EXHIBIT 10.11
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of September 20, 2004, by
and between Energas Resources, Inc., a Delaware corporation (the "Company"),
and Dutchess Private Equities Fund, II, L.P., a Delaware limited partnership
(the "Investor").
Whereas, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $10,000,000 to
purchase the Company's Common Stock, $0.001 par value per share (the "Common
Stock");
Whereas, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 Act"),
Rule 506 of Regulation D, and the rules and regulations promulgated
thereunder, and/or upon such other exemption from the registration
requirements of the 1933 Act as may be available with respect to any or all
of the investments in Common Stock to be made hereunder; and
Whereas, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (as amended
from time to time, 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.
NOW THEREFORE, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements
set forth hereafter, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company and the Investor
hereby agree as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings specified or indicated below, and such meanings shall be equally
applicable to the singular and plural forms of such defined terms.
"1933 Act" shall have the meaning set forth in the preamble, above.
"1934 Act" shall mean the Securities Exchange Act of 1934, as it may be
amended.
"Affiliate" shall have the meaning specified in Section 5(h), below.
"Agreement" shall mean this Investment Agreement.
"Best Bid" shall mean the highest posted bid price of the Common Stock.
"Buy In" shall have the meaning specified in Section 6, below.
"Buy In Adjustment Amount" shall have the meaning specified in Section
6.
"Closing" shall have the meaning specified in Section 2(h).
"Closing Date" shall mean seven (7) Trading Days following the Put
Notice Date for each traunche.
"Common Stock" shall have the meaning set forth in the preamble to this
Agreement.
"Control" or "Controls" shall have the meaning specified in Section
5(h).
"Covering Shares" shall have the meaning specified in Section 6.
"Effective Date" shall mean the date the SEC declares effective under
the 1933 Act the Registration Statement covering the Securities.
"Environmental Laws" shall have the meaning specified in Section 4(m).
"Execution Date" shall mean the date indicated in the preamble to this
Agreement.
"Indemnities" shall have the meaning specified in Section 11.
"Indemnified Liabilities" shall have the meaning specified in Section
11.
"Ineffective Period" shall mean any period of time that the
Registration Statement or any Supplemental Registration Statement (as defined
in the Registration Rights Agreement) becomes ineffective or unavailable for
use for the sale or resale, as applicable, of any or all of the Registrable
Securities (as defined in the Registration Rights Agreement) for any reason
(or in the event the prospectus under either of the above is not current and
deliverable) during any time period required under the Registration Rights
Agreement.
"Investor" shall have the meaning indicated in the preamble of this
Agreement.
"Material Adverse Effect" shall have the meaning specified in Section
4(a).
"Maximum Common Stock Issuance" shall have the meaning specified in
Section 2(I).
"Minimum Acceptable Price" with respect to any Put Notice Date shall
mean 90% of the average closing bid price for the ten Trading Day period
immediately preceding such Put Notice Date.
"Open Period" shall mean the period beginning on and including the
Trading Day immediately following the Effective Date and ending on the
earlier to occur of (i) the date which is thirty-six (36) months from the
Effective Date; or (ii) termination of the Agreement in accordance with
Section 9, below.
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"Pricing Period" shall mean the period beginning on the Put Notice Date
and ending on and including the date that is five (5) Trading Days after such
Put Notice Date.
"Principal Market" shall mean the American Stock Exchange, Inc., the
National Association of Securities Dealers, Inc. Over-the-Counter Bulletin
Board, the Nasdaq National Market System or the Nasdaq SmallCap Market,
whichever is the principal market on which the Common Stock is listed.
"Prospectus" shall mean the prospectus, preliminary prospectus and
supplemental prospectus used in connection with the Registration Statement.
"Purchase Amount" shall mean the total amount being paid by the
Investor on a particular Closing Date to purchase the Securities.
"Purchase Price" shall mean ninety-five percent (95%) of the lowest
closing Best Bid price of the Common Stock during the Pricing Period.
"Put Amount" shall have the meaning set forth in Section 2(b) hereof.
"Put Notice" shall mean a written notice sent to the Investor by the
Company stating the Put Amount in US dollars pursuant to the terms of the
Agreement and stating the current number of Shares issued and outstanding on
such date.
