threatened to do so (unless the SEC's concerns have been addressed and the
Company is reasonably satisfied that the SEC is no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness f the Registration Statement or related
prospectus shall exist. The Registration Statement must have been declared
effective by the SEC prior to the first (1st) Advance Notice Date.
(f) The Investor has no knowledge of any event which would be more
likely than not to have the effect of causing the Registration Statement to be
suspended or otherwise ineffective.
(g) On each Advance Date, the Company shall have received an
executed copy of the certificate attached hereto as Exhibit F.
Section 7.2. Conditions Precedent to the Right of the Company to Deliver
an Advance Notice and the Obligation of the Investor to Purchase Shares of
Common Stock. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for shares of the
Company's Common Stock incident to a Closing is subject to the fulfillment by
the Company, on (i) the date of delivery of such Advance Notice and (ii) the
applicable Advance Date (each a "Condition Satisfaction Date"), of each of the
following conditions:
(a) Registration of the Common Stock with the SEC. The Company
shall have filed with the SEC a Registration Statement with respect to the
resale of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement. As set forth in the Registration Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition Satisfaction Date and (i) neither the
Company nor the Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the SEC otherwise has suspended or
23
withdrawn the effectiveness of the Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's concerns
have been addressed and the Investor is reasonably satisfied that the SEC no
longer is considering or intends to take such action), and (ii) no other
suspension of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist. The Registration Statement must
have been declared effective by the SEC prior to the first Advance Notice Date.
(b) Authority. The Company shall have obtained all permits and
qualifications required by any applicable state in accordance with the
Registration Rights Agreement for the offer and sale of the shares of Common
Stock, or shall have the availability of exemptions therefrom. The sale and
issuance of the shares of Common Stock shall be legally permitted by all laws
and regulations to which the Company is subject.
(c) Fundamental Changes. There shall not exist any fundamental
changes to the information set forth in the Registration Statement which would
require the Company to file a post-effective amendment to the Registration
Statement.
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement (including, without limitation, the
conditions specified in Section 2.5 hereof) and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions contemplated
by this Agreement, and no proceeding shall have been commenced that may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
(f) No Suspension of Trading in or Delisting of Common Stock. The
trading of the Common Stock is not suspended by the SEC or the Principal Market
(if the Common Stock is traded on a Principal Market). The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall not violate
the shareholder approval requirements of the Principal Market (if the Common
Stock is traded on a Principal Market). The Company shall not have received any
notice threatening the continued listing of the Common Stock on the Principal
Market (if the Common Stock is traded on a Principal Market).
(g) Maximum Advance Amount. The amount of any Advance requested by
the Company shall not exceed the Maximum Advance Amount. In addition, in no
event shall the number of shares issuable to the Investor pursuant to an Advance
cause the Investor to own in excess of nine and 9/10 percent (9.9%) of the then
outstanding Common Stock of the Company.
(h) No Knowledge. The Company has no knowledge of any event which
would be more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective.
24
(i) Other. On each Condition Satisfaction Date, the Investor shall
have received the certificate executed by an officer of the Company in the form
of Exhibit A attached hereto.
ARTICLE VIII.
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1. Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor, any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records filed with the SEC, all SEC Documents and other
filings with the SEC, and all other corporate documents and properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's officers, directors and employees to supply all such information
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such
non-public information for review. The Company may, as a condition to disclosing
any non-public information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investor.
(b) Nothing herein shall require the Company to disclose
non-public information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public information to
any investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters, of any event or the existence of any circumstance (without any
obligation to disclose the specific event or circumstance) of which it becomes
aware, constituting non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing contained in this Section 8.2
25
shall be construed to mean that such persons or entities other than the Investor
(without the written consent of the Investor prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of material fact or omits a
material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
ARTICLE IX.
CHOICE OF LAW/JURISDICTION
Section 9.1. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in Xxxxxx County, New Jersey, and expressly consent
to the jurisdiction and venue of the Superior Court of New Jersey, sitting in
Xxxxxx County, New Jersey and the United States District Court of New Jersey,
sitting in Newark, New Jersey, for the adjudication of any civil action asserted
pursuant to this paragraph.
ARTICLE X.
ASSIGNMENT; TERMINATION
Section 10.1. Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
Section 10.2. Termination. The obligations of the Investor to make
Advances under Article II hereof shall terminate twenty-four (24) months after
the Effective Date. Provided that there are no outstanding Advances, the Company
may terminate this Agreement, for any or no reason, with thirty (30) calendar
days prior written notice.
