EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
31, 1997, by and among Saba Petroleum Company, a Delaware corporation, with
headquarters located at 0000 Xxxxxxx Xxxxx, Xxxxx 000, Xxxxx Xxxxx, Xxxxxxxxxx
00000 ("Company"), and each of the purchasers set forth on the signature pages
hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock,
designated as Series A Convertible Preferred Stock (the "Preferred Stock"),
having the rights, preferences and privileges set forth in the Certificate of
Designations, Rights and Preferences attached hereto as Exhibit "A" (the
"Certificate of Designation");
C. The Preferred Stock is convertible into shares of common
stock, $.001 par value per share, of the Company (the "Common Stock"), upon
the terms and subject to the limitations and conditions set forth in the
Certificate of Designation;
D. The Company has authorized the issuance to the Buyers of
warrants, in the form attached hereto as Exhibit "B", to purchase Two Hundred
Twenty Four Thousand, Seven Hundred Nineteen (224,719) shares of Common
Stock (the "Closing Warrants");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Ten Thousand (10,000) shares of Preferred Stock, and (ii) the
Closing Warrants, for an aggregate purchase price of Ten Million Dollars
($10,000,000).
F. Each Buyer wishes to purchase, upon the terms and
conditions stated in this Agreement, the number of shares of Preferred Stock
and the number of Closing Warrants as is set forth immediately below its name
on the signature pages hereto;
G. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
H. In accordance with the terms of the Certificate of Designation, the
Company may redeem the Preferred Stock for cash plus additional warrants, in the
form attached hereto as Exhibit "D", to purchase a maximum of 200,000 shares of
Common Stock (the "Redemption Warrants" and, collectively with the Closing
Warrants, the "Warrants").
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants.
The Company shall issue and sell
to each Buyer and each Buyer severally agrees to purchase from the Company such
number of shares of Series A Preferred Stock (collectively, together with any
Preferred Stock issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"Preferred Shares") and such number of Warrants for the aggregate purchase price
(the "Purchase Price") as is set forth immediately below such Buyer=s name on
the signature pages hereto. The aggregate number of Preferred Shares to be
issued at the Closing (as defined below) is Ten Thousand (10,000) and the
aggregate number of Warrants to be issued at the Closing is Two Hundred Twenty
Four Thousand, Seven Hundred Nineteen (224,719), for an aggregate purchase price
of Ten Million Dollars ($10,000,000).
b. Form of Payment. On the Closing Date
(as defined below), (i) each Buyer shall
pay the Purchase Price for the Preferred Shares and the Warrants to be issued
and sold to it at the Closing (as defined below) by wire transfer of immediately
available funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of duly executed certificates representing such
number of Preferred Shares and Warrants which such Buyer is purchasing and (ii)
the Company shall deliver such certificates and Warrants duly executed on behalf
of the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the
satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the date and time of the
issuance and sale of the Preferred Shares and the Warrants pursuant to this
Agreement (the "Closing Date") shall be 12:00 noon Eastern Standard Time on
December 31, 1997 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, 0000 00xx
Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx, 00000, or at such other location as may be
agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES.
Each Buyer severally (and not jointly)
represents and warrants to the Company solely as to such Buyer that:
a. Investment Purpose. As of the date
hereof, the Buyer is purchasing the
Preferred Shares and the shares of Common Stock issuable upon conversion thereof
(the "Conversion Shares") and the Warrants and the shares of Common Stock
issuable upon exercise thereof (the "Warrant Shares" and, collectively with the
Preferred Shares, Warrants and Conversion Shares the "Securities") for its own
account for investment only and not with a present view towards the public sale
or distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act.
b. Accredited Investor Status. The Buyer is
an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D.
c. Reliance on Exemptions. The Buyer
understands that the Securities are being
offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors,
if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and have received
what the Buyer believes to be satisfactory answers to any such inquiries.
Neither such inquiries nor any other due diligence investigation conducted by
Buyer or any of its advisors or representatives shall modify, amend or affect
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. The Buyer understands that its investment in the Securities
involves a significant degree of risk.
e. Governmental Review. The Buyer
understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.
f. Transfer or Resale. The Buyer understands
that (i) except as provided in the
Registration Rights Agreement, the Securities have not been and are not being
registered under the 1933 Act or any applicable state securities laws, and may
not be transferred except in compliance with the provisions of this Agreement,
and unless (a) subsequently included in an effective registration statement
thereunder, or (b) the Buyer shall have delivered to the Company an opinion of
counsel (which counsel and the form, substance and scope of such opinion shall
be acceptable to the Company in its reasonable judgment) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (c) sold or transferred to an "affiliate"
(as defined under Rule 144) of the Buyer, or (d) sold pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule); (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case, other
than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement. Except for transfers by a Buyer (i) to its "affiliates" (as
defined under the 1934 Act (as defined herein)) or (ii) to the holders of
interests in a Buyer upon a liquidation of a Buyer's assets in accordance with
its governing documents, the Preferred Stock may be transferred by a Buyer to a
third party only in minimum amounts of $2,000,000 and only with the prior
written consent of the Company, which consent will not be unreasonably withheld.
Any such transferee of Preferred Stock shall provide the Company with the
information and notices set forth in Section 9 of the Registration Rights
Agreement.
g. Legends. The Buyer understands that the
Preferred Shares and the Warrants
and, until such time as the Conversion Shares and Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the Conversion Shares and Warrant Shares, may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or
an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act. In addition, transfer of these securities is subject to
limitations as set forth in the Securities Purchase Agreement
dated as of December 31, 1997."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act, or (b) such holder provides the
Company with an opinion of counsel (which counsel and the form, substance and
scope of such opinion shall be acceptable to the Company in its reasonable
judgment), to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act and such sale or transfer is
effected or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144 under the 1933 Act (or a
successor rule thereto) without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. The Buyer
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
h. Authorization; Enforcement. This
Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of the Buyer and are valid and binding agreements of the Buyer
enforceable 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
effecting generally, the enforcement of creditors' rights and remedies.
i. Residency. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to
each Buyer that:
a. Organization and Qualification. The
Company and each of its Subsidiaries (as
defined below), if any, is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. Schedule 3(a) sets forth a list of all of
the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. The Company and each of 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 where the failure to be so qualified or in good standing would
not have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on the business, operations, assets, financial condition or
prospects of the Company or its Subsidiaries, if any, taken as a whole, or on
the transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith. "Subsidiaries" means any corporation or
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest, not
including operating agreements or other contractual relationships customarily
employed in the domestic or foreign oil and gas industry, the objective of which
is to explore for, develop or exploit oil, gas or mineral properties where a
party to such agreement or relationship is not an affiliate of the Company.
b. Authorization; Enforcement. (i) The
Company has all requisite corporate power
and authority to perform its obligations under the Certificate of Designation
and to enter into and perform this Agreement, the Registration Rights Agreement
and the Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without limitation,
the issuance of the Preferred Shares and the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares issuable
upon conversion or exercise thereof) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, or its shareholders is required, (iii) this Agreement has
been duly executed and delivered and the Certificate of Designation has been
duly filed by the Company, and (iv) each of this Agreement and the Certificate
of Designation constitutes, and upon execution and delivery by the Company of
the Registration Rights Agreement and the Warrants, each of such instruments
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its 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 effecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of the date hereof, the
authorized capital stock of the
Company consists of (i) 2,088,000 shares of Common Stock of which 10,869,052
shares are issued and outstanding, 1,988,000 shares are reserved for issuance
pursuant to the Company's stock option plans, 837,485 shares are reserved for
issuance pursuant to securities (other than the Preferred Shares and the
Warrants) exercisable for, or convertible into or exchangeable for shares of
Common Stock, 20,000 shares are reserved for issuance pursuant to a drilling
arrangement, and 5,000,000 shares are reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(h) below); and (ii)
50,000,000 shares of preferred stock, none of which shares are issued and
outstanding. Except as disclosed in Schedule 3(c), all of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. Except as disclosed in Schedule 3(c), no
shares of capital stock of the Company are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in Schedule 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever created by the
Company or, to the knowledge of the Company, any other party relating to, or
securities or rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its Subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement) and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security holders)
that will be triggered by the issuance of the Preferred Shares, the Warrants,
the Conversion Shares or the Warrant Shares. The Company has furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation as
in effect on the date hereof ("Certificate of Incorporation"), 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 of the Company and
the material rights of the holders thereof in respect thereto.
d. Issuance of Shares. The Preferred
Shares, Conversion Shares and Warrant
Shares are duly authorized and, upon issuance in accordance with their
respective terms of this Agreement (including the issuance of the Conversion
Shares upon conversion of the Preferred Shares in accordance with the
Certificate of Designation and the Warrant Shares upon exercise of the Warrants
in accordance with the terms thereof) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company. The term Conversion Shares and Warrant
Shares includes the shares of Common Stock issuable upon conversion of the
Preferred Shares or exercise of the Warrants, including without limitation, such
additional shares, if any, as are issuable as a result of the events described
in Article VI.E(b) or Article VI.F. of the Certificate of Designation or Section
2(c) of the Registration Rights Agreement. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares and Warrant Shares upon conversion or exercise
of the Preferred Shares or Warrants. The Company further acknowledges that,
subject to the provisions of this Agreement and the Certificate of Designation,
its obligation to issue Conversion Shares and Warrant Shares upon conversion of
the Preferred Shares or exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
e. No Conflicts. Except as disclosed in
Schedule 3(e), The execution, delivery
and performance of this Agreement, the Registration Rights Agreement and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the filing of
the Certificate of Designation and the issuance and reservation for issuance of
the Conversion Shares and Warrant Shares) will not (i) conflict with or result
in a violation of any provision of the Certificate of Incorporation or By-laws
or (ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Except as disclosed in Schedule 3(e), neither the Company nor
any of its Subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or lapse
of time or both could put the Company or any of its Subsidiaries in default)
under, and neither the Company nor any of its Subsidiaries has taken any action
or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected (except for such violations, defaults or
failures as would not, individually or in the aggregate, have a Material Adverse
Effect). The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity (except for such violations as would not have a Material Adverse Effect).
Except as disclosed in Schedule 3(e), as specifically contemplated by this
Agreement or pursuant to the Registration Rights Agreement and as required under
the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement or the
Warrants in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e) or pursuant to the Registration Rights Agreement, 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. The Company is not in violation of the listing
requirements of the American Stock Exchange (the "AMEX") and does not reasonably
anticipate that the Common Stock will be delisted by the AMEX in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
f. SEC Documents, Financial Statements.
Except as disclosed on Schedule 3(f),
since December 31, 1994, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents 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 not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1996 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
g. Absence of Certain Changes. Except as set
forth on Schedule 3(g) or in the
Company's Report on Form 10-Q for the quarter ended September 30, 1997, since
December 31, 1996, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries.
h. Absence of Litigation. Except as set
forth in the SEC Documents or as
disclosed on Schedule 3(h), there is no action, suit, claim, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries that could have a Material Adverse Effect. Schedule 3(h)
contains a complete list and summary description of any pending or threatened
proceeding against or affecting the Company or any of its Subsidiaries, without
regard to whether it would have a Material Adverse Effect.
i. Patents, Copyrights, etc. The Company and
each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents, patent rights,
inventions, know-how, trade secrets, trademarks, service marks, service names,
trade names and copyrights ("Intellectual Property") necessary to enable it to
conduct its business as now operated (and, except as set forth in Schedule 3(i)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company's knowledge threatened which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(i) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future); to
the best of the Company's knowledge, the Company's or its Subsidiaries, current
and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
j. No Materially Adverse Contracts, Etc.
Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
k. Tax Status. Except as set forth on Schedul
3(k), the Company and each of its
Subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
l. Certain Transactions. Except as set forth
on Schedule 3(l) and except for
arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
m. Disclosure. All information relating to
or concerning the Company or any of
its Subsidiaries set forth in this Agreement and provided to the Buyers in
writing pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby, plus the contents of that certain slide
presentation and meetings at the Company's headquarters occurring on December
18, 1997 and December 19, 1997, whether oral or written, is true and correct in
all material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
n. Acknowledgment Regarding Buyers'
Purchase of Securities. The Company
acknowledges and agrees that the Buyers are acting solely in the capacity of
arm's length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that no Buyer is acting as
a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
advice given by any Buyer or any of their respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Buyers, purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
o. No Integrated Offering. Neither the
Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933 Act of the
issuance of the Securities to the Buyers. Except for the issuance of warrants to
AberFoyle Capital Limited, the issuance of the Securities to the Buyers will not
be integrated with any other issuance of the Company's securities (past, current
or future) which requires stockholder approval under the rules of AMEX.
p. No Brokers. The Company has taken no
action which would give rise to any
claim by any person for brokerage commissions, finder's fees or similar payments
relating to this Agreement or the transactions contemplated hereby, except for
dealings with AberFoyle Capital Limited, whose commissions and fees will be paid
by the Company.
q. Permits; Compliance. Except as set forth
in Schedule 3(q), the Company and
each of its Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted other than
those the failure of which to possess would not have a Material Adverse Effect
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Except as set forth in Schedule 3(q), since December 31, 1996, neither the
Company nor any of its Subsidiaries has received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
r. Environmental Matters.
(i) Except as set forth in Schedule
3(r), there are, to the Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws except
where such violations, releases, actions, activities, circumstances, conditions,
events, incidents or contractual obligations would not have a Material Adverse
Effect and neither the Company nor any of its Subsidiaries has received any
notice with respect to any of the foregoing, nor is any action pending or, to
the Company's knowledge, threatened in connection with any of the foregoing. The
term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Other than those that are or were
stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business and except as which would not have a
Material Adverse Effect.
(iii) Except as set forth in Schedule
3(r), there are no underground
storage tanks on or under any real property owned, leased or used by the Company
or any of its Subsidiaries that are not in compliance with applicable law.
s. Title to Property. The Company and its
Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(s) or such as would not have
a Material Adverse Effect. 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 would not have a Material Adverse
Effect.
t. Insurance. The Company and each of its
Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.
u. Internal Accounting Controls. The
Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient, in the good faith
judgment of the Company, 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 existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4. COVENANTS.
a. Best Efforts. The parties shall use their
best efforts to satisfy timely each
of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees
to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyers at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Buyer on or prior to the Closing Date.
c. Reporting Status. The Company's Common
Stock is registered under Section 12
of the 1934 Act. So long as any Buyer beneficially owns any of the Securities,
the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination.
d. Use of Proceeds. The Company shall use
the proceeds from the sale of the
Preferred Shares and the Warrants in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person (except in connection with its currently
existing direct or indirect Subsidiaries).
e. Additional Equity Capital; Right of First
Refusal. Subject to the exceptions
described below, the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, negotiate or contract with any party to
obtain additional equity financing (including debt financing with an equity
component) that involves the issuance of equity securities (or securities
convertible or exercisable into equity securities) pursuant to an exemption from
the registration requirements of the 1933 Act, including under Regulation D or
Regulation S, during the period (the "Lock-up Period") beginning on the Closing
Date and ending on the later of (i) one hundred eighty (180) days from the
Closing Date and (ii) one hundred twenty (120) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days that sales cannot be made thereunder) (the
limitations referred to in this sentence are collectively referred to as the
"Capital Raising Limitations"). The Capital Raising Limitations shall not apply
to any transaction involving issuances of securities: (i) an underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 0000
Xxx) for which an underwriter is one of the underwriters listed in Schedule
4(e); (ii) as consideration for a merger, consolidation or sale of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital), or in connection with the disposition
or acquisition of a business, property, product or license by the Company; (iii)
at or above the Fixed Conversion Price (as defined in the Certificate of
Designation); or (iv) in connection with recapitalizations and rights offerings
at not more than a 5% discount to the market price of the Common Stock. The
Capital Raising Limitations also shall not apply to the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan approved by a majority of the
Company's disinterested directors.
f. Expenses. The Company shall reimburse
Xxxx Xxxx Capital Management, L.P.