"Put Notice Date" shall mean the Trading Day immediately following the
day on which the Investor receives a Put Notice, however a Put Notice shall
be deemed delivered on (x) the Trading Day it is received by facsimile or
otherwise by the Investor if such notice is received prior to 9:00 am Eastern
Time, or (y) the immediately succeeding Trading Day if it is received by
facsimile or otherwise after 9:00 am Eastern Time on a Trading Day. No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"Put Restriction" shall mean the days between the end of the Pricing
Period and the date on which the investor deems the Put closed. During this
time, the Company shall not be entitled to deliver another Put Notice.
"Registration Period" shall have the meaning specified in Section 5(c),
below.
"Registration Rights Agreement" shall have the meaning set forth in the
recitals, above.
"Registration Statement" means the registration statement of the
Company filed under the 1933 Act covering the Common Stock issuable hereunder.
"Related Party" shall have the meaning specified in Section 5(h).
"Resolution" shall have the meaning specified in Section 8(e).
"SEC" shall mean the U.S. Securities & Exchange Commission.
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"SEC Documents" shall have the meaning specified in Section 4(f).
"Securities" shall mean the shares of Common Stock issued pursuant to
the terms of the Agreement.
"Shares" shall mean the shares of the Company's Common Stock.
"Sold Shares" shall have the meaning specified in Section 6.
"Subsidiaries" shall have the meaning specified in Section 4(a).
"Trading Day" shall mean any day on which the Principal Market for the
Common Stock is open for trading, from the hours of 9:30 am until 4:00 pm.
"Transaction Documents" shall mean this Agreement, the Registration
Rights Agreement, and each of the other agreements entered into by the
parties hereto in connection with this Agreement.
SECTION 2. PURCHASE AND SALE OF COMMON STOCK.
(A) PURCHASE AND SALE OF COMMON STOCK. Subject to the terms and conditions
set forth herein, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, up to that number of Shares having
an aggregate Purchase Price of $10,000,000.
(B) DELIVERY OF PUT NOTICES.
(I) Subject to the terms and conditions of the Transaction Documents, and
from time to time during the Open Period, the Company may, in its sole
discretion, deliver a Put Notice to the Investor which states the Put Amount
(designated in US dollars) which the Company intends to sell to the Investor
on a Closing Date. The Put Notice shall be in the form attached hereto as
Exhibit F and incorporated herein by reference. The amount that the Company
shall be entitled to Put to the Investor (the "Put Amount") shall be equal
to, at the Company's election, either: (A) up to 200% of the average daily
volume (U.S. market only) of the Common Stock for the ten (10) Trading Days
prior to the applicable Put Notice Date, multiplied by the average of the
three daily closing bid prices immediately preceding the Put Date, or (B)
$50,000; provided that in no event will the Put Amount be more than
$1,000,000 with respect to any single Put. During the Open Period, the
Company shall not be entitled to submit a Put Notice until after the previous
Closing has been completed. The Purchase Price for the Common Stock
identified in the Put Notice shall be equal to ninety-five percent (95%) of
the lowest closing bid price of the Common Stock during the Pricing Period.
(II) If any closing bid price during the applicable Pricing Period with
respect to that Put Notice is less than ninety percent (90%) of the average
closing bid price of the Common Stock for the ten Trading Days prior to the
Put Notice Date (the "Minimum Acceptable Price"), the Put Notice will
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terminate at the Company's request. In the event that the closing bid price
for the applicable Pricing Period is less than the Minimum Acceptable Price,
the Company may elect, by sending written notice to the Investor to cancel
the Put Notice.
(C) RESERVED
(D) INVESTOR'S OBLIGATION TO PURCHASE SHARES. Subject to the conditions set
forth in this Agreement, following the Investor's receipt of a validly
delivered Put Notice, the Investor shall be required to purchase from the
Company during the related Pricing Period that number of Shares determined by
dividing the lesser of:
(i) the Put Amount set forth in the Put Notice, or
(ii) 20% of the aggregate trading volume of the Common Stock during the
applicable Pricing Period multiplied by the lowest closing bid price
of the Company's Common Stock during the specified Pricing Period.
by the Purchase Price.