Section 10.3. Effect of Termination. In the event of termination of this
Agreement as provided herein, this Agreement shall forthwith become void and
there shall be in no liability on the part of any party hereto except (i) as set
forth in this Section, and Article V, Section 12.6 and (ii) that nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
ARTICLE XI.
NOTICES
Section 11.1. 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 good transmission is mechanically or electronically
generated and kept on file by the sending party) if such facsimile is sent or
received by the receiving party after 12:00 noon United States Eastern Time
(5:00 pm London, England Time) or at any time on a day which is not a Trading
Day, such notice shall be deemed received on the immediately succeeding Trading
Day, in each case properly addressed to the
26
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company, to: CanArgo Energy Corporation
X.X. Xxx 000
Xxxxx 00
Borough House
Rue du Pre
Xx. Xxxxx Xxxx
Xxxxxxxx XX0 0XX, Channel Islands
Attention: Dr. Xxxxx Xxxxxx/Xxxxxxx XxXxxxxxx
Telephone: x(00) 0000 000000
Facsimile: x(00) 0000 000000
With a copy to: XxXxxxxx Xxxxxx
Xxxxxxx Xxxxx
00 Xxxxxxxxxx Xxxxxx
Xxxxxxx, X0 0XX Xxxxxx Xxxxxxx
Attention: Xxxx Xxxxxxxx
Telephone: x(00) 000 000 0000
Facsimile: x(00) 000 000 0000
If to the Investor(s): Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx -Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: x0 (000) 000-0000
Facsimile: + 0 (000) 000-0000
With a Copy to: Xxxxxx Xxxxxxxx LLP
0000 Xxxxxx Xxxxxx - Xxxxx 000
Xxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Telephone: + 0 (000) 000-0000
Facsimile: + 0 (000) 000-0000
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
ARTICLE XII.
MISCELLANEOUS
Section 12.1. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means
27
of delivery shall cause four (4) additional original executed signature pages to
be physically delivered to the other party within five (5) days of the execution
and delivery hereof, though failure to deliver such copies shall not affect the
validity of this Agreement.
Section 12.2. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
Affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the Exhibits and any schedules attached
hereto and the instruments referenced herein contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by an instrument in writing signed by the party to be charged with
enforcement.
Section 12.3. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 12.4. Fees and Expenses. The Company hereby agrees to pay the
following fees:
(a) Legal Fees. Each of the parties shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay Fifteen Thousand Dollars
($15,000) to Xxxxxx Xxxxxxxx LLP for legal, administrative, and escrow fees, of
which Ten Thousand Dollars ($10,000) has been deposited with Xxxxxx Xxxxxxxx LLP
as of the date hereof, and Five Thousand Dollars ($5,000) shall be paid upon the
first to occur i) one hundred twenty (120) calendar days from the date hereof,
or ii) the date upon which the registration statement filed pursuant to the
Registration Rights Agreement dated the date hereof is declared effective by the
SEC. Subsequently on each Advance Date, the Company will pay Xxxxxx Xxxxxxxx
LLP, the sum of Five Hundred Dollars ($500) for legal, administrative and escrow
fees directly out the proceeds of any Advances hereunder.
(b) Commitment Fees.
(i) On each Advance Date the Company shall pay to the
Investor, directly from the gross proceeds held in escrow, an amount equal to
five percent (5%) of the amount of each Advance. The Company hereby agrees that
if such payment, as is described above, is not made by the Company on the
Advance Date, such payment will be made at the direction of the Investor as
outlined and mandated by Section 2.3 of this Agreement.
(ii) The Company shall pay to the Investor Ten Thousand
Dollars ($10,000) as a non-refundable due diligence fee (the "Due Diligence
Fee") of which Five Thousand Dollars ($5,000) has been paid as of the date
hereof and Five Thousand Dollars
28
($5,000) shall be paid on the first to occur, i) one hundred twenty (120)
calendar days from the date hereof or ii) the date the Registration Statement
filed pursuant to Registration Rights Agreement dated the date hereof is
declared effective by the SEC. Such Due Diligence Fee shall be deemed earned as
of the date paid to the Investor.
(iii) Furthermore upon the execution of this Agreement the
Company shall consent to issue to the Investor, within ten (10) Trading Days
from the date hereof, four hundred twenty five thousand (425,000) restricted
shares of the Company's Common Stock (the "First Tranche of the Investor's
Shares") of which two hundred sixty one thousand seven hundred eighty two
(261,782) restricted shares of the Company's Common Stock have already been
issued to the Investor and on the first to occur, i) one hundred twenty (120)
calendar days from the date hereof, provided that if the Registration Statement
is not at this time effective such shares issued under this subsection (i) shall
be restricted shares or ii) the date the Registration Statement filed pursuant
to Registration Rights Agreement dated the date hereof is declared effective by
the SEC, the Company shall issue to the Investor four hundred twenty five
thousand (425,000) free trading shares of the Company's Common (the "Second
Tranche of the Investor's Shares").