(ARGC@) for all out-of-pocket, reasonable expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including, without limitation, attorneys= and consultants= fees and expenses.
The Company=s obligation to reimburse RGC=s expenses under this Section 4(f)
shall be limited to Thirty Thousand Dollars ($30,000).
g. Financial Information. The Company agrees
to send the following reports to
each Buyer until such Buyer transfers, assigns, or sells all of the Securities:
(i) within ten (10) days after the filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports
on Form 8-K; (ii) within two (2) business days after release, copies of all
press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.
h. Reservation of Shares. The Company shall
at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the full conversion or exercise of the outstanding
Preferred Shares and Warrants and issuance of the Conversion Shares and Warrant
Shares in connection therewith (based on the Conversion Price of the Preferred
Shares or Exercise Price of the Warrants in effect from time to time). The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Preferred Shares and exercise of the Warrants
without the consent of each Buyer. The Company shall use its reasonable best
efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number that is then
actually issuable upon full conversion of the Preferred Shares and exercise of
the Warrants (based on the Conversion Price of the Preferred Shares or Exercise
Price of the Warrants in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Conversion Shares and Warrant Shares issued and issuable upon conversion of
the Preferred Shares and exercise of the Warrants (based on the Conversion Price
of the Preferred Shares or Exercise price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain shareholder
approval of an increase in such authorized number of shares.
i. Listing. The Company shall promptly, but
no later than ten (10) business days
from the Closing Date, make any required filing necessary to apply for the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance), shall
take all necessary action to secure such listing as soon as practicable
following such filing, and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of the Preferred Shares or
exercise of the Warrants. The Company will obtain and maintain the listing and
trading of its Common Stock one or more of the AMEX, the Nasdaq National Market,
the Nasdaq SmallCap Market, or the New York Stock Exchange, and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of such exchange or, if applicable, the National Association
of Securities Dealers ("NASD"). The Company shall promptly provide to each Buyer
copies of any notices it receives from the AMEX regarding the continued
eligibility of the Common Stock for listing on the AMEX.
j. Corporate Existence. So long as a Buyer
beneficially owns any Preferred
Shares or Warrants, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.
k. No Integration. The Company will not
conduct any future offering that will be
integrated with the issuance of the Securities solely for purposes of AMEX
Rule 713.
l. Solvency. The Company (both before
and after giving effect to the
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have, nor does it intend to take any action
that would impair, its ability to pay its debts from time to time incurred in
connection therewith as such debts mature. The Company did not receive a
qualified opinion from its auditors with respect to its most recent fiscal year
end and does not anticipate or know of any basis upon which its auditors might
issue a qualified opinion in respect of its current fiscal year.
m. Volume Limitations. The Buyer will not
sell any Conversion Shares or Warrant
Shares in excess of the greater of (i) twenty percent (20%) of the weekly volume
(calculated based on the five (5) consecutive Trading Day period immediately
prior to the date of any sale) in any given five (5) consecutive Trading Day
period, (ii) on any given Trading Day, 10,000 Conversion Shares and Warrant
Shares and (iii) on any given Trading Day, twenty percent (20%) of the volume on
such day (such limitations shall be collectively referred to as the "Volume
Limitations"). In the event the Buyer exceeds the Volume Limitations set forth
in the preceding sentence, the Buyer shall pay to the Company $10,000 for each
instance in which such Volume Limitations are exceeded. In order to insure
compliance with the provisions hereof, so long as the Buyer holds any Preferred
Stock, Conversion Shares or Warrant Shares no later than the first Trading Day
following the last Trading Day of the prior month, each Buyer shall deliver to
the Company a compliance certificate, signed by an executive officer thereof,
certifying that the limitations set forth herein have not been breached. Each
Buyer acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Company. Accordingly, each Buyer acknowledges that the
remedy at law for a breach of its obligations under this Section 4(m) will be
inadequate and agrees, in the event of a breach or threatened breach by such
Buyer of the provisions of this Section 4(m), that the Company shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being required.
n. Trading Restrictions. Each Buyer covenants
and agrees that, during any period
during which a Conversion Price (as defined in the Certificate of Designation)
is computed, it will conduct all transactions in the Common Stock in compliance
with applicable securities laws, will not manipulate the trading price of the
Common Stock and will not be responsible for the low trading price of the Common
Stock. In addition, the Buyer represents that it has not been responsible for
the low trading price of the Company's Common Stock at any time prior to the
execution of this Agreement.
o. Limitations on Derivative Securities.
Subject to the immediately following
sentence, for a period of one (1) year from the Closing Date, neither a Buyer or
any of its affiliates shall engage in the purchase or sale of any derivative
securities, including without limitation, puts, calls, options, securities
convertible into Common Stock, forward contracts for the sale or delivery of
Common Stock, sales of Common Stock for deferred delivery and any arrangement,
by which a Buyer or any of its affiliates shifts the economic burden of loss
from a drop in the market price of the Common Stock to another. Notwithstanding
the foregoing or anything else contained herein to the contrary, the Buyers
shall not be prohibited from engaging in long or short sales of the Common
Stock.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Preferred Shares or exercise of the Warrants in
accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Securities. If a
Buyer provides the Company with an opinion of counsel (which counsel and the
form, substance and scope of such opinion shall be acceptable to the Company in
its reasonable judgment), that registration of a resale by such Buyer of any of
the Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Buyer. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Buyers, by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate transfer, without the necessity of showing economic loss and without
any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Preferred Shares and
Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
the Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The applicable Buyer shall have executed
this Agreement and the Registration
Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivere
the Purchase Price in accordance
with Section 1(b) above.
c. The Certificate of Designation shall
have been accepted for filing with the
Secretary of State of the State of Delaware.
d. The representations and warranties of the
applicable Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date), and the applicable Buyer shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares and Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Buyer.
b. The Company shall have delivered to such
Buyer duly executed certificates (in
such denominations as the Buyer shall request) representing the Preferred Shares
and Warrants in accordance with Section 1(b) above.
c. The Certificate of Designation shall
have been accepted for filing with the
Secretary of State of the State of Delaware, and a copy thereof certified by
such Secretary of State shall have been delivered to such Buyer.
d. The Irrevocable Transfer Agent
Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
e. The representations and warranties of the
Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at such time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including, but not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
f. No litigation, statute, rule, regulation,
executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
g. Trading in the Common Stock on the AMEX
shall not have been suspended by the
SEC or the AMEX.
h. The Buyer shall have received an opinion of
the Company's counsel, dated as of
the Closing Date, in form, scope and substance reasonably satisfactory to the
Buyer and in substantially the same form as Exhibit "E" attached hereto.
8. GOVERNING LAW; MISCELLANEOUS.
a. 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 hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in Delaware
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile.
This Agreement may be executed in two
or more 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. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.
c. Headings. The headings of this Agreement
are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. If any provision of this
Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This
Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement. The Schedules and Exhibits
to this Agreement are incorporated herein and form a part of this Agreement.
f. Notices. Any notices required or
permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Saba Petroleum Company
0000 Xxxxxxx Xxxxx
Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx, Xxxx & Xxxxxxxx
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000
Facsimile: (000) 000-0000
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement
shall be binding upon and inure to the
benefit of the parties and their successors and assigns. Neither the Company nor
any Buyer shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, subject to Section 2(f),
any Buyer may assign its rights hereunder without the consent of the Company, to
a transferee of the Preferred Shares in accordance with Section 2(f) hereof.
h. Third Party Beneficiaries. This Agreement
is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person.
i. Survival. The representations and
warranties of the Company and each Buyer
and the agreements and covenants set forth in Sections 2, 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. Each party to this Agreement agrees to
indemnify and hold harmless the other party, and all of its officers, directors,
employees and agents, for loss or damage arising as a result of or related to
any breach or alleged breach by such indemnifying party of any of its
representations, warranties and covenants set forth in Sections 2, 3 and 4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they are
incurred.
j. Publicity. The Company and each of the
Buyers shall have the right to review
a reasonable period of time before issuance of any press releases, SEC, Nasdaq
or NASD filings, or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of each of the Buyers, to make any press release or
the AMEX, SEC, Nasdaq or NASD filings with respect to such transactions as is
required by applicable law and regulations (although each of the Buyers shall be
consulted by the Company in connection with any such press release prior to its
release and shall be provided with a copy thereof and be given an opportunity to
comment thereon).
k. Further Assurances. Each party shall do
and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
l. No Strict Construction. The language used
in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
SABA PETROLEUM COMPANY
By:
Xxxxx Xxxxxxxxx
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
Xxxxx X. Xxxxx
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Xxxx Xxxx Capital Management, L.P.
0 Xxxx Xxxxx Xxxx, Xxxxx 000
000 Xx. Xxxxxx Xxxx
Xxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of Preferred Stock: 10,000
Number of Warrants: 224,719
Aggregate Purchase Price: $10,000,000
EXHIBIT 10.1(A)
CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
SABA PETROLEUM COMPANY
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Saba Petroleum Company, a corporation organized and existing under the
Delaware General Corporation Law (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Executive Committee of the Board of
Directors of the Corporation on December 29, 1997 pursuant to authority of the
Board of Directors as required by Section 151(g) of the Delaware General
Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation, the Board
of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $0.001 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
Series A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 10,000 shares of
Preferred Stock, is Series A Convertible Preferred Stock, par value $0.001 per
share (the "Series A Preferred Stock") and the stated value shall be One
Thousand Dollars ($1,000) per share (the "Stated Value").
II. Rank
The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.001 per share (the "Common Stock"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
A Preferred Stock) (collectively, with the Common Stock, AJunior Securities@);
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock (APari Passu Securities@);
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series A Preferred Stock (ASenior Securities@), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary. The term Junior Securities
shall not include the Company's 9% Convertible Senior Subordinated Debentures
due December 15, 2005.
III. Dividends
The Series A Preferred Stock shall be entitled to cumulative
dividends at the rate of 6% per annum from the date of issuance of the Series A
Preferred Stock (the "Issue Date"), payable quarterly on March 31, June 30,
September 30 and December 31 (each, a "Dividend Payment Date") to the holders of
the Series A Preferred Stock. Dividends shall accrue daily from the Issue Date
whether or not such dividends are declared by the Board of Directors and until
actually paid to the holders of the Series A Preferred Stock. Accrued and unpaid
dividends shall be payable to each holder of the Series A Preferred Stock in
cash, in whole, but not in part, on the applicable Dividend Payment Date or, at
the sole option of the Corporation, shall be added to the Conversion Amount (as
defined in Article VI.A.) in accordance with Article VI.A. In no event, so long
as any Series A Preferred Stock shall remain outstanding, shall any dividend
whatsoever be declared or paid upon, nor shall any distribution be made upon,
any Junior Securities, nor shall any shares of Junior Securities be purchased or
redeemed by the Corporation nor shall any moneys be paid to or made available
for a sinking fund for the purchase or redemption of any Junior Securities
(other than a distribution of Junior Securities), without, in each such case,
the written consent of the holders of a majority of the outstanding shares of
Series A Preferred Stock, voting together as a class.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of forty-five (45) consecutive days and, on account of any such event,
the Corporation shall liquidate, dissolve or wind up, or if the Corporation
shall otherwise liquidate, dissolve or wind up (each such event being considered
a "Liquidation Event"), no distribution shall be made to the holders of any
shares of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series A Preferred Stock and
holders of Pari Passu Securities (including any dividends or distribution paid
on any Pari Passu Securities after the date of filing of this Certificate of
Designation) shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series A Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
Any prior dividends or distribution made after the date of filing of this
Certificate of Designation shall offset, dollar for dollar, the amount payable
to the class or series to which such distribution was made.
B. At the option of any holder of Series A Preferred Stock,
the sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons when the Corporation is not the survivor shall either: (i) be deemed
to be a liquidation, dissolution or winding up of the Corporation pursuant to
which the Corporation shall be required to distribute upon consummation of such
transaction an amount equal to 115% of the Liquidation Preference with respect
to each outstanding share of Series A Preferred Stock in accordance with and
subject to the terms of this Article IV or (ii) be treated pursuant to Article
VI.C(b) hereof. "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
C. For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series A Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof plus (ii) all accrued and unpaid
dividends for the period beginning on the Issue Date and ending on the date of
final distribution to the holder thereof (prorated for any portion of such
period). The liquidation preference with respect to any Pari Passu Securities
shall be as set forth in the Certificate of Designation filed in respect
thereof.
V. Redemption
A. If any of the following events (each, a "Mandatory
Redemption Event") shall occur:
(i) The Corporation fails to issue shares of
Common Stock to the holders of Series
A Preferred Stock upon exercise by the holders of their conversion rights in
accordance with the terms of this Certificate of Designation (for a period of at
least sixty (60) days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article VI.F below and the Corporation is
using all commercially reasonable efforts to authorize a sufficient number of
shares of Common Stock as soon as practicable), fails to transfer or to cause
its transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the holders upon conversion of
the Series A Preferred Stock as and when required by this Certificate of
Designation or the Registration Rights Agreement, dated as of December 31, 1997,
by and among the Corporation and the other signatories thereto (the
"Registration Rights Agreement"), fails to remove any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
or any shares of Common Stock issued to the holders of Series A Preferred Stock
upon conversion of the Series A Preferred Stock as and when required by this
Certificate of Designation, the Securities Purchase Agreement dated as of
December 31, 1997, by and between the Corporation and the other signatories
thereto (the "Purchase Agreement") or the Registration Rights Agreement, or
fails to fulfill its obligations pursuant to Sections 4(c), 4(e), 4(h), 4(i),
4(j) or 5 of the Purchase Agreement (or makes any announcement, statement or
threat that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any announcement,
statement or threat not to honor its obligations shall not be rescinded in
writing) for ten (10) business days;
(ii) The Corporation fails to obtain
effectiveness with the Securities and Exchange
Commission (the "SEC") of the Registration Statement (as defined in the
Registration Rights Agreement) prior to June 28, 1998 (plus any days for which
the delay of such effectiveness is primarily attributable to changes required by
the holders of the Series A Preferred Stock with respect to information relating
to such holders) or such Registration Statement lapses in effect (or sales
otherwise cannot be made thereunder, whether by reason of the Company's failure
to amend or supplement the prospectus included therein in accordance with the
Registration Rights Agreement or otherwise but excluding any act or omission by
the holders) for more than thirty (30) consecutive days or sixty (60) days in
any twelve (12) month period after such Registration Statement becomes
effective;
(iii) The Corporation shall make an assignment
for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for it or for
all or substantially all of its property or business; or such a receiver or
trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Corporation or any subsidiary of
the Corporation; provided, however, that in the case of any involuntary
bankruptcy, such involuntary bankruptcy shall continue undischarged or
undismissed for a period of forty-five (45) days;
(v) The Corporation shall fail to maintain the
listing of the Common Stock on the
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange ("AMEX") and such failure shall remain uncured
for at least ten (10) days,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
the holders of at least 50% of the then outstanding shares of Series A Preferred
Stock by written notice (the "Mandatory Redemption Notice") to the Corporation
of such Mandatory Redemption Event, or upon the occurrence of any Mandatory
Redemption Event specified in subparagraphs (iii) or (iv), the Corporation shall
purchase each holder=s shares of Series A Preferred Stock for an amount per
share equal to the greater of (1) the sum of (a) 115% multiplied by the Stated
Value of the shares to be redeemed plus (b) all accrued unpaid dividends for the
period beginning on the Issue Date and ending on the date of payment of the
Mandatory Redemption Amount (the "Mandatory Redemption Date") (prorated for any
portion of such period), and (2) the "parity value" of the shares to be
redeemed, where parity value means the product of (a) the number of shares of
Common Stock issuable upon conversion of such shares in accordance with Article
VI below (without giving any effect to any limitations or conversions of shares
set forth in Article VI.A(b) below, and treating the Trading Day (as defined in
Article VI.B.) immediately preceding the Mandatory Redemption Date as the
"Conversion Date" (as defined in Article VI.B(a)) unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion
Date), multiplied by (b) the Closing Price (as defined in Article VI.A(b)) for
the Common Stock on such "Conversion Date" (the greater of such amounts being
referred to as the "Mandatory Redemption Amount").