The Investor will be required to purchase the Shares so long as said
Shares do not bear any legend and are not subject to stop transfer
instructions.
(E) LIMITATION ON INVESTOR'S OBLIGATION TO PURCHASE SHARES. In no event shall
the Investor purchase Shares (whether from the Company or in public or
private secondary transactions) other than pursuant to this Agreement until
such date as this Agreement is terminated.
(F) CONDITIONS TO INVESTOR'S OBLIGATION TO PURCHASE SHARES. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled
to deliver a Put Notice and the Investor shall not be obligated to purchase
any Shares at a Closing (as defined in Section 2(h)) unless each of the
following conditions are satisfied:
(I) a Registration Statement shall have been declared effective and shall
remain effective and available for the resale of all the Registrable
Securities (as defined in the Registration Rights Agreement) at all times
until the Closing with respect to the subject Put Notice;
(II) at all times during the period beginning on the related Put Notice Date
and ending on and including the related Closing Date, the Common Stock shall
have been listed on the Principal Market and shall not have been suspended
from trading thereon for a period of five (5) consecutive Trading Days during
the Open Period and the Company shall not have been notified of any pending
or threatened proceeding or other action to suspend the trading of the Common
Stock;
(III) the Company has complied with its obligations and is otherwise not in
breach of a material provision of, or in default under, this Agreement, the
Registration Rights Agreement or any other agreement executed in connection
herewith which has not been corrected prior to delivery of the Put Notice
Date;
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(IV) no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and
(V) the issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market.
If any of the events described in clauses (i) through (v) above occurs during
a Pricing Period, then the Investor shall have no obligation to purchase the
Put Amount of Common Stock set forth in the applicable Put Notice.
(G) RESERVED
(H) MECHANICS OF PURCHASE OF SHARES BY INVESTOR. Subject to the satisfaction
of the conditions set forth in Sections 2(f), 7 and 8, the closing of the
purchase by the Investor of Shares or the Investor deeming a Put closed (a
"Closing") shall occur on the date which is no later than seven (7) Trading
Days following the applicable Put Notice Date for each traunche or when the
Investor deems a Put closed (each a "Closing Date"). On each Closing Date,
(I) the Company shall deliver to the Investor pursuant to this Agreement,
certificates representing the Shares to be issued to the Investor on such
date and registered in the name of the Investor; and (II) the Investor shall
deliver to the Company the Purchase Price to be paid for such Shares,
determined as set forth in Sections 2(b) and 2(d). In lieu of delivering
physical certificates representing the Securities the Company may use the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program through it's transfer agent to electronically transmit the Securities
by crediting the account of the Investor's prime broker (which shall be
specified by the Investor in a reasonably sufficient time in advance) with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. After
receipt of confirmation of delivery of Shares to the Investor, the Investor,
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company, will disburse the funds constituting
the Purchase Amount.
The Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic loss to the Investor. After the
Effective Date and as long as the Company receives the Put Settlement Sheet
(Exhibit G) on or before 8:00 AM eastern on the day following the end of the
Pricing Period, as compensation to the Investor for such loss, the Company
agrees to pay late payments to the Investor for late issuance of Securities
(delivery of Securities after the applicable Closing Date) in accordance with
the following schedule (where "No. of Days Late" is defined as the number of
trading days beyond the Closing Date. The Amounts are not cumulative.):
Late Payment for Each $10,000 of
Number of Days Late Common Stock
2 $200
3 $300
4 $400
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5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each
business day late beyond
11 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right
to pursue actual damages for the Company's failure to issue and deliver the
Securities to the Investor, except to the extent that such late payments
shall constitute payment for and offset any such actual damages alleged by
the Investor, and any Buy In Adjustment Amount.