(iv) Fully Earned. The First Tranche of the Investor's Shares
shall be deemed fully earned as of the date hereof. The Second Tranche of the
Investor's Shares shall be deemed fully earned as of the first to occur, i) one
hundred twenty (120) calendar days from the date hereof or ii) the date the
Registration Statement filed pursuant to Registration Rights Agreement dated the
date hereof is declared effective by the SEC.
(v) Registration Rights. The First Tranche and the Second
Tranche of the Investor's Shares will have "piggy-back" registration rights
pursuant to the Registration Rights Agreement dated the date hereof.
Section 12.5. Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.
Section 12.6. Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
COMPANY:
CANARGO ENERGY CORPORATION
By: _______________________________________
Name: Xxxxxxx XxXxxxxx
Title: Director and Chief Financial Officer
INVESTOR:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: ______________________________________
Name: Xxxx Xxxxxx
Title: Portfolio Manager
30
EXHIBIT A
ADVANCE NOTICE/COMPLIANCE CERTIFICATE
CANARGO ENERGY CORPORATION.
The undersigned, _________________ hereby certifies, with respect to the
sale of shares of Common Stock of CanArgo Energy Corporation, (the "Company"),
issuable in connection with this Advance Notice and Compliance Certificate dated
___________________ (the "Notice"), delivered pursuant to the Standby Equity
Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the duly elected President of the Company.
2. The representation and warranties of the Company set forth in the
Agreement are true and correct in all material respects as of the date hereof;
there are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.
4. The Advance requested is _____________________.
The undersigned has executed this Certificate this ____ day of __________.
CANARGO ENERGY CORPORATION
By: __________________________________
Name:
Title:
EXHIBIT G
CANARGO ENERGY CORPORATION
The undersigned hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement dated ________________
between CanArgo Energy Corporation (the "Company"), and Cornell Capital
Partners, LP, (the "Investor") (the "Lock-up Period"), he, she or it will not,
directly or indirectly, without the prior written consent of the Investor,
issue, offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of any securities of the Company, including common stock or options,
rights, warrants or other securities underlying, convertible into, exchangeable
or exercisable for or evidencing any right to purchase or subscribe for any
common stock (whether or not beneficially owned by the undersigned), or any
beneficial interest therein (collectively, the "Securities") except pursuant to
Rule 144 of the General Rules and Regulations under the Securities Act of 1933.
The undersigned hereby confirms the undersigned's investment in the
Company.
Dated: _______________, 2004
Signature
________________________________________
Address: _______________________________
City, State, Zip Code: _________________
________________________________________
Print Social Security Number
or Taxpayer I.D. Number
EXHIBIT F
COMPLIANCE CERTIFICATE
CORNELL CAPITAL PARTNERS, LP
The undersigned, ____________hereby certifies, with respect to the
purchase of shares of common stock of CanArgo Energy Corporation, (the
"Company"), issuable in connection with the Advance Notice and Compliance
Certificate dated _________________(the "Notice"), delivered pursuant to the
Standby Equity Distribution Agreement (the "Agreement"), as follows:
1. The undersigned is the ____________ of Cornell Capital Partners, LP
(the "Investor").
2. The representation and warranties of the Investor Company set forth
in the Agreement are true and correct in all material respects as of the date
hereof; The Investor has complied in all material respects with all obligations
and conditions contained in the Agreement and nothing has come to the Investor's
attention that would lead it to believe that the information set forth in the
Registration Statement regarding the Investor, its acquisition of the shares of
Common Stock pursuant to the Agreement or its sale or other intended disposition
of such shares, including the information contained in its Selling Shareholder's
Questionnaire previously furnished to the Company or in the Section of the
Registration Statement entitled "Underwriting", contains any untrue statements
of material fact, or omits to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
3. Attached hereto is a correct and complete schedule specifying (1)
the aggregate number of shares of Common Stock beneficially owned by the
Investor and its Affiliates on the Advance Notice Date; (2) each sale of shares
of Common Stock by the Investor and its Affiliates during the six (6) Trading
Days preceding the Advance Date specifying the number of shares sold, the sale
price per share and the trading market in which the sales were effected; and (3)
the aggregate number of shares of Common Stock beneficially owned by the
Investor and its Affiliates on the Advance Date (not including the shares
acquired in connection with the Advance).
The undersigned has executed this Certificate the ____ day of ___________.
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: ___________________________________
Name: Xxxx Xxxxxx
Title: Portfolio Manager and President
33
34