In the case of a Mandatory Redemption Event, if the
Corporation fails to pay the Mandatory Redemption Amount for each share within
five (5) business days of written notice that such amount is due and payable,
then (assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series A Preferred Stock shall have the right
at any time, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to immediately issue (in accordance with and
subject to the terms of Article VI below), in lieu of the Mandatory Redemption
Amount, with respect to each outstanding share of Series A Preferred Stock held
by such holder, the number of shares of Common Stock of the Corporation equal to
the Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. If at any time on or after one hundred twenty (120) days
after the Issue Date the Series A Preferred Stock ceases to be convertible as a
result of the limitations described Article VI.A(c) below (a "19.9% Redemption
Event"), and the Corporation has not prior to, or within sixty (60) days of, the
date that such 19.9% Redemption Event arises, (i) obtained approval of the
issuance of the additional shares of Common Stock by the requisite vote of the
holders of the then-outstanding Common Stock (not including any shares of Common
Stock held by present or former holders of Series A Preferred Stock that were
issued upon conversion of Series A Preferred Stock) or (ii) received other
permission pursuant to AMEX Requirement 713 allowing the Corporation to resume
issuances of shares of Common Stock upon conversion of Series A Preferred Stock,
then the Corporation shall be obligated to redeem immediately all of the then
outstanding Series A Preferred Stock, in accordance with this Article V.B. An
irrevocable Redemption Notice shall be delivered promptly to the holders of
Series A Preferred Stock at their registered address appearing on the records of
the Corporation and shall state (1) that 19.9% of the Outstanding Common Amount
(as defined in Article VI.A) has been issued upon exercise of the Series A
Preferred Stock, (2) that the Corporation is obligated to redeem all of the
outstanding Series A Preferred Stock and (3) the Mandatory Redemption Date,
which shall be a date within five (5) business days of the date of the
Redemption Notice. On the Mandatory Redemption Date, the Corporation shall make
payment of the Mandatory Redemption Amount (as defined in Article V.A. above) in
cash.
C. Subject to the fourth paragraph of this Article IV.C., at
any time after the Issue Date, the Corporation shall have the right, exercisable
on not less than five (5) Trading Days prior written notice to the holders of
Series A Preferred Stock to redeem all of the outstanding shares of Series A
Preferred Stock in accordance with this Article V. Any notice of redemption
hereunder (an "Optional Redemption") shall be delivered to the holders of Series
A Preferred Stock at their registered addresses appearing on the books and
records of the Corporation and shall state (1) that the Corporation is
exercising its right to redeem all of the outstanding shares of Series A
Preferred Stock and (2) the date of redemption (the "Optional Redemption
Notice"). On the date fixed for redemption (the "Optional Redemption Date"), the
Corporation shall make payment of the Optional Redemption Amount (as defined
below) to or upon the order of the holders as specified by the holders in
writing to the Corporation at least one (1) business day prior to the Optional
Redemption Date. If the Corporation exercises its right to redeem the Series A
Preferred Stock, the Corporation shall make payment to the holders of an amount
in cash (the "Optional Redemption Amount") equal to the sum of (i) 115%
multiplied by the Stated Value of the shares of Series A Preferred Stock to be
redeemed and (ii) all accrued and unpaid dividends for the period beginning on
the Issue Date and ending on the Optional Redemption Date, for each share of
Series A Preferred Stock then held; provided, however, that in the event that an
Optional Redemption Notice is sent during a period in which a Mandatory
Redemption Event shall have occurred and be continuing, the Optional Redemption
Amount shall equal the Mandatory Redemption Amount.
Notwithstanding notice of an Optional Redemption, on or after
one hundred twenty (120) days from the Issue Date, the holders shall at all
times prior to the Optional Redemption Date maintain the right to convert all or
any shares of Series A Preferred Stock in accordance with Article VI and any
shares of Series A Preferred Stock so converted after receipt of an Optional
Redemption Notice and prior to the Optional Redemption Date set forth in such
notice and payment of the aggregate Optional Redemption Amount shall be deducted
from the shares of Series A Preferred Stock which are otherwise subject to
redemption pursuant to such notice.
In the event the Corporation redeems the Series A Preferred
Stock pursuant to this Article V.C., in addition to the Optional Redemption
Amount payable in cash pursuant to this Article V.C., on the Optional Redemption
Date the Corporation shall issue to each holder of the Series A Preferred Stock
their pro rata portion of a maximum of 200,000 warrants to purchase Common Stock
of the Corporation (based on the number of shares of Series A Preferred Stock
held by each holder on the Optional Redemption Date relative to the total number
of shares of Series A Preferred Stock issued on the Issue Date), which warrants
will have a five (5) year term, an exercise price equal to 105% times the
average Closing Bid Prices for the five (5) consecutive Trading Days ending one
(1) Trading Day prior to the Optional Redemption Date and shall otherwise be in
the form of the Warrant attached as Exhibit D to the Purchase Agreement.
"Trading Day" shall mean any day on which the Common Stock is traded for any
period on the AMEX, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
From time to time following the Issue Date, the holders may
request in writing advance notice as to whether the Corporation intends to
redeem the shares of Series A Preferred Stock. Such request shall be made in
writing and the Corporation shall respond in writing as promptly as practicable
but prior to 5:00 p.m. New York City time one (1) business day after receipt of
the request. The Corporation will be bound by such response for a period of
twenty (20) Trading Days (the "Term") from the date of its response. A failure
to respond within one (1) business day shall be deemed to be an election not to
redeem the Series A Preferred Stock during the Term. The holders may not request
such notice in the event that the Corporation files a registration statement
where the use of proceeds set forth in such registration statement are
identified for purposes of redemption of the outstanding Series A Preferred
Stock.
VI. Conversion at the Option of the Holder
A. (a) Subject to the conversion schedule set forth in Article
VI.A(b) below, each holder of shares of Series A Preferred Stock may, at its
option at any time on or after one hundred twenty (120) days after the Issue
Date and from time to time, upon surrender of the certificates therefor, convert
any or all of its shares of Series A Preferred Stock into Common Stock as
follows (an "Optional Conversion"). Each share of Series A Preferred Stock shall
be convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (1) the Conversion Amount (as defined below),
by (2) the then effective Conversion Price (as defined below); provided,
however, that, unless the holder delivers a waiver in accordance with the
immediately following sentence, in no event (other than pursuant to the
Automatic Conversion (as defined herein)) shall a holder of shares of Series A
Preferred Stock be entitled to convert any such shares in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series A Preferred Stock) and (y) the
number of shares of Common Stock issuable upon the conversion of the shares of
Series A Preferred Stock with respect to which the determination of this proviso
is being made, would result in beneficial ownership by a holder and such
holder=s affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, (i)
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso and (ii) a holder may
waive the limitations set forth therein by written notice to the Corporation
upon not less than sixty-one (61) days prior written notice (with such waiver
taking effect only upon the expiration of such sixty-one (61) day notice
period). The "Conversion Amount" means the sum of (a) the Stated Value of the
shares of Series A Preferred Stock issued for conversion plus (b) the Unpaid
Dividend Amount where the "Unpaid Dividend Amount" means .06 times the Stated
Value of the shares of Series A Preferred Stock issued for conversion times
N/365 where N equals the number of days since the later of (x) the Issue Date or
(y) the last Dividend Payment Date on which the Corporation paid the then
accrued and unpaid dividends in cash; provided, however, that the Corporation
shall have the option to pay the Unpaid Dividend Amount in cash, in whole, but
not in part, by wire transfer to the account of the holder of the Series A
Preferred Stock issued for conversion simultaneously with the delivery of the
shares of Common Stock issued upon such conversion, in which event the
Conversion Amount shall equal the Stated Value of the shares of Series A
Preferred Stock issued for conversion.
(b) (i) Each holder of shares of Series A Preferred
Stock may convert only up to that
percentage of the aggregate Stated Value of all shares of Series A Preferred
Stock received by such holder on the Issue Date specified below during the time
period set forth opposite such percentage.
Percentage Time Period
20% 120-150 days following the Issue Date
40% 151-180 days following the Issue Date
60% 181-210 days following the Issue Date
80% 211-240 days following the Issue Date
100% 241 days following the Issue Date
; provided, however, that, on or after one hundred twenty (120) days after the
Issue Date, the restrictions on conversion set forth above shall not apply to
conversions taking place on any Conversion Date (i) if on the Conversion Date
the Closing Price (as defined below) of the Common Stock is greater than or
equal to (a) the Fixed Conversion Price (as defined in Article VI.B(a)) or (b)
120% times the then applicable Conversion Price (as defined in Article VI.B(a))
or (ii) on or after the date the Corporation makes a public announcement that it
intends to merge or consolidate with any other corporation (other than a merger
in which the Corporation is the surviving or continuing corporation and its
capital stock is unchanged) or sell or transfer substantially all of the assets
of the Corporation or (iii) on or after the date any person, group or entity
(including the Corporation but excluding any holders of Series A Preferred
Stock) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock or otherwise publicly announces an intention to
replace a majority of the Corporation's Board of Directors by waging a proxy
battle or otherwise. "Closing Price," as of any date, means the last sale price
of the Common Stock on the AMEX as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of Series A
Preferred Stock and the Corporation ("Bloomberg") or, if AMEX is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last sale price of such security or in the over-the-counter market on the
electronic bulletin board for such security in any of the foregoing manners the
average of the bid prices of any market makers for such or security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Price
cannot be calculated for such security on such date in the manner provided
above, the Closing Price shall be the fair market value as mutually determined
by the Corporation and the holders of a majority in interest of shares of Series
A Preferred Stock being converted for which the calculation of the Closing Price
is required in order to determine the Conversion Price of such Series A
Preferred Stock.
(ii) In addition to the limitation set
forth in Article VI.A(b)(i) above,
and notwithstanding anything else contained herein to the contrary, on any
Conversion Date in which the Closing Price is above $7.00, holders of shares of
Series A Preferred Stock may only convert a minimum number of shares of Series A
Preferred Stock equal to 1,000 shares of Series A Preferred Stock.
(c) So long as the Common Stock is listed for
trading on AMEX or an exchange or
quotation system with a rule substantially similar to Rule 713 then,
notwithstanding anything to the contrary contained herein if, at any time, (i)
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock (including any shares of capital stock or rights to
acquire shares of capital stock issued by the Corporation which are aggregated
or integrated with the Common Stock issued or issuable upon conversion of the
Series A Preferred Stock for purposes of such rule) equals or exceeds 19.9% of
the "Outstanding Common Amount" (as hereinafter defined) or (ii) the conversion
of Series A Preferred Stock into Common Stock would otherwise violate such rule,
the Series A Preferred Stock shall, from that time forward, cease to be
convertible into Common Stock in accordance with the terms of this Article VI
and Article VII below, unless the Corporation (i) has obtained approval of the
issuance of the Common Stock upon conversion of the Series A Preferred Stock by
a majority of the total votes cast on such proposal, in person or by proxy, by
the holders of the then-outstanding Common Stock (not including any shares of
Common Stock held by present or former holders of Series A Preferred Stock that
were issued upon conversion of Series A Preferred Stock) ("Stockholder
Approval"), or (ii) shall have otherwise obtained permission to allow such
issuances from AMEX in accordance with AMEX Requirement 713. If the
Corporation's Common Stock is not then listed on AMEX or an exchange or
quotation system that has a rule substantially similar to Rule 713 limitations
set forth herein shall be inapplicable and of no force and effect. For purposes
of this paragraph, "Outstanding Common Amount" means (i) the number of shares of
the Common Stock outstanding on the date of issuance of the Series A Preferred
Stock pursuant to the Purchase Agreement plus (ii) any additional shares of
Common Stock issued thereafter in respect of such shares pursuant to a stock
dividend, stock split or similar event. The maximum number of shares of Common
Stock issuable as a result of the 19.9% limitation set forth herein shall be
2,153,344 (19.9% of the Outstanding Common Amount on December 31, 1997 (subject
to adjustment in accordance with clause (ii) of the definition of Outstanding
Common Amount)) and is hereinafter referred to as the "Maximum Share Amount."
With respect to each holder of Series A Preferred Stock, the Maximum Share
Amount shall refer to such holder's pro rata share thereof determined in
accordance with Article X below. In the event that Corporation obtains
Stockholder Approval or the approval of AMEX, by reason of the inapplicability
of the rules of AMEX or otherwise and concludes that it is able to increase the
number of shares to be issued above the Maximum Share Amount (such increased
number being the "New Maximum Share Amount"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to the greater New
Maximum Share Amount. In the event that Stockholder Approval is not obtained,
there are insufficient reserved or authorized shares or a registration statement
covering the additional shares of Common Stock which constitute the New Maximum
Share Amount is not effective prior to the Maximum Share Amount being issued (if
such registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the effective date of such registration
statement. In the event that (a) the aggregate number of shares of Common Stock
previously issued pursuant to the Series A Preferred Stock represents at least
twenty percent (20%) of the Maximum Share Amount and (b) the sum of (x) the
aggregate number of shares of Common Stock previously issued pursuant to the
Series A Preferred Stock plus (y) the aggregate number of shares of Common Stock
that remain issuable upon conversion of Series A Preferred Stock, represents at
least one hundred percent (100%) of the Maximum Share Amount (the "Triggering
Event"), the Corporation will use its best efforts to seek and obtain
Stockholder Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event and before the Mandatory Redemption Date.
Notwithstanding the foregoing, the Corporation may, in lieu of seeking
Shareholder Approval as set forth above, elect to provide the holders of the
Series A Preferred Stock the option to redeem the shares of Series A Preferred
Stock convertible into shares of Common Stock in excess of the Maximum Share
Amount pursuant to Article V.B. above, and shall promptly provide to the holders
of the Series A Preferred Stock, but no later than ten (10) days following the
Triggering Event, written binding notification of such election to redeem,
together with reasonable assurances that the Corporation has access to a readily
available source of funds for such redemption, including evidence of such source
of funds (e.g., bank commitment letter, letter of credit, etc.). At any time
after such notification, the holders of the Series A Preferred Stock shall have
the option to require the Corporation to redeem the shares of Series A Preferred
Stock convertible into shares of Common Stock in excess of the Maximum Share
Amount pursuant to Article V.B. above.