(I) OVERALL LIMIT ON COMMON STOCK ISSUABLE. Notwithstanding anything
contained herein to the contrary, if during the Open Period the Company
becomes listed on an exchange that limits the number of shares of Common
Stock that may be issued without shareholder approval, then the number of
Shares issuable by the Company and purchasable by the Investor, including the
shares of Common Stock issuable to the Investors, shall not exceed that
number of the shares of Common Stock that may be issuable without shareholder
approval, subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalization affecting the
Common Stock (the "Maximum Common Stock Issuance"), unless the issuance of
Shares, including any Common Stock to be issued to the Investors pursuant to
Section 11(b), in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders in accordance with applicable law and
the By-laws and Amended and Restated Certificate of Incorporation of the
Company, if such issuance of shares of Common Stock could cause a delisting
on the Principal Market. The parties understand and agree that the Company's
failure to seek or obtain such shareholder approval shall in no way adversely
affect the validity and due authorization of the issuance and sale of
Securities or the Investor's obligation in accordance with the terms and
conditions hereof to purchase a number of Shares in the aggregate up to the
Maximum Common Stock Issuance limitation, and that such approval pertains
only to the applicability of the Maximum Common Stock Issuance limitation
provided in this Section 2(j).
SECTION 3. INVESTOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Investor represents and warrants to the Company, and covenants, that:
(A) SOPHISTICATED INVESTOR. The Investor has, by reason of its business and
financial experience, such knowledge, sophistication and experience in
financial and business matters and in making investment decisions of this
type that it is capable of (I) evaluating the merits and risks of an
investment in the Securities and making an informed investment decision; (II)
protecting its own interest; and (III) bearing the economic risk of such
investment for an indefinite period of time.
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(B) AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid
and binding agreement of the Investor enforceable against the Investor in
accordance with its terms, subject as to enforceability to general principles
of equity and to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
(C) SECTION 9 OF THE 1934 ACT. During the term of this Agreement, the
Investor will comply with the provisions of Section 9 of the 1934 Act, and
the rules promulgated thereunder, with respect to transactions involving the
Common Stock. The Investor agrees not to short, either directly or indirectly
through its affiliates, principals or advisors, the Company's common stock
during the term of this Agreement.
(D) ACCREDITED INVESTOR. Investor is an "Accredited Investor" as that term is
defined in Rule 501(a)(3) of Regulation D of the 1933 Act.
(E) NO CONFLICTS. The execution, delivery and performance of the Transaction
Documents by the Investor and the consummation by the Investor of the
transactions contemplated hereby and thereby will not result in a violation
of Partnership Agreement or other organizational documents of the Investor.
The Investor is not subject to any investigation or inquiry by the Securities
and Exchange Commission or any state securities agency and, to the knowledge
of the Investor, no such investigation or inquiry is pending.
(F) OPPORTUNITY TO DISCUSS. The Investor has received all materials relating
to the Company's business, finance and operations which it has requested. The
Investor has had an opportunity to discuss the business, management and
financial affairs of the Company with the Company's management.
(G) INVESTMENT PURPOSES. The Investor is purchasing the Securities for its
own account for investment purposes and not with a view towards distribution
and agrees to resell or otherwise dispose of the Securities solely in
accordance with the registration provisions of the 1933 Act (or pursuant to
an exemption from such registration provisions).
(H) NO REGISTRATION AS A DEALER. The Investor is not and will not be required
to be registered as a "dealer" under the 1934 Act, either as a result of its
execution and performance of its obligations under this Agreement or
otherwise.
(I) GOOD STANDING The Investor is a Limited Partnership, duly organized,
validly existing and in good standing in the State of Delaware.
(J) TAX ILABILITIES. The Investor understands that it is liable for its own
tax liabilities.
(K) REGULATION M. The Investor will comply with Regulation M under the 1934
Act, if applicable.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, or as disclosed on the
Company's SEC Documents, the Company represents and warrants to the Investor
that:
(A) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized and validly existing in good standing under the laws of the State
of Delaware, and has the requisite corporate power and authorization to own
its properties and to carry on its business as now being conducted. Both the
Company and the companies it owns or controls, its "Subsidiaries," are duly
qualified to do business and are in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any
material adverse effect on the business, properties, assets, operations,
results of operations, financial condition or prospects of the Company and
its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into
in connection herewith, or on the authority or ability of the Company to
perform its obligations under the Transaction Documents (as defined in
Section 1 and 4(b), below).
(B) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
(I) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, and each of
the other agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof.
(II) The execution and delivery of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and the
issuance of the Securities pursuant to this Agreement, have been duly and
validly authorized by the Company's Board of Directors and no further consent
or authorization is required by the Company, its Board of Directors, or its
shareholders.