B. (a) Subject to subparagraph (b) below, the "Conversion
Price" shall be the lesser of the Market Price (as defined herein) and the Fixed
Conversion Price (as defined herein), subject to adjustments pursuant to the
provisions of Article VI.C below. "Market Price" shall mean the average Closing
Bid Prices for any three (3) consecutive Trading Days, during the thirty (30)
Trading Day period ending one (1) Trading Day prior to the date (the "Conversion
Date") the Conversion Notice is sent by a holder to the Corporation via
facsimile (the "Pricing Period"). "Fixed Conversion Price" shall mean $9.345.
"Closing Bid Price" means, for any security as of any date, the closing bid
price on AMEX as reported by Bloomberg or, if AMEX is not the principal trading
market for such security, the closing bid price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the closing
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security or as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series A
Preferred Stock being converted for which the calculation of the Closing Bid
Price is required in order to determine the Conversion Price of such Series A
Preferred Stock.
(b) Notwithstanding anything contained in
subparagraph (a) of this Paragraph B to
the contrary, in the event the Corporation (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation=s Common Stock or otherwise publicly announces an intention to
replace a majority of the corporation's Board of Directors by waging a proxy
battle or otherwise (the date of the announcement referred to in clause (i) or
(ii) is hereinafter referred to as the AAnnouncement Date@), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as defined below), be equal to the
lower of (x) the Conversion Price which would have been applicable for an
Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted Conversion
Price Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, AAdjusted Conversion
Price Termination Date@ shall mean, with respect to any proposed transaction,
tender offer or removal of the majority of the Board of Directors which a public
announcement as contemplated by this subparagraph (b) has been made, the date
upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer which
caused this subparagraph (b) to become operative.
C. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If at
any time when Series A Preferred Stock is issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification, rights offering below the Trading
Price (as defined below) to all holders of Common Stock or other similar event,
which event shall have taken place during the reference period for determination
of the Conversion Price for any Optional Conversion or Automatic Conversion of
the Series A Preferred Stock, then the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date
thereof.
(b) Adjustment Due to Merger, Consolidation,
Etc. If, at any time when Series A
Preferred Stock is issued and outstanding and prior to the conversion of all
Series A Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Corporation shall be changed into the same
or a different number of shares of another class or classes of stock or
securities of the Corporation or another entity, or in case of any sale or
conveyance of all or substantially all of the assets of the Corporation other
than in connection with a plan of complete liquidation of the Corporation, then
the holders of Series A Preferred Stock shall thereafter have the right to
receive upon conversion of the Series A Preferred Stock, upon the bases and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such stock, securities
or assets which the holders of Series A Preferred Stock would have been entitled
to receive in such transaction had the Series A Preferred Stock been converted
in full (without regard to any limitations on conversion contained herein)
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the holders
of Series A Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities or assets thereafter deliverable upon the
conversion of Series A Preferred Stock. The Corporation shall not effect any
transaction described in this subsection (b) unless (a) it first gives, to the
extent practical, thirty (30) days' prior written notice (but in any event at
least fifteen (15) days prior written notice) of such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event or
sale of assets (during which time the holders of Series A Preferred Stock shall
be entitled to convert the Series A Preferred Stock) and (b) the resulting
successor or acquiring entity (if not the Corporation) assumes by written
instrument the obligations of this subsection (b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) Other Securities Offerings. If, at any
time after the Issue Date and prior to
the earlier of (i) one (1) year after the date the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective plus any
days for which sales cannot be made thereunder and (ii) the date on which 25% or
less of the Series A Preferred Stock issued on the Issue Date remains
outstanding, the Corporation sells Common Stock or securities convertible into,
or exchangeable for, Common Stock, other than (a) a sale pursuant to a bona fide
firm commitment underwritten public offering of Common Stock by the Corporation
(not including a continuous offering pursuant to Rule 415 under the Securities
Act of 1933, as amended), (b) sales pursuant to employee stock option plans, (c)
equity issued as consideration for a merger, consolidation or sale of assets, or
in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), (d) sales at or above the then
applicable Conversion Price or (e) equity issued in connection with
recapitalizations and rights offerings at not more than a 5% discount to the
market price of the Common Stock (collectively, the "Other Common Stock"), then,
if the effective or maximum sales price of the Common Stock with respect to such
transaction (including the effective or maximum conversion, or exchange price)
("Other Price") is less than the effective Conversion Price of the Series A
Preferred Stock at such time and such Other Common Stock is eligible for resale
prior to June 30, 1999, the Corporation shall adjust the Conversion Price
applicable to the Series A Preferred Stock not yet converted in form and
substance reasonably satisfactory to the holders of Series A Preferred Stock so
that the Conversion Price applicable to the Series A Preferred Stock shall not,
in any event, be greater, after giving effect to all other adjustments contained
herein, than the Other Price.
(d) Adjustment Due to Distribution. Subject
to Article III, if the Corporation
shall declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the
holders of Series A Preferred Stock shall be entitled, upon any conversion of
shares of Series A Preferred Stock after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the holder with respect to the shares of Common
Stock issuable upon such conversion had such holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(e) Purchase Rights. Subject to Article
III, if at any time when any Series A
Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series A Preferred Stock will be
entitled, upon any conversion of shares of Series A Preferred Stock after the
date of record for determining shareholders entitled to such Purchase Rights, to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Series A Preferred Stock (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(f) Adjustment for Restricted Periods.
In the event that (1) the Corporation
fails to obtain effectiveness with the Securities and Exchange Commission of the
Registration Statement (as defined in the Registration Rights Agreement) prior
to one hundred twenty (120) days following the Issue Date, or (2) such
Registration Statement lapses in effect, or sales otherwise cannot be made
thereunder, whether by reason of the Corporation's failure or inability to amend
or supplement the prospectus (the "Prospectus") included therein in accordance
with the Registration Rights Agreement or otherwise (but excluding any acts or
omission by the holders), after such Registration Statement becomes effective,
then the Pricing Period shall be comprised of, (i) in the case of an event
described in clause (1), the twenty (20) Trading Days preceding the 120th day
following the Issue Date plus all Trading Days through and including the third
Trading Day following the date of effectiveness of the Registration Statement;
and (ii) in the case of an event described in clause (2), the number of Trading
Days preceding the date on which the holder of the Series A Preferred Stock is
first notified that sales may not be made under the Prospectus that would
otherwise then be included in the Pricing Period in accordance with the
definition thereof set forth in Article VI.B(a), plus all Trading Days through
and including the third Trading Day following the date on which the Holder is
first notified that such sales may again be made under the Prospectus. If a
holder of Series A Preferred Stock determines based on the advice of counsel
that sales may not be made pursuant to the Prospectus (whether by reason of the
Corporation's failure or inability to amend or supplement the Prospectus), it
shall so notify the Corporation in writing and, unless the Corporation provides
such holder with a written opinion of the Corporation's counsel to the contrary,
such determination shall be binding for purposes of this paragraph.
(g) Notice of Adjustments. Upon the occurrence
of each adjustment or readjustment
of the Conversion Price pursuant to this Article VI.C, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish to such
holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of a share of Series A Preferred
Stock.
D. For purposes of Article VI.C(a) above, "Trading Price,"
which shall be measured as of the record date in respect of the rights offering
means (i) the average of the last reported sale prices for the shares of Common
Stock on AMEX as reported by Bloomberg, as applicable, for the five (5) Trading
Days immediately preceding such date, or (ii) if AMEX is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Trading Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, (b) at the option of a majority-in-interest of
the holders of the outstanding Series A Preferred Stock by an independent
investment bank of nationally recognized standing in the valuation of businesses
similar to the business of the Corporation.
E. In order to convert Series A Preferred Stock into full
shares of Common Stock, a holder of Series A Preferred Stock shall: (i) submit a
copy of the fully executed notice of conversion in the form attached hereto as
Exhibit A ("Notice of Conversion") to the Corporation by facsimile dispatched on
the Conversion Date (or by other means resulting in notice to the Corporation on
the Conversion Date) at the office of the Corporation that the holder elects to
convert the same, which notice shall specify the number of shares of Series A
Preferred Stock to be converted, the applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted) prior to 9:00 p.m., New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original certificates representing the Series A Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along
with a copy of the Notice of Conversion to the office of the Corporation for the
Series A Preferred Stock as soon as practicable thereafter. The Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion, unless either the Preferred Stock
Certificates are delivered to the Company as provided above, or the holder
notifies the Corporation that such certificates have been lost, stolen or
destroyed (subject to the requirements of subparagraph (a) below). In the case
of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant=s calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt
by the Corporation of evidence of
the loss, theft, destruction or mutilation of any Preferred Stock Certificates
representing shares of Series A Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity reasonably satisfactory to the Corporation
(including the posting of a bond, if requested by the Corporation), and upon
surrender and cancellation of the Preferred Stock Certificate(s), if mutilated,
the Corporation shall execute and deliver new Preferred Stock Certificate(s) of
like tenor and date.
(b) Delivery of Common Stock Upon Conversion.
Upon the surrender of certificates
as described above together with a Notice of Conversion, the Corporation shall
issue and, within two (2) business days after such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of agreement and
indemnification pursuant to subparagraph (a) above) (the "Delivery Period"),
deliver (or cause its Transfer Agent to so issue and deliver) to or upon the
order of the holder (i) that number of shares of Common Stock for the portion of
the shares of Series A Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of Series A Preferred Stock not converted, if any. In addition to any
other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $2,000 per day in cash
for each day beyond a two (2) day grace period following the Delivery Period
that the Corporation fails to deliver Common Stock (a "Conversion Default")
issuable upon surrender of shares of Series A Preferred Stock with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock (the "Conversion Default Payments"); provided, however, that such payments
shall not be payable if the Series A Preferred Stock is not convertible into
Common Stock pursuant to Article VI.A(c) above. Such cash amount shall be paid
to such holder by the fifth day of the month following the month in which it has
accrued or, at the option of the holder (by written notice to the Corporation by
the first day of the month following the month in which it has accrued), shall
be convertible into Common Stock in accordance with the terms of this Article
VI.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Article VI.A. and in this Article
VI.E., the Corporation shall use its reasonable best efforts to cause its
Transfer Agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery and penalties described in the immediately preceding
paragraph shall apply to the electronic transmittals described herein.
(c) No Fractional Shares. If any conversion
of Series A Preferred Stock would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Conversion of the Series A
Preferred Stock shall be the next higher number of shares.
(d) Conversion Date. The "Conversion Date"
shall be the date specified in the
Notice of Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in notice) to the Corporation or its
Transfer Agent before 9:00 p.m., New York City time, on the Conversion Date. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series A Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders preferential rights as a
holder of Series A Preferred Stock shall survive to the extent the corporation
fails to deliver such securities.
F. A number of shares of the authorized but unissued Common
Stock sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series A Preferred Stock, 5,000,000
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the Series A Preferred Stock (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Company's obligations pursuant to Section 4(h) of the Purchase
Agreement. In addition, if the Corporation shall issue any securities or make
any change in its capital structure which would change the number of shares of
Common Stock into which each share of the Series A Preferred Stock shall be
convertible at the then current Conversion Price, the Corporation shall at the
same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "Conversion
Default"), the Corporation shall issue to the holder (or holders, if more than
one holder submits a Notice of Conversion in respect of the same Conversion
Date, pro rata based on the ratio that the number of shares of Series A
Preferred Stock then held by each such holder bears to the aggregate number of
such shares held by such holders) all of the shares of Common Stock which are
available to effect such conversion. The number of shares of Series A Preferred
Stock included in the Notice of Conversion which exceeds the amount which is
then convertible into available shares of Common Stock (the "Excess Amount")
shall, notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock in accordance with the terms hereof until (and at
the holder=s option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized number of shares of Common Stock as soon as possible following a
Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) (N/365), multiplied by (b) the sum of the Stated Value plus all accrued
and unpaid dividends for the period beginning on the Issue Date and ending on
the Authorization Date (as defined below) per share of Series A Preferred Stock
through the Authorization Date (as defined below), multiplied by (c) the Excess
Amount on the day the holder submits a Notice of Conversion giving rise to a
Conversion Default (the "Conversion Default Date"), multiplied by (d) .24, where
(i) N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series A Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the Conversion Price, at the
Corporation's option with the consent of the holder (which consent shall not be
unreasonably withheld), as follows:
(a) In the event the Corporation elects to make
such payment in cash, cash payment
shall be made to the holder by the fifth day of the month following the month in
which it has accrued; and
(b) In the event the Corporation (with the
consent of the holder as set forth
above) elects to make such payment in Common Stock, the Corporation may convert
such payment amount into Common Stock at the Conversion Price (as in effect at
the time of Conversion) at any time after the fifth day of the month following
the month in which it has accrued in accordance with the terms of this Article
VI (so long as there is then a sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Article VI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series A Preferred Stock.
H. Subject to the other provisions of this Certificate of
Designation, upon submission of a Notice of Conversion by a holder of Series A
Preferred Stock, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the holder's rights as a holder of such converted
shares of Series A Preferred Stock shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Certificate of Designation. Notwithstanding the foregoing, if a holder has not
received certificates for all shares of Common Stock prior to the tenth (10th)
business day after the expiration of the Delivery Period with respect to a
conversion of shares of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series A Preferred Stock with respect to such unconverted shares
of Series A Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, the right to receive Conversion Default Payments
pursuant to Article IV.E. to the extent required thereby for such Conversion
Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is effective and there
is not then a continuing Mandatory Redemption Event, each share of Series A
Preferred Stock issued and outstanding on December 31, 2000, subject to any
adjustment pursuant to Article V.A.(ii) (the "Automatic Conversion Date"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Article VI hereof (the "Automatic Conversion"). The Automatic
Conversion Date shall be the Conversion Date for purposes of determining the
Conversion Price and the time within which certificates representing the Common
Stock must be delivered to the holder.
VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting
power whatsoever, except as otherwise provided by the Delaware General
Corporation Law ("DGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of
the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series A Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation=s bylaws and the DGCL.
IX. Protective Provisions
So long as shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences
or privileges of the Series A
Preferred Stock or any Senior Securities so as to affect adversely the Series A
Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Senior Securities");
(c) create any new class or series of capital
stock ranking pari passu with the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, APari Passu Securities@); or
(d) increase the authorized number of shares of
Series A Preferred Stock.
In the event holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series A Preferred Stock.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount (including
any increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock then held by each holder relative to the total aggregate number
of shares of Series A Preferred Stock then outstanding.
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation this 30th day of December, 1997.
SABA PETROLEUM COMPANY
By:
Xxxxxx X. Xxxxx
Secretary
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______
shares of Series A Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Saba Petroleum Company (the "Corporation") according to the
conditions of the Certificate of Designation of Series A Preferred Stock, as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Series A Preferred Stock shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the
"Act"), or pursuant to an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
EXHIBIT 10.1(B)
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF DECEMBER 31, 1997, NEITHER THIS WARRANT NOR ANY
OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR
AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, THIS WARRANT IS SUBJECT TO LIMITATIONS AS
SET FORTH IN THE SECURITIES PURCHASE AGREEENT DATED AS OF DECEMBER 31,
1997.
Right to
Purchase
224,719
Shares of
Common Stock,
par value $.001
per share
STOCK PURCHASE WARRANT (CLOSING WARRANT)
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS,
LDC or its registered assigns, is entitled to purchase from SABA PETROLEUM
COMPANY, a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Paragraph 2 hereof, Two Hundred Twenty Four
Thousand, Seven Hundred Nineteen (224,719) fully paid and nonassessable shares
of the Company's Common Stock, par value $.001 per share (the "Common Stock"),
at an exercise price of $10.68 per share (the AExercise Price@). The term
"Warrant Shares," as used herein, refers to the shares of Common Stock
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraph 4 hereof. The term Warrants means this
Warrant and the other warrants issued or to be issued pursuant to that certain
Securities Purchase Agreement, dated December 31, 1997, by and among the Company
and the Buyers listed on the execution page thereof (the "Securities Purchase
Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
ASecurities Act@), delivery to the Company of a written notice of an election to
effect a ACashless Exercise@ (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in
no event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement) and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrants (or portions thereof) with
respect to which the determination described herein is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, (a) beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (i) hereof
and (b) the holder of this Warrant may waive the limitations set forth therein
by written notice to the Company upon not less than sixty-one (61) days prior
notice (with such waiver taking effect only upon the expiration of such 61-day
notice period).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 5:00 p.m.,
New York City time on the third (3rd) anniversary of the date of issuance (the
"Exercise Period").
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant or issued pursuant
to the Securities Purchase Agreement; and the Company shall so list on each
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the
Exercise Price and the number of
Warrant Shares shall be subject to adjustment from time to time as provided in
this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c) and
4(e) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Paragraph 4(b) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection therewith)
less than the Market Price (as hereinafter defined) on the date of issuance (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Exercise
Price will be reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For
purposes of determining the adjusted
Exercise Price under Paragraph 4(a) hereof, the following will be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner issues or grants
any warrants, rights or options, whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or other securities convertible into
or exchangeable for Common Stock ("Convertible Securities") (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options") and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Market
Price on the date of issuance or grant of such Options, then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
will, as of the date of the issuance or grant of such Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If
the Company in any manner issues or
sells any Convertible Securities, whether or not immediately convertible (other
than where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such conversion or exchange is
less than the Market Price on the date of issuance, then the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon such
conversion or exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(iii) Change in Option Price or Conversion
Rate. If there is a change at any time
in (i) the amount of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the Exercise Price in
effect at the time of such change will be readjusted to the Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and
Unexercised Convertible Securities. If, in
any case, the total number of shares of Common Stock issuable upon exercise of
any Option or upon conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to convert or exchange
such Convertible Securities shall have expired or terminated, the Exercise Price
then in effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received.
If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor for purposes of this Warrant will be the amount received by
the Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Company in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as is attributable
to such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise
Price. No adjustment to the Exercise
Price will be made (i) upon the exercise of any warrants, options or convertible
securities granted, issued and outstanding on the date of issuance of this
Warrant or issued pursuant to the Securities Purchase Agreement; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the independent members of the Board of Directors of
the Company or a majority of the members of a committee of independent directors
established for such purpose; or (iii) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (including cash) to holders of Common
Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or
distributions payable in cash out of retained earnings) to the holders of the
Common Stock;
(ii) the Company shall offer for subscription
pro rata to the holders of the Common
Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification
of the Common Stock, or consolidation or merger of the Company with or into, or
sale of all or substantially all
its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up
of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall
mean the number of shares of Common
Stock actually outstanding (not including shares of Common Stock held in the
treasury of the Company), plus (x) pursuant to Paragraph 4(b)(i) hereof, the
maximum total number of shares of Common Stock issuable upon the exercise of
Options, as of the date of such issuance or grant of such Options, if any, and
(y) pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of Convertible Securities, as
of the date of issuance of such Convertible Securities, if any.
(ii) AMarket Price,@ as of any date, (i) means
the average of the last reported
sale prices for the shares of Common Stock on the American Stock Exchange (the
"AMEX") for the five (5) trading days immediately preceding such date as
reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if the AMEX is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Corporation or, at the option of a majority-in-interest of
the holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
(iii) "Common Stock," for purposes of this
Paragraph 4, includes the Common Stock,
par value $.001 per share, and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, par value $.001 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(e)
hereof, the stock or other securities or property provided for in such
Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in accordance
with the provisions of that certain Registration Rights Agreement, dated as of
December 31, 1997, by and among the Company and the other signatories thereto
(the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company (including the posting of a bond, if reasonably
requested by the Company), or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees or any expenses incurred in connection with the posting of
a bond pursuant to Paragraph 7(c) above) and charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Paragraph
7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
Aaccredited investor@ as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an Aaccredited investor@
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant
(and certain assignees thereof) is
entitled to the benefit of such registration rights in respect of the
Warrant Shares as are set forth in Section 2 of the Registration Rights
Agreement.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 0000 Xxxxxxx Xxxxx, Xxxxx
000, Xxxxx Xxxxx, Xxxxxxxxxx 00000, Attention: Chief Executive Officer, or at
such other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE BODY OF LAW
CONTROLLING CONFLICTS OF LAW.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision
hereof may only be amended by an
instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings
of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the
meaning or construction of any of
the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder=s intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a ACashless Exercise@).
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SABA PETROLEUM COMPANY
By: ________________________________
Xxxxx Xxxxxxxxx
Chief Executive Officer
Dated as of December 31, 1997
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________________
Signature: ________________________________
Address: ________________________________
--------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
------------------
Name: ___________________________________
Signature: _________________________
Title of Signing Officer or Agent (if any):
-----------------------------------
Address: ___________________________
---------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
EXHIBIT 10.1(C)
TO SECURITIES
PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
31, 1997, by and among Saba Petroleum Company, a Delaware corporation, with its
headquarters located at 0000 Xxxxxxx Xxxxx, Xxxxx 000, Xxxxx Xxxxx, Xxxxxxxxxx
00000 (the "Company"), and each of the undersigned (together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) shares of its Series A
Convertible Preferred Stock (the "Preferred Stock") that are convertible into
shares (the "Conversion Shares") of the Company's common stock, par value $.001
per share (the "Common Stock"), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designations, Rights,
Preferences, Privileges and Restrictions with respect to the Preferred Stock
(the "Certificate of Designation") and (ii) warrants (the "Closing Warrants") to
acquire 224,719 shares of Common Stock (the "Closing Warrant Shares"), upon the
terms and conditions and subject to the limitations and conditions set forth in
the Warrants dated December 31, 1997;
B. In accordance with the terms of the Certificate of Designation, the
Company may redeem the Preferred Stock for cash plus a number of additional
warrants to purchase a maximum of 200,000 shares of Common Stock (the
"Redemption Warrants" and, collectively with the Closing Warrants, the
"Warrants"); and
C. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Investors" means the Initial Investors
and any transferee or assignee who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9 hereof.
(ii) "register," "registered," and
"registration" refer to a registration effected
by preparing and filing a Registration Statement or Statements in compliance
with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous basis ("Rule 415"), and
the declaration or ordering of effectiveness of such Registration Statement by
the United States Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the
Conversion Shares and Warrant Shares
(including any shares issued in respect of the 6% dividend on the Preferred
Stock and any additional shares to be issued pursuant to Articles VI.E(b) and
VI.F of the Certificate of Designation) issued or issuable and any shares of
capital stock issued or issuable as a dividend on or in exchange for or
otherwise with respect to any of the foregoing.
(iv) "Registration Statement" means the
registration statement to be filed under
the 1933 Act to register the Registerable Securities pursuant to the terms of
this Agreement.
b. Capitalized terms used herein and not otherwise
defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to the date which is twenty-one (21) days after the date of the Closing
under the Securities Purchase Agreement (the "Closing Date"), file with the SEC
a registration statement on Form S-3 (or, if Form S-3 is not then available, on
such form of registration statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Preferred Stock and Warrants
issued or issuable pursuant to the Securities Purchase Agreement, which
registration statement, to the extent allowable under the 1933 Act and the Rules
promulgated thereunder (including Rule 416), shall state that such registration
statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock and exercise
of the Warrants (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the Conversion
Price of the Preferred Stock in accordance with the terms thereof or the
exercise price of the Warrants in accordance with the terms thereof. The number
of shares of Common Stock initially included in the Registration Statement shall
be no less than two (2) times the number of Conversion Shares, plus the number
of Warrant Shares, that are then issuable upon conversion of the Preferred Stock
and the exercise of the Warrants, without regard to any limitation on the
Investor's ability to convert the Preferred Stock or exercise the Warrants;
provided, however, that the number of shares initially included in the
Registration Statement shall not exceed 2,153,344. The Company acknowledges that
the number of shares to be initially included in the Registration Statement will
represent a good faith estimate of the maximum number of shares issuable upon
conversion of the Preferred Stock and exercise of the Warrants.
b. [Intentionally Omitted]
c. Payments by the Company. The Company shall use its
reasonable best efforts to obtain effectiveness of the Registration Statement as
soon as practicable. If (i) the Registration Statement covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC within one hundred twenty (120) days after
the Closing Date or if, after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the Registration
Statement, or (ii) the Common Stock is not listed or included for quotation on
any one of the American Stock Exchange (the "AMEX"), the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap") or the New York Stock
Exchange (the "NYSE") after being so listed or included for quotation, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c) as relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall be exclusive of any other
remedies available at law or in equity other than any remedies specifically set
forth in the Certificate of Designation). The Company shall pay to each holder
of the Preferred Stock or Registerable Securities an amount equal to the then
outstanding principal amount of the Preferred Stock held by such holder (and, in
the case of holders of Registerable Securities, the principal amount of
Preferred Stock from which such Registerable Securities were converted)
("Aggregate Share Price") multiplied by two hundredths (.02) times the sum of:
(i) the number of months (prorated for partial months) after the end of such
120-day period and prior to the date the Registration Statement is declared
effective by the SEC, provided, however, that there shall be excluded from such
period any delays which are primarily attributable to changes required by the
Investors in the Registration Statement with respect to information relating to
the Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their review of the
Registration Statement pursuant to Section 3(h) below in a reasonably prompt
manner; (ii) the number of months (prorated for partial months) that sales
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective (including, without limitation, when sales
cannot be made by reason of the Company's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of this
Agreement or otherwise for any reason outside the Investors' control, but
excluding Allowed Delays (as defined in Section 3(f))); and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that
trading of the Common Stock thereon is halted (other than due to general
suspension of trading) after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes effective one (1)
month after the end of such 120-day period, the Company would pay $20,000 for
each $1,000,000 of Aggregate Share Price. If thereafter, sales could not be made
pursuant to the Registration Statement, for each additional period of one (1)
month, the Company would pay an additional $20,000 for each $1,000,000 of
Aggregate Share Price.) Such amounts shall be paid in cash or, at the Company's
option, may be added to the principal amount of the Preferred Stock and
thereafter be convertible into Common Stock at the "Conversion Price" (as
defined in the Certificate of Designation) in accordance with the terms of the
Preferred Stock. Any shares of Common Stock issued upon conversion of such
amounts shall be Registrable Securities. If the Company desires to convert the
amounts due hereunder into Registrable Securities, it shall so notify the
Investors in writing within two (2) business days of the date on which such
amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the mechanics set forth in the Certificate of Designation),
beginning on the last day upon which the cash amount would otherwise be due in
accordance with the following sentence. Payments of cash pursuant hereto shall
be made within five (5) days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for more than thirty
(30) days, interim payments shall be made for each such thirty (30) day period.
Notwithstanding anything to the contrary set forth herein, in no event shall the
aggregate payments pursuant to this Section 2(c) exceed ten hundredths (.10) of
the Aggregate Share Price.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within ten (10) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available (i) during the period ending 120 days after the Closing Date, if the
Company has not filed the Registration Statement, (ii) after the period ending
120 days after the Closing Date, if the Company fails to obtain effectiveness or
maintain effectiveness of the Registration Statement in accordance with the
terms of this Agreement and (iii) if registration of such Registrable Securities
is required for the resale of such Registrable Securities without regard to
volume limitations.
e. Form S-3. The Company covenants that it will take all steps
reasonably necessary to meet the registrant eligibility and transaction
requirements for the use of Form S-3 for registration of the sale by the Initial
Investors and any other Investors of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with the SEC in a
timely manner so as to maintain such eligibility for the use of Form S-3. In the
event that the Registration Statement used to register the Registrable
Securities is on a form other than a Form S-3, the Company will, promptly upon
attaining eligibility for use of Form S-3, convert the Registration Statement
used to register the Registrable Securities to Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than twenty-one (21) days after the Closing Date, a Registration
Statement with respect to the number of Registrable Securities provided in
Section 2(a), and thereafter use its reasonable best efforts to cause such
Registration Statement relating to Registrable Securities to become effective as
soon as practicable after such filing, and keep the Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier of
(i) the date on which all of the Registrable Securities have been sold and (ii)
the date on which the Registrable Securities (in the opinion of counsel to the
Initial Investors) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the 1933 Act (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading (excluding written information provided to the
Company by the Initial Investors).
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the Registrable Securities issued or issuable
upon conversion of the Preferred Stock and exercise of the Warrants, the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefore, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its
reasonable best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. The provisions of Section 2(c) above shall be applicable with respect
to such obligation, with the one hundred twenty (120) days running from the day
after the date on which the Company reasonably first determines (or reasonably
should have determined) the need therefor.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), each letter written by or on behalf of the Company
to the SEC or the staff of the SEC, and each item of correspondence from the SEC
or the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. [Intentionally Omitted]
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than fifteen (15) consecutive
trading days (or a total of not more than thirty (30) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its reasonable best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold of the issuance of such
order and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company in writing by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 0000 Xxx) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. [Intentionally Omitted]
k. The Company shall make available for inspection by (i) any
Investor, (ii) one firm of attorneys and one firm of accountants or other agents
retained by the Initial Investors, and (iii) one firm of attorneys and one firm
of accountants or other agents retained by all other Investors (collectively,
the "Inspectors") all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "Records"),
as shall be reasonably deemed necessary by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; provided, however,
that each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing in this Section 4(k) (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to limit the
Investor's ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on Nasdaq or, if not eligible for the Nasdaq, on the Nasdaq SmallCap.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity and may be the transfer agent for the Common Stock,
for the Registrable Securities not later than the effective date of the
Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to the Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel in the form
attached hereto as Exhibit 2.
p. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. [Intentionally Omitted]
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, and
the fees and disbursements of counsel for the Company, and the reasonable fees
and disbursements of one counsel selected by the Initial Investors (which fees
and disbursements shall count towards the $30,000 to be reimbursed pursuant to
Section 4(f) of the Securities Purchase Agreement), shall be borne by the
Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable Securities
and (ii) the directors, officers, partners, employees, agents and each person
who controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any (each, an "Indemnified
Person"), against any joint or several losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or threatened, in
respect thereof, "Claims") to which any of them may become subject insofar as
such Claims are made in writing and arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim is made in
writing and arises out of or is based upon any Violation by such Investor, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as
those terms are understood and defined
in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of the Preferred Stock or
Warrants if: (i) the Investor agrees in writing with the transferee or assignee
to assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii) the Company is, within a
reasonable time prior to such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the 1933 Act and applicable state securities laws, (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions contained herein, (v) such transfer shall have
been made in accordance with the applicable requirements of the Securities
Purchase Agreement, and (vi) such transferee shall be an "accredited investor"
as that term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Saba Petroleum Company
0000 Xxxxxxx Xxxxx
Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With copy to:
Xxxxxx X. Xxxxxx, Esq.