(III) The Transaction Documents have been duly and validly executed and
delivered by the Company.
(IV) The Transaction Documents constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of creditors' rights and remedies.
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(C) CAPITALIZATION. As of August 31, 2004, the authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock, $0.001 par value
per share, of which 44,063,001 shares are issued and outstanding and
8,987,000 shares are reserved for issuance pursuant to options, warrants and
other convertible securities. All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and non-assessable.
Except as disclosed in the Company's publicly available filings or in this
agreement,
(I) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (II) there are no outstanding debt securities;
(III) there are no outstanding shares of capital stock, options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of
its Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries; (IV) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (V) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or
any of its Subsidiaries; (VI) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; (VII) the Company
does not have any stock appreciation rights or "phantom stock" plans or
agreements or any similar plan or agreement; and (VIII) there is no dispute
as to the classification of any shares of the Company's capital stock. The
Company has furnished to the Investor, or the Investor has had access through
XXXXX to, true and correct copies of the Company's Amended and Restated
Certificate of Incorporation, as in effect on the date hereof (the
"Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
(D) ISSUANCE OF SHARES. The Company has reserved 10,000,000 Shares for
issuance pursuant to this Agreement has been duly authorized and reserved for
issuance (subject to adjustment pursuant to the Company's covenant set forth
in Section 5(f) below) pursuant to this Agreement. Upon issuance in
accordance with this Agreement, the Securities will be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with
respect to the issue thereof. In the event the Company cannot register a
sufficient number of Shares for issuance pursuant to this Agreement, the
Company will use its best efforts to authorize and reserve for issuance the
number of Shares required for the Company to perform its obligations
hereunder as soon as reasonably practicable.
(E) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
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the transactions contemplated hereby and thereby will not (I) result in a
violation of the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or the By-laws; or (II) conflict with, or constitute a
material default (or an event which with notice or lapse of time or both
would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, contract, indenture mortgage, indebtedness or instrument to which
the Company or any of its Subsidiaries is a party, or to the Company's
knowledge result in a violation of any law, rule, regulation, order, judgment
or decree (including United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or
principal securities exchange or trading market on which the Common Stock is
traded or listed) 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 as disclosed in Schedule 4(e), neither the Company
nor its Subsidiaries is in violation of any term of, or in default under, the
Certificate of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or their organizational charter or by-laws, respectively, or any
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company
or its Subsidiaries, except for possible conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not
individually or in the aggregate have a Material Adverse Effect. The business
of the Company and its Subsidiaries is not being conducted, and shall not be
conducted, in violation of any law, statute, ordinance, rule, order or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the
sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act to the Company's knowledge, the
Company is not required to obtain any consent, authorization, permit or order
of, or make any filing or registration (except the filing of a registration
statement) with, any court, governmental authority or agency, regulatory or
self-regulatory agency or other third party in order for it to execute,
deliver or perform any of its obligations under, or contemplated by, the
Transaction Documents in accordance with the terms hereof or thereof. All
consents, authorizations, permits, 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 and are in full
force and effect as of the date hereof. Except as disclosed in Schedule 4(e),
the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will
not be, in violation of the listing requirements of the Principal Market as
in effect on the date hereof and on each of the Closing Dates and is not
aware of any facts which would reasonably lead to delisting of the Common
Stock by the Principal Market in the foreseeable future.
(F) SEC DOCUMENTS; FINANCIAL STATEMENTS. As of August 31, 2004, the Company
has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting
requirements of the 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 incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). The Company has delivered to
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the Investor or its representatives, or they have had access through XXXXX
to, true and complete copies of 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 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 exclude
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents,
including, without limitation, information referred to in Section 4(d) of
this Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Neither the Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have provided the Investor with any material,
nonpublic information which was not publicly disclosed prior to the date
hereof and any material, nonpublic information provided to the Investor by
the Company or its Subsidiaries or any of their officers, directors,
employees or agents prior to any Closing Date shall be publicly disclosed by
the Company prior to such Closing Date.
(G) ABSENCE OF CERTAIN CHANGES. Except as set forth in the SEC Documents,
the Company does not intend to change the business operations of the Company
in any material way. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or its Subsidiaries have any knowledge or
reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
(H) ABSENCE OF LITIGATION. Except as set forth in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the executive officers of Company or any of
its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.