Xxxxxx, Xxxx & Xxxxxxxx
0000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof. The parties hereto hereby submit to the exclusive
jurisdiction of the United States Federal Courts located in Delaware with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience
of reference only and shall not
limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into for Registrable Securities.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
l. If the performance of this Agreement by any party, or of
any obligation under this Agreement, is prevented, restricted, or interfered
with by reason of war, revolution, civil commotion, acts of public enemies,
blockade, embargo, strikes, any law, order, proclamation, regulation, ordinance,
demand, or requirement not currently in effect having a legal effect of any
government or any judicial authority or representative of any such government,
any other act whatsoever, whether similar or dissimilar to those referred to in
this clause which are beyond the reasonable control of the party affected, then
the parties os affected shall, upon giving prior written notice to the other
parties, be excused from such performance to the extent of such prevention,
restriction, or interference, provided that the party so affected shall use its
best efforts to avoid or remove such causes of nonperformance, and shall
continue performance hereunder with the utmost dispatch whenever such causes are
removed. Upon such circumstances arising, the parties shall meet forthwith to
discuss what (if any) modification may be required to the terms of this
Agreement, in order to arrive at an equitable solution. For the avoidance of
doubt, the SEC's review process shall not be deemed to be an event giving rise
to the relief provided hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
SABA PETROLEUM COMPANY
By:
Xxxxx Xxxxxxxxx
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Xxxx Xxxx Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
Xxxxx X. Xxxxx
Managing Director
EXHIBIT 10.1(C)(1)
to
Registration
Rights
Agreement
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and
direction to you (1) to transfer or re-register (or at the holders request to
reissue to the holder thereof without any restrictive legend) the certificates
for the shares of Common Stock, par value $.001 per share (the "Common Stock"),
of Saba Petroleum Company, a Delaware corporation (the "Company"), represented
by certificate numbers _____ for an aggregate of _____ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of [Name of Investor]
(the "Investor") (which shares were previously issued upon conversion of the
Preferred Shares (as hereinafter defined) or exercise of the Warrants (as
hereinafter defined)), upon surrender of such certificates to you,
notwithstanding the legend appearing on such certificates, (2) to issue shares
(the "Conversion Shares") of Common Stock to or upon the order of the registered
holder from time to time of shares of Series A Convertible Preferred Stock of
the Company (the "Preferred Shares") upon surrender to you of a properly
completed and duly executed Notice of Conversion notwithstanding the legend
appearing on such certificates and (3) to issue shares (the "Warrant Shares") of
Common Stock to or upon the order of the registered holder from time to time of
the Warrants of the Company (the "Warrants") upon surrender to you of a properly
completed and duly executed Exercise Agreement and such Warrants notwithstanding
the legend appearing on such Warrants. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record holder of the Outstanding Shares. The
certificate issued upon such transfer or re-registration should be registered in
such name as requested by the holder of record of the certificate surrendered to
you and should not bear any legend which would restrict the transfer of the
shares represented thereby. In addition, you are hereby directed to remove any
stop-transfer instruction relating to the Outstanding Shares. Certificates for
the Conversion Shares and Warrant Shares should not bear any restrictive legend
and should not be subject to any stop-transfer restriction.
Pursuant to applicable securities laws or certain agreements
between the Company and the Investor, the Investor may be prohibited during
certain limited periods of time from selling its Outstanding Shares or other
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrant Shares under the Registration Statement; provided,
however, that such Investor may continue to sell such securities pursuant to an
exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act") and in accordance with certain other restrictions agreed upon by the
Company and the Investor. The Company may, during such periods, deliver a notice
to you advising you to refrain from transferring any Outstanding Shares pursuant
to such Registration Statement, provided that such notice shall not prohibit the
transfer of such shares pursuant to an exemption from registration under the
1933 Act during such periods.
Contemporaneous with the delivery of this letter, the Company
is delivering to you a letter of ___________________ as to registration of the
Outstanding Shares and the Conversion Shares under the Securities Act of 1933,
as amended.
Should you have any questions concerning this matter, please
contact me.
Very truly yours,
SABA PETROLEUM COMPANY
------------------------------------
By:
Title:
Enclosures:
cc: [Name of Investor]
EXHIBIT 10.1(C)(2)
to
Registration
Rights
Agreement
[Date]
Name and address
of transfer agent]
Re: Saba Petroleum Company
Ladies and Gentlemen:
We are counsel to Saba Petroleum Company, a Delaware corporation (the
"Company"), and we understand that [Name of Investor] (the "Holder") has
purchased from the Company shares of the Company's Series A Convertible
Preferred Stock (the "Preferred Stock") and warrants (the "Warrants") that are
convertible or exercisable into the Company=s Common Stock, par value $.001 per
share (the "Common Stock"). The Preferred Stock and Warrants were purchased by
the Holder pursuant to a Securities Purchase Agreement, dated as of December 31,
1997, between the Holder and the Company (the "Agreement"). Pursuant to a
Registration Rights Agreement, dated as of December 31, 1997, between the
Company and the Holder (the "Registration Rights Agreement"), the Company agreed
with the Holder, among other things, to register the Registrable Securities (as
that term is defined in the Registration Rights Agreement) under the Securities
Act of 1933, as amended (the "Securities Act"), upon the terms provided in the
Registration Rights Agreement. In connection with the Company=s obligations
under the Registration Rights Agreement, on December 31, 1997, the Company filed
a Registration Statement on Form S-3 (File No. 333- ______) (the "Registration
Statement") with the Securities and Exchange Commission relating to the
Registrable Securities, which names the Holder as a selling stockholder
thereunder.
[Other introductory language to be inserted]
Based on the foregoing, we are of the opinion that the resale of the
Registrable Securities has been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of investor]
EXHIBIT 10.1(D)
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF DECEMBER 31, 1997, NEITHER THIS WARRANT NOR ANY
OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR
AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, THIS WARRANT IS SUBJECT TO LIMITATIONS AS
SET FORTH IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER 31,
1997.
Right to
Purchase
---------
Shares of
Common Stock,
par value $.001
per share
STOCK PURCHASE WARRANT (REDEMPTION WARRANT)
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS,
LDC or its registered assigns, is entitled to purchase from SABA PETROLEUM
COMPANY, a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Paragraph 2 hereof, _____________________
(_______) fully paid and nonassessable shares of the Company's Common Stock, par
value $.001 per share (the "Common Stock"), at an exercise price of $_____ [105%
of the average closing bid price of the common stock for the five (5)
consecutive trading days immediately preceding the redemption notice date] per
share (the AExercise Price@). The term "Warrant Shares," as used herein, refers
to the shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The
term Warrants means this Warrant and the other warrants issued or to be issued
pursuant to that certain Securities Purchase Agreement, dated December 31, 1997,
by and among the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
ASecurities Act@), delivery to the Company of a written notice of an election to
effect a ACashless Exercise@ (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in
no event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement) and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrants (or portions thereof) with
respect to which the determination described herein is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, (a) beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (i) hereof
and (b) the holder of this Warrant may waive the limitations set forth therein
by written notice to the Company upon not less than sixty-one (61) days prior
notice (with such waiver taking effect only upon the expiration of such 61-day
notice period).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 5:00 p.m.,
New York City time on the fifth (5th) anniversary of the date of issuance (the
"Exercise Period").
3. Certain Agreements of the Company. The Company hereby
covenants and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period,
the Exercise Price and the number of
Warrant Shares shall be subject to adjustment from time to time as provided in
this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c) and
4(e) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Paragraph 4(b) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection therewith)
less than the Market Price (as hereinafter defined) on the date of issuance (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Exercise
Price will be reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For
purposes of determining the adjusted
Exercise Price under Paragraph 4(a) hereof, the following will be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner issues or grants
any warrants, rights or options, whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or other securities convertible into
or exchangeable for Common Stock ("Convertible Securities") (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "Options") and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Market
Price on the date of issuance or grant of such Options, then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
will, as of the date of the issuance or grant of such Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If
the Company in any manner issues or
sells any Convertible Securities, whether or not immediately convertible (other
than where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such conversion or exchange is
less than the Market Price on the date of issuance, then the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon such
conversion or exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(iii) Change in Option Price or Conversion
Rate. If there is a change at any time
in (i) the amount of additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional consideration, if any,
payable to the Company upon the conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the Exercise Price in
effect at the time of such change will be readjusted to the Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and
Unexercised Convertible Securities. If, in
any case, the total number of shares of Common Stock issuable upon exercise of
any Option or upon conversion or exchange of any Convertible Securities is not,
in fact, issued and the rights to exercise such Option or to convert or exchange
such Convertible Securities shall have expired or terminated, the Exercise Price
then in effect will be readjusted to the Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received.
If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor for purposes of this Warrant will be the amount received by
the Company therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Company in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as is attributable
to such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise
Price. No adjustment to the Exercise
Price will be made (i) upon the exercise of any warrants, options or convertible
securities granted, issued and outstanding on the date of issuance of this
Warrant or issued pursuant to the Securities Purchase Agreement; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the independent members of the Board of Directors of
the Company or a majority of the members of a committee of independent directors
established for such purpose; or (iii) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (including cash) to holders of Common
Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or
distributions payable in cash out of retained earnings) to the holders of the
Common Stock;
(ii) the Company shall offer for subscription
pro rata to the holders of the Common
Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification
of the Common Stock, or consolidation or merger of the Company with or into, or
sale of all or substantially all
its assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up
of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall
mean the number of shares of Common
Stock actually outstanding (not including shares of Common Stock held in the
treasury of the Company), plus (x) pursuant to Paragraph 4(b)(i) hereof, the
maximum total number of shares of Common Stock issuable upon the exercise of
Options, as of the date of such issuance or grant of such Options, if any, and
(y) pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of Convertible Securities, as
of the date of issuance of such Convertible Securities, if any.
(ii) AMarket Price,@ as of any date, (i) means
the average of the last reported
sale prices for the shares of Common Stock on the American Stock Exchange (the
"AMEX") for the five (5) trading days immediately preceding such date as
reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if the AMEX is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Corporation or, at the option of a majority-in-interest of
the holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
(iii) "Common Stock," for purposes of this
Paragraph 4, includes the Common Stock,
par value $.001 per share, and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, par value $.001 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(e)
hereof, the stock or other securities or property provided for in such
Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in accordance
with the provisions of that certain Registration Rights Agreement, dated as of
December 31, 1997, by and among the Company and the other signatories thereto
(the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company (including the posting of a bond, if reasonably
requested by the Company), or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees or any expenses incurred in connection with the posting of
a bond pursuant to Paragraph 7(c) above) and charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Paragraph
7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
Aaccredited investor@ as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an Aaccredited investor@
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant
(and certain assignees thereof) is
entitled to the benefit of such registration rights in respect of the
Warrant Shares as are set forth in Section 2 of the Registration Rights
Agreement.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 0000 Xxxxxxx Xxxxx, Xxxxx
000, Xxxxx Xxxxx, Xxxxxxxxxx 00000, Attention: Chief Executive Officer, or at
such other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE BODY OF LAW
CONTROLLING CONFLICTS OF LAW.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision
hereof may only be amended by an
instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings
of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the
meaning or construction of any of
the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder=s intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a ACashless Exercise@).
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SABA PETROLEUM COMPANY
By: ________________________________
Name:
Title:
Dated as of _________________________
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________________
Signature: ________________________________
Address: ________________________________
--------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
------------------
Name: ___________________________________
Signature: _________________________
Title of Signing Officer or Agent (if any):
-----------------------------------
Address: ___________________________
---------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
EXHIBIT 10.1 (E)
Exhibit "E" to the Securities Purchase Agreement filed herewith as Exhibit 10.1,
Opinion Letter to Transfer Agent [filed as Exhibit 10.1(C)(2) herewith and
incorporated herein by this reference]
EXHIBIT 10.1(F)
Schedule 3(a)
to the
SECURITIES PURCHASE AGREEMENT
Subsidiaries of the Company
and the Jurisdiction in which each is Incorporated
A. Wholly-owned
Saba Petroleum, Inc., a California corporation Saba Petroleum Company
of Michigan, Inc., a Michigan corporation Saba Energy of Texas, Inc., a
Texas corporation Saba Exploration Company, a California corporation
Saba Cayman Limited , a Cayman Islands corporation Sabacol, Inc., a
Delaware corporation Saba International Limited, a Delaware corporation
Santa Xxxxx Refining Company, a California corporation Saba Realty,
Inc., a California corporation
B. Partially-owned
Beaver Lake Resources Corporation, a Canadian corporation
C. Affiliates and Indirect Subsidiaries
MV Ventures, a Texas general partnership Saba Jatiluhur Limited, a
Cayman Islands corporation wholly owned
by Saba Cayman Limited
Saba Petroleum (U.K.) Limited, a United Kingdom corporation wholly
owned by Saba Cayman Limited
Processing Agreement between Santa Xxxxx Refining Company and
Petro Source Refining Corporation dated May 1, 1995
Schedule 3(c)
to the
SECURITIES PURCHASE AGREEMENT
Securities of the Company
1. Reference is made to Item 1 of the Annual Report on Form 10-KSB of the
Company for the year ended December 31, 1996. As disclosed therein, the
Company may have failed to abide by requirements for cumulative voting and
may have failed to accord preemptive rights to its shareholders.
2. The Company has outstanding options and rights under its employee and
director stock option plans and under employment contracts with key
personnel, including employees and certain present and former consultants,
covering 1,228,000 shares of the common stock of the company, some of which
require such shares to be registered under the Securities Act of 1933 and
listed on the Exchange.
3. Under its 9% Senior Subordinated Convertible Debentures, the holders have
the right to convert the existing Debentures ($3,664,000 principal amount)
into approximately 837,500 shares of the common stock. If conversion of the
Preferred Stock results in a change of control, the debentures are
redeemable at 102%.
4. Under the drilling arrangement described in Item 2 of Schedule 3(l), the
Company has orally agreed to issue 20,000 shares of the common stock for no
additional consideration, should the test well drilled on the Behemoth
Prospect be productive in quantities deemed commercial by the Company.
5. Several months ago, the Company was contacted by the Federal Bureau of
Investigations which had conducted an inquiry at that time into the trading
practices of the Company's common stock. To the Company's knowledge, the
inquiry did not discover any violations executed by Xxxxx Xxxxxxxxx or the
Company.
6. In August, 1997, the American Stock Exchange contacted the Company to
advise of its routine review of transactions effected in the Company's
common stock during a period of increased price and volume activity. In
response to the Exchange's request, the Company verified whether specific
parties named by the Exchange had any affiliation or relationship with the
Company or any of its officers, directors, and agents. To the Company's
knowledge, the inquiry did not reveal any violations of law or Exchange
rules.
7. The Finders Agreement issued herewith grants certain registration rights in
connection with the issuance of shares to the finder.
Schedule 3(e)
to the
SECURITIES PURCHASE AGREEMENT
1. Assuming that the Investor is an accredited investor and is not an
underwriter with respect to the Securities, there are no exceptions to this
Schedule, other than that noted as item 2 below and that the Company will
file a Form D with the SEC and will apply for listing of the common stock
underlying the Securities on the American Stock Exchange.
2. The consent of BankOne, Texas N.A. is necessary to permit the Company to
enter into, and perform its obligations under, the
Agreement and the other agreements contemplated hereby. The limited
conditional consent of BankOne, Texas N.A. is attached
hereto and incorporated herein.
3. The consent of the American Stock Exchange will be required if the number
of shares issued pursuant to this transaction exceeds 20% of the shares
outstanding at the closing of this offering.
Saba Petroleum Company
January 13, 1998
Page 2
December 31, 1997
Saba Petroleum Company
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Re: Consent to Preferred Stock Transaction
Dear Xx. Xxxxx:
Saba Petroleum Company has furnished us with a Final Summary
of Offering dated December 15, 1997 between Saba and Aberfoyle Capital Limited
(the "Summary of Offering"), a copy of which is attached to this letter as
Exhibit A. The Bank understands that, pursuant to the Summary of Offering, Saba
and an affiliate of Xxxx Xxxxx Capital, LLC have extensively negotiated
voluminous documents which, when executed and delivered, will document the
transaction ("Transaction Documents") contemplated by the Summary of Offering.
The Bank understands that the Transaction Documents contain
provisions which require under certain circumstances and permit under other
circumstances Saba to redeem for cash the preferred stock and warrants which are
being issued pursuant to the Transaction Documents and to pay dividends on the
preferred stock. The Bank has not been requested to review in detail the
Transaction Documents and has not done so. The Bank hereby consents to the
issuance of the preferred stock and warrants, including provisions for the
redemption thereof and the payment of dividends on the preferred stock;
provided, however, that the payment of dividends and the redemption of the
preferred stock or warrants shall not be permitted if either: (a) an Event of
Default of which the Bank has given written notice to Saba under the terms of
the First Amended and Restated Loan Agreement dated September 23, 1996, as
amended from time to time, among the Bank and Saba et al. (the "Loan Agreement")
has occurred and is continuing, or (b) as the result of any such payment or
redemption, a material Event of Default or Unmatured Event of Default would
occur under any of Sections 5.20, 5.21 or 5.22 of the Loan Agreement.
This consent is delivered pursuant and subject to that certain
amendment of even date herewith for the Loan Agreement. The foregoing consent
does not preclude the Bank from hereafter exercising any rights possessed by it
under the Loan Agreement and this consent is limited to the items contained in
the preceding paragraph.
Very truly yours,
BANK ONE, TEXAS, N.A.
By:/s/Xxxxxx X. Meilburger
Xxxxxx X. Xxxxxxxxx
Senior Vice President
December 31, 1997
Saba Petroleum Company
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xx. Xxxxxx X. Xxxxx
RE: Amendment of First Amended and Restated Loan
Agreement dated September 23, 1996, as
amended, among Saba Petroleum Company et al. and
Bank One, Texas, N.A. (the "Loan Agreement")
Dear Xx. Xxxxx:
Saba Petroleum Company ("Saba") has asked that Bank One,
Texas, N.A. ("Bank One") consent to the Preferred Stock Sale transaction (herein
called the "Transaction") that is outlined on the Final Summary of Offering
dated December 15, 1997 (the "Summary of Offering"), which is attached as
Exhibit "A" to the form of consent letter that is attached hereto as Schedule 1
(the "Consent Letter"), and extend the maturity dates of the Term Note and the
Mezzanine Note. Bank One is willing to do so, subject to the following terms and
conditions.
1. Consent. Upon satisfaction of the conditions set
forth in paragraph 2 hereof, Bank One
shall contemporaneously execute and deliver the Consent Letter to Saba.
2. Conditions to Consent.
a. Closing of the Transaction. The Consent
Letter and the amendments set forth
herein are effective and conditioned upon the contemporaneous closing of the
Transaction.
b. Transaction Documents. Bank One's
execution and delivery of the Consent
Letter is further conditioned on Saba's representation, and Saba does hereby
represent, that: (i) the Summary of Offering substantially describes the terms
of the Transaction insofar as it relates to dividends payable with respect to
the Preference Shares (as defined in the Summary of Offering) and the redemption
of the Preference Shares, and (ii) there are no variances between the terms of
the definitive documentation to be executed by Saba to implement the Transaction
and those set forth in the Summary of Offering that would materially, adversely
affect either Saba's Obligations to Bank One, Bank One's rights with respect to
Saba, or Bank One's remedies upon the occurrence of an Event of Default or an
Unmatured Event of Default.
c. Application of Proceeds. Contemporaneously
with Saba's consummation of the
Transaction, Saba shall pay to Bank One the principal sum of $7,000,000.00, to
be credited to the outstanding principal balance of the Term Loan evidenced by
the Term Note, together with a fee in the amount of $113,755.38 (being 2% of the
principal balance remaining under the Term Note and the Mezzanine Note
subsequent to the effective date of this Amendment), as consideration for the
consents, waivers and amendments agreed to herein by Bank One, and the remaining
proceeds, net of direct costs associated with this transaction, are to be
applied within thirty (30) days to trade payables incurred in connection with
Borrower's operation and development of its oil and gas properties
x. Xxxxxx Lake Resources. Saba agrees that
the pledge of its interest in the
Beaver Lake stock, the escrow agreement relating thereto, and the Sabacol stock,
as provided in the Fifth Amendment, shall, within ten (10) Business Days from
the date hereof, be fully perfected and implemented as set forth in Section
3.17(d) and (e) and Section 5.36 of the Loan Agreement, as added by the Fifth
Amendment.
3. Amendment of Maturity Dates. Saba and Bank One hereby agree
that the Mezzanine Loan Maturity Date is amended from January 2, 1998, to become
April 30, 1998, and that the Term Loan Maturity Date is amended from December
31, 1997, to become April 30, 1998.
4. Article V shall be amended by adding the following
new Section 5.37:
5.37 Special Principal Payments. The Borrower shall reduce the
outstanding principal balance of the Term Loan and the
Mezzanine Loan by a total of $3,000,000 on or before April 1,
1998 and, on or before June 1, 1998, shall reduce the
outstanding principal balance of the remaining Indebtedness
owed to Bank One by an additional amount equal to the greater
of: (a) $3,000,000; or (b) an amount sufficient to reduce the
balance of Borrower's outstanding Indebtedness to Bank One
plus the unfunded Revolving Commitment to such an amount that
can be fully repaid by the net cash flow projected by Bank One
to be received by Borrower from the sale of oil and gas
produced from the Borrowing Base Properties within the
Economic Half Life of the Borrowing Base Properties as
determined by Bank One, in its sole discretion, using its
then-prevailing credit criteria, exclusive of the required
reductions of the Borrowing Base described in Section 2.03.
5. Other Amendments to Loan Documents. Saba agrees that it
shall cooperate and negotiate in good faith with Bank One subsequent to the
execution of this Agreement in order to reach agreement, and enter into
documentation in form and substance satisfactory to Bank One, regarding
additional amendments to the following provisions of the Loan Agreement:
a. Section 5.34 shall be amended to take into
account the payment credited to the
Term Loan pursuant to this Amendment, and to adjust the obligations with respect
to the application of future funds raised by Saba as between the Mezzanine Loan
and the Term Loan.
If requested by Bank One, Saba shall, and Saba shall cause
each of its Subsidiaries that are parties to the Loan Agreement to, authorize,
approve and enter into, on or before January 31, 1998, a more definitive
amendment document and any implementing documentation contemplated thereby, in
order to more fully set forth and/or implement the provisions of this Amendment.
6. Ratification of Guaranties. Each Guarantor hereby ratifies
and confirms its liability under the Guaranty heretofore executed by it, and,
except as stated to the contrary in this paragraph, confirms and agrees that
such Guaranty continues in full force and effect with respect to all of the
Indebtedness covered by the Loan Agreement, as the same may be restated,
amended, modified, renewed, or rearranged from time to time, including, but not
limited to, the Indebtedness evidenced by the Note, the Term Note and the
Mezzanine Note; provided, however, that the Guaranty of Sabacol relates only to
the Indebtedness evidenced by the Term Note and the Mezzanine Note, and the
Guaranty of Xxxxx Xxxxxxxxx relates only to the Indebtedness evidenced by the
Mezzanine Note and the Term Note. This ratification is given for the purpose of
inducing Bank One to enter into this Amendment and each Guarantor is aware that,
but for such ratification and agreement contained herein, Bank One would not
enter into this Amendment.
7. Reaffirmation of Representations and Warranties. To induce
Bank One to enter into this Amendment, Saba and each Guarantor hereby reaffirms,
as of the date hereof, its representations and warranties contained in Article
IV of the Loan Agreement and in all other documents executed pursuant thereto,
and additionally represents and warrants as follows:
a. The execution and delivery of this
Amendment and the performance by Saba and
each Guarantor of its obligations under this Amendment are within Saba's and
each Guarantor's power, have been duly authorized by all necessary corporate
action, have received all necessary governmental approval (if any shall be
required), and do not and will not contravene or conflict with any provision of
law or of the charter or by-laws of Saba or any Guarantor or of any agreement
binding upon Saba or any Guarantor.
b. The Loan Agreement as amended by this
Amendment and each Guaranty,
respectively, as ratified hereby, represent the respective legal, valid and
binding obligations of Saba and each respective Guarantor, enforceable against
each in accordance with their respective terms, subject as to enforcement only
to bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
c. No Event of Default or Unmatured Event
of Default has occurred and is continuing as of the date hereof.
8. Defined Terms. Except as amended hereby, terms
used herein that are defined in the Loan Agreement shall have the same
meanings herein.
9. Reaffirmation of Loan Agreement. This Amendment shall be
deemed to be an amendment to the Loan Agreement, and the Loan Agreement, as
further amended hereby, is hereby ratified, approved and confirmed in each and
every respect. All references to the Loan Agreement herein and in any other
document, instrument, agreement or writing shall hereafter be deemed to refer to
the Loan Agreement as amended hereby.
10. Entire Agreement. The Loan Agreement, as hereby further
amended, and the respective Guaranty of each Guarantor, embody the entire
agreement between Saba, the Guarantors and Bank One and supersedes all prior
proposals, agreements and understandings relating to the subject matter hereof.
Saba and each Guarantor certifies that it is relying on no representation,
warranty, covenant or agreement except for those set forth in the Loan Agreement
as hereby further amended and the other documents previously executed or
executed of even date herewith.
11. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. This Amendment has been entered into in
Xxxxxx County, Texas, and it shall be performable for all purposes in Xxxxxx
County, Texas. Courts within the State of Texas shall have jurisdiction over any
and all disputes between Saba and Bank One, whether in law or equity, including,
but not limited to, any and all disputes arising out of or relating to this
Amendment or any other Loan Document; and venue in any such dispute whether in
federal or state court shall be laid in Xxxxxx County, Texas.
12. Severability. Whenever possible each provision of this
Amendment shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Amendment.
13. Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument,
and any signed counterpart shall be deemed delivered by the party executing such
counterpart if sent to any other party hereto by electronic facsimile
transmission.
14. Section Captions. Section captions used in this
Amendment are for convenience of reference only, and shall not affect the
construction of this Amendment.
15. Successors and Assigns. This Amendment shall be binding
upon Saba, each Guarantor and Bank One and their respective successors and
assigns, and shall inure to the benefit of Saba, each Guarantor and Bank One,
and the respective successors and assigns of Bank One.
16. Non-Application of Chapter 15 of Texas Credit Codes. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to the Loan Agreement as hereby further amended or any of the
other Loan Documents or to the transactions contemplated hereby.
17. Notice. In connection with the Loans, Saba, Bank One and
the Guarantors have executed and delivered certain agreements, instruments and
documents (collectively hereinafter referred to as the "Written Loan
Agreement"). It is the intention of Saba, Bank One and the Guarantors that this
provision be incorporated by reference into each of the written agreements,
instruments and documents comprising the Written Loan Agreement. Saba, Bank One
and the Guarantors each warrant and represent that the entire agreement made and
existing by or among Saba, Bank One and the Guarantors with respect to the Loans
is contained within the Written Loan Agreement, as amended and supplemented
hereby, and that no agreements or promises have been made by, or exist by or
among, Saba, Bank One and Guarantors that are not reflected in the Written Loan
Agreement. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
18. Event of Default. It shall constitute an Event of
Default under the Loan Agreement if Saba shall fail to perform any of its
obligation set forth in this Agreement.
BANK ONE TEXAS, N.A.
By:/s/Xxxxxx X. Meilburger
Xxxxxx X. Xxxxxxxxx,
Senior Vice President
ACCEPTED AND AGREED TO THIS
30TH DAY OF DECEMBER, 1997:
SABA PETROLEUM COMPANY
By:/s/Walton C. Xxxxx
XXXXXX X. XXXXX,
Secretary
SABA ENERGY OF TEXAS, SABA PETROLEUM OF MICHIGAN, INC.
INCORPORATED
By:/s/Xxxxxx X. Xxxxx By:/s/Walton C. Xxxxx
XXXXXX X. XXXXX, XXXXXX X. XXXXX
Secretary Secretary
SABA PETROLEUM, INC. MV VENTURES, G.P.
By: Saba Energy of Texas,
Incorporated,
Managing Partner
By:/s/Walton C. Xxxxx
XXXXXX X. XXXXX,
Secretary By:/s/Walton C. Xxxxx
XXXXXX X. XXXXX,
Secretary
SABACOL, INC.
/s/Xxxxx Xxxxxxxxx
By:/s/Xxxxxx X. Xxxxx XXXXX XXXXXXXXX
XXXXXX X. XXXXX,
Secretary
Schedule 3(f)
to the
SECURITIES PURCHASE AGREEMENT
SEC Late Filings
1994 10-KSB
1995 10-QSB, 2nd Quarter
1995 10-QSB, 3rd Quarter
1995 00-XXX
0000 00-XXX
1997 10-QSB, 1st Quarter
1997 10-QSB, 2nd Quarter
Schedule 3(g)
to the
SECURITIES PURCHASE AGREEMENT
Absence of Certain Changes
Since the filing of its report on Form 10-QSB for the third quarter
1997, the Company has ascertained that its 1997 California drilling program has
not yet met initial expectations. In particular, the Company has drilled three
xxxxx into a previously waterflooded area of its Cat Canyon property, with the
expectation that the ratio of water to produced oil would rapidly decline. The
Company has not noticed any significant decline to date.
During 1997, the Company drilled a dry well in its Casmalia property,
which well had been classified as a development well.
During 1997, production rates of the discovery well on the Company's
Southwest Xxxxx prospect in New Mexico have declined, and the lower zone in
which the well was completed will be abandoned and upper zones opened.
During 1997, the Company's Canadian subsidiary, Beaver Lake Resources
Corporation, recompleted an over-budget well on its Eaglesham property, the
results of which are undetermined but not promising. Beaver Lake lacks
sufficient cash to pay the total cost of the well and is presently indebted in
the amount of approximately US$1.1 million attributable to that activity.
Proceeds of the Company's credit facility are not available to pay such
indebtedness. The Company is presently in negotiations to sell a portion of its
equity holdings in Beaver Lake Resources Corporation to an unaffiliated
purchaser.
Schedule 3(h)
to the
SECURITIES PURCHASE AGREEMENT
Pending Proceedings
(Page 1 of 3)
A. Weld County Oilfield Waste Disposal Operating Group v. Bordeaux
Petroleum Company
The Company received notice of a claim against it based upon its
alleged disposal of oil field waste materials at a waste disposal site.
Amoco, HS Resources and Xxxxxxx Oil and Gas, all PRP, submitted a
proposed settlement agreement in March 1997 in regards to the cleanup
of the disposal of hazardous substances hauled to WCWDI by former
customers including the Company. A proposed settlement agreement and
copies of EPA Administrative Orders were delivered to the Company. The
settlement agreement proposed that the Company participate in the
percentage of 0.05%, or $4,001 in exchange for which the Company would
receive an indemnification from certain future exposures; the indemnity
was unacceptably narrow in scope and was rejected by the Company. The
Company counter-offered with a settlement contribution of $2,000. The
matter is still pending.
B. Republic Bank x. Xxxx Petroleum Company
This is a suit under statutory provisions requiring an oil and gas
lessee to release that portion of the surface not required for oil and
gas operations. Republic Bank filed its Complaint in November 1997, and
the Company is seeking a settlement to quiet title which may result in
its obligation to plug three xxxxx on the property at the approximate
total cost of $120,000 ($40,000 per well), the Company's share of which
may not exceed $60,000.
C. Internal Revenue Service Audit
In its review of the Company's payroll tax and information returns for
the years ended 1993-1995, the Internal Revenue Service proposed
adjustments based upon the assertions that the Company misclassified as
independent contractors various persons who were employees of the
Company, that the Company did not withhold income taxes from payments
made to such persons, and that the Company failed to file its
information returns timely. In addition, the Service proposed to impose
interest and penalties on the Company. The matter has been under review
by the Company and the Service. The Company filed a protest letter with
the IRS on November 21, 1997. The Company believes that its ultimate
exposure as a result of these matters should not exceed $200,000 and
expects that, when the matter is adjusted, the California Franchise Tax
Board will adopt a similar stance; the
Schedule 3(h)
to the
SECURITIES PURCHASE AGREEMENT
Pending Proceedings
(Page 2 of 3)
Company believes that its exposure under the latter will not exceed
$70,000. The Company has made a preliminary provision for these
contingencies in its third quarter 1997 financial statements in the
amount of $75,000 and will consider adjusting that amount in fourth
quarter 1997 based upon its assessment of the matter at that time.
X. Xxxxxx Office Lease
The Company has been advised that the premises occupied by its
accounting staff in Irvine, California may have been constructed or
remodeled without the requisite building permits being secured by the
owner of the premises, who is not affiliated with the Company. If such
is the case, the Company may be required to vacate the premises. The
Company intends to assert a claim against its landlord and perhaps
others with respect to the foregoing.
E. Xxxx Xxxxxxx
In connection with a proposed acquisition of properties of SolvEx
Corporation, the Company loaned $100,000 to SolvEx, which loan was
guaranteed by Xxxx Xxxxxxx, Chief Executive Office and a principal
shareholder of SolvEx. SolvEx has filed for reorganization and
collection of the loan, which is in default, from SolvEx is
questionable. The Company recently commenced an action in Santa Xxxxxxx
County Superior Court to realize upon the guarantee. The responsive
pleading is due shortly.
F. Santa Xxxxxxx County Land Use Matters
In early 1997, the Company received a letter from the office of the
District Attorney of Santa Xxxxxxx County, which threatened
commencement of legal proceedings based upon the Company's failure to
respond to demands that it observe requirements of a land use permit
previously issued to it authorizing the transportation of natural gas
produced from its Cat Canyon properties to its Santa Xxxxx refinery
through a pipeline system owned in part by the Company. The Company has
had discussions with representatives of the District Attorneys office
and the concerned local agencies and believes that it is in the process
of resolving the outstanding issues. The matter has been quiescent for
several months. The Company believes that it will ultimately be
required to make a nominal payment to the County to cover the cost of
staff personnel involved in the matter.
Schedule 3(h)
to the
SECURITIES PURCHASE AGREEMENT
Pending Proceedings
(Page 3 of 3)
G. Quiet Title Matter
The Company and a non-affiliated oil and gas operator have acquired top
leases on lands in Texas. The other company believes that the
underlying leases have expired and will be filing an action in Texas to
confirm that belief. The Company has authorized counsel for such
company to join the Company as a party plaintiff.
H. See Item 5 of Schedule 3(c)
Schedule 3(i)
to the
SECURITIES PURCHASE AGREEMENT
Intellectual Property
None
Schedule 3(k)
to the
SECURITIES PURCHASE AGREEMENT
Federal and State Tax Filings
See Item C of Schedule 3(h) for a discussion of the status of an Internal
Revenue Service review. None of the Company's federal and/or state income tax
returns are under review at this time.
Schedule 3(l)
to the
SECURITIES PURCHASE AGREEMENT
Certain Transactions
(Page 1 of 2)
1. Reference is made to the Company's definitive Proxy Statement for its
annual meeting held on May 30, 1997.
2. In November 1997, the Company entered into an agreement with Hamar II
Associates, LLC, an entity in which Xxxxxx X. Xxxx, a director of the
Company is a member, providing for the Company to participate in the
drilling of a test well on the Behemoth Prospect, Xxxxx County, California,
to bear a proportionate part of lease acquisition and maintenance payments
and to pay its proportionate share (30%) of a consideration of $100,000 to
members of Hamar, including Xxxxxx X. Xxxx. The terms of the transaction
applicable to the Company are the same as those applicable to Amerada Xxxx
Corporation, adjusted to the respective interests of the parties, that of
Amerada Xxxx Corporation being 60%. In addition, the Company orally has
agreed to issue 20,000 shares of its common stock should the test well be
commercially productive in the judgment of the Company.
3. During 1997, the Company explored the possibility of acquiring SolvEx
Corporation or certain of its properties and in connection
therewith loaned $100,000 to SolvEx. See Item E of Schedule 3(h). After
determining that it would be impracticable to acquire
SolvEx, the Company agreed with Capco Resources, an affiliate, to provide
to Capco the information that had been acquired by the
Company respecting SolvEx and its properties in exchange for Capco's
agreement to pay to the Company an overriding royalty and
option to buy an interest in certain properties of SolvEx, were Capco to
acquire the properties or the company. Neither of the
latter events has occurred. In the investigation and negotiations
respecting SolvEx, the Company and Capco had agreed that the
Company would bear the expenses incurred prior to August 13, 1997 and that
Capco would bear the expenses incurred subsequent to said date.
4. Amounts owed to the Company by the following affiliates were, as of
December 29, 1997, approximately as follows:
Xx. Xxxxxxxxx -- $404,000
Capco ---- $138,000
Schedule 3(l)
to the
SECURITIES PURCHASE AGREEMENT
Certain Transactions
(Page 2 of 2)
5. In connection with various borrowings from BankOne, Texas N.A., Xx.
Xxxxxxxxx has guaranteed payment of approximately $3,000,000 of the
Company's debt to such bank.
6. From time to time, the Company charters from a non-affiliate, an airplane
which is owned by Xx. Xxxxxxxxx. Such charters do not
normally include transportation for Xx. Xxxxxxxxx from his residence to
Company facilities. The Company has incurred charter
obligations to the non-affiliate of approximately $50,000 during 1997.
Schedule 3(q)
to the
SECURITIES PURCHASE AGREEMENT
Notices of Possible Permit Conflicts
A. Through its subsidiary, the Company discharges water from its
operations in Louisiana pursuant to a compliance order issued
by the Department of Environmental Quality ("DEQ"). The matter of
overboard discharge is controlled by the Environmental
Protection Agency, but regulated by the State of Louisiana through its
DEQ. Since the initial termination date of December
31, 1991, the DEQ has consistently granted extensions regarding the
matter of overboard discharge. The DEQ had granted the
Company an extension of its discharge permit through January 31, 1998.
In or about September 1997, the Company had been
notified by the DEQ, however, of its assertion that the Company's
permit had expired in September or October, 1997. A
determination of the latter may subject the Company to a stautory fine
assessed by the DEQ, the notification of which has
not been rendered by the DEQ. The Company has been conducting its
operations in compliance with the permit as it has
customarily done in the past. With an expected implementation in
January 1998, the Company has been making preparations to
convert a well to inject the water as an alernative means of disposal.
There has been continuous dialogue between the
Company and the DEQ to demonstrate the Company's intent to remain in
compliance with the DEQ.
B. See Item F of Schedule 3(h)
Schedule 3(r)
to the
SECURITIES PURCHASE AGREEMENT
Environmental Matters
(Page 1 of 3)
A. General.
In connection with the acquisitions of most of its properties,
including those in Colombia and in California, the Company has agreed
to indemnify the sellers from various environmental liabilities,
including those that are associated with the sellers' prior
obligations. Many of these properties have been in production during
years in which environmental controls were significantly more lax than
they are presently. While the Company generally conducts a limited
environmental investigation of the properties it acquires, it does not
conduct a detailed investigation and, accordingly, the Company may be
subject to requirements for remediation of environmental damage caused
by its predecessors. At the time of an acquisition, there may be
unknown conditions which subsequently may give rise to an environmental
liability. Consequently, it is difficult to assess the extent of the
Company's obligation under these indemnities. Further, the oil and gas
industry is also subject to environmental hazards, such as oil spills,
oil and gas leaks, ruptures and discharges of oil and toxic gases,
which could expose the Company to substantial liability for remediation
costs, environmental damages and claims by third parties for personal
injury and property damage.
B. Refinery Matters.
The party who sold the asphalt refinery in Santa Maria, California, to
the Company agreed to remediate portions of the refinery property by
June 1999. Prior to the acquisition of the refinery, the Company had an
independent consultant perform an environmental compliance survey for
the refinery. The survey did not disclose required remediation in areas
other than those where the seller is responsible for remediation, but
did disclose that it was possible that all of the required remediation
may not be completed in the five-year period. The Company, however,
believes that all required remediation will be completed by the seller
within the five-year period and has been working with the seller to
accomplish that objective. Should the seller not complete the work
during the five year period, the agreement may be interpreted to shift
the burden of remediation to the Company.
Schedule 3(r)
to the
SECURITIES PURCHASE AGREEMENT
Environmental Matters
(Page 2 of 3)
C. Property Matters.
In 1993, the Company acquired a producing mineral interest from a major
oil company. At the time of acquisition, the Company's investigation
revealed that a discharge of diluent (a light, oil-based fluid which is
often mixed with heavier grade crudes) had occurred on the acquired
property. The purchase agreement required the seller to remediate the
area of the diluent spill. After the Company assumed operation of the
property, the Company became aware of the fact that diluent was seeping
into a drainage area which traverses the property. The Company took
action to contain the contamination and requested that the seller bear
the cost of remediation. The seller has taken the position that its
obligation is limited to the specified contaminated area and that the
source of the contamination is not within the area that the seller has
agreed to remediate. The Company has commenced an investigation into
the source of the contamination to ascertain whether it is physically
part of the area which the major oil company agreed to remediate or is
a separate spill area. The Company also found a second area of diluent
contamination and is investigating to determine the source of that
contamination. Investigation and discussions with the seller are
ongoing. Should the Company be required to remediate the area itself,
the cost to the Company could be significant. The Company has spent
approximately $200,000 to date on remediation activities, and present
estimates are that the cost of complete remediation could approach
$800,000. Since the investigation is not complete, the Company is
unable to accurately estimate the cost to be borne by the Company.
In 1995, the Company agreed to acquire, for less than $50,000, an oil
and gas interest on which a number of oil xxxxx had been drilled by the
seller. None of the xxxxx were in production at the time of
acquisition. The acquisition agreement required that the Company assume
the obligation to abandon any xxxxx that the Company did not return to
production, irrespective of whether certain consents of third parties
necessary to transfer the property to the Company were obtained. The
Company has been unable to secure all of the requisite consents to
transfer the property but nevertheless may have the obligation to
abandon the xxxxx. The Company is evaluating its drilling options and
is considering whether to continue to attempt to secure the transfer
consents. A preliminary estimate of the cost of abandoning the xxxxx
and restoring the well sites is approximately $800,000. The Company has
been unable to determine its exposure to third parties if the Company
elects to plug such xxxxx without first obtaining necessary consents.
For
Schedule 3(r)
to the
SECURITIES PURCHASE AGREEMENT
Environmental Matters
(Page 3 of 3)
these and other reasons, there can be no assurance that material costs
for remediation or other environmental compliance will not be incurred
in the future. These environmental compliance costs could materially
and adversely affect the Company. In addition, the Company is generally
required to plug and abandon well sites on its properties after
production operations are completed. No assurance can be given that the
costs of closure of any of the Company's other oil and gas properties
would not have a material adverse effect on the Company.
D. Colombian Operations
In February 1997, the Company's rights to the Cocorna area expired in
accordance with the terms of the governing agreement, and this property
reverted to Ecopetrol. The Company and Omimex were required to perform
various environmental remedial operations, which Omimex advises have
been substantially, if not wholly, completed. The Company and Omimex
are waiting for an inspection of the Cocorna area by Colombian
officials to determine whether the government will require any further
remedial work. Based upon the advice of Omimex, the Company does not
anticipate any significant future expenditures associated with the
environmental requirements for the Cocorna area.
E. See Item F of Schedule 3(h)
F. See Item A of Schedule 3(q)
Schedule 3(s)
to the
SECURITIES PURCHASE AGREEMENT
Encumbrances or Defects on Title to Property
Most of the Company's oil and gas properties are held in the form of
mineral leases, licenses, reservations, concession agreements and similar
agreements. In general, these agreements do not convey a fee simple title to the
Company, but rather, depending upon the jurisdiction in which the apposite
property is situated, create lesser interests, varying from a profit a prendre
to a determinable interest in the minerals. In some jurisdictions, notably
non-US jurisdictions, the Company's interest is only a contractual relationship
and bestows no interest in the oil or gas in place. As is customary in the oil
and gas industry, a preliminary investigation of title is made at the time of
acquisition of undeveloped properties. Title investigations are generally
completed, however, before commencement of drilling operations or the
acquisition of producing properties. The Company believes that its methods of
investigating title to, and acquisition of, its oil and gas properties are
consistent with practices customary in the industry and that it has generally
satisfactory title to the leases covering its proved reserves.
Substantially all of the Company's properties, including its stock in
its subsidiaries Sabacol, Inc. and Beaver Lake Resources Corporation, are
hypothecated to secure the Company's current and future indebtedness to BankOne,
Texas N.A.. The assets of Santa Xxxxx Refining Company are hypothecated to
secure performance of environmental obligations to Conoco, Inc.
Schedule 4(d)
to the
SECURITIES PURCHASE AGREEMENT
Use of Proceeds
Payment of short-term
indebtedness to BankOne, Texas N.A. $ 7,000,000
Company working capital 2,500,000
Costs of this offering 500,000
$10,000,000
Schedule 4(e)
to the
SECURITIES PURCHASE AGREEMENT
List of Approved Underwriters
HSBC Securities, Inc.;
Xxxxxxx Xxxxx Barney;
Xxxxxxxx Xxxxxx & Xxxxx;
Xxxxxxxx Xxxxxx Refsnes, Inc.;
Xxx Xxxxxx & Company;
CIBC Xxxxxxxxxxx Corp.; and
any other underwriters of nationally recognized reputation and of at least
equivalent stature.