(I) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of
arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or
12
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated hereby and thereby
and any advice given by the Investor or any of its respective representatives
or agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to the Investor's
purchase of the Securities. The Company further represents to the Investor
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.
(J) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES.
Except as set forth in the SEC Documents, since August 20, 2004, no event,
liability, development or circumstance has occurred or exists, or to the
Company's knowledge is contemplated to occur, with respect to the Company or
its Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws on a registration statement
filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly announced.
(K) EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company
nor any of its Subsidiaries is a party to a collective bargaining agreement,
and the Company and its Subsidiaries believe that relations with their
employees are good. No executive officer (as defined in Rule 501(f) of the
0000 Xxx) has notified the Company that such officer intends to leave the
Company's employ or otherwise terminate such officer's employment with the
Company.
(L) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. Except as set forth in the SEC
Documents, none of the Company's trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government authorizations, trade
secrets or other intellectual property rights necessary to conduct its
business as now or as proposed to be conducted have expired or terminated, or
are expected to expire or terminate within two years from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service xxxx registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth in
the SEC Documents, there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its Subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
xxxx registrations, trade secret or other infringement; and the Company and
its Subsidiaries are unaware of any facts or circumstances which might give
13
rise to any of the foregoing. The Company and its Subsidiaries have taken
commercially reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(M) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (I) are, to the
knowledge of management of the Company, in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"); (II) have, to the knowledge of management of the Company, received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses; and (III) are in
compliance, to the knowledge of the Company, with all terms and conditions of
any such permit, license or approval where, in each of the three foregoing
cases, the failure to so comply would have, individually or in the aggregate,
a Material Adverse Effect.
(N) TITLE. The Company and its Subsidiaries have 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 the SEC Documents or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its Subsidiaries. Any real property and facilities held
under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its Subsidiaries.
(O) INSURANCE. Each of the Company's Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as management of the Company reasonably believes to be prudent
and customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(P) REGULATORY PERMITS. The Company and its Subsidiaries have in full force
and effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate
their respective properties and assets and conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, approval, authorization or permit, except for such certificates,
approvals, authorizations or permits which if not obtained, or such
revocations or modifications which, would not have a Material Adverse Effect.
(Q) INTERNAL ACCOUNTING CONTROLS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
14
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.
(R) 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.
(S) TAX STATUS. The Company and each of its Subsidiaries has made or filed
all United States federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (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 provision reasonably
adequate for the payment of all taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.
(T) CERTAIN TRANSACTIONS. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof and except for arm's length
transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed in the
SEC Documents, 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.
(U) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of shares of Common Stock issuable upon purchases pursuant to this
Agreement will increase in certain circumstances including, but not
necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines during the period between the Effective Date and the
end of the Open Period. The Company's executive officers and directors have
studied and fully understand the nature of the transactions contemplated by
this Agreement and recognize that they have a potential dilutive effect. The
15
Board of Directors of the Company has concluded, in its good faith business
judgment that such issuance is in the best interests of the Company. The
Company specifically acknowledges that, subject to such limitations as are
expressly set forth in the Transaction Documents, its obligation to issue
shares of Common Stock upon purchases pursuant to this Agreement is absolute
and unconditional regardless of the dilutive effect that such issuance may
have on the ownership interests of other shareholders of the Company.
(V) RIGHT OF FIRST REFUSAL. During the term of this Agreement the Company
shall not, directly or indirectly, without the prior written consent of
Investor which will not be unreasonably withheld, enter into an additional
Equity Line of Credit agreement (a "Subsequent Financing") for a period of
one year after the Effective Date, unless (A) the Company delivers to
Investor a written notice (the "Subsequent Financing Notice") of its
intention to effect such Subsequent Financing, which Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised
thereunder, the person with whom such Subsequent Financing shall be effected,
and attached to which shall be a term sheet or similar document relating
thereto; and (B) Investor shall not have notified the Company by 5:00 p.m.
(New York time) on the fifth Trading Day after its receipt of the Subsequent
Financing Notice of its willingness to provide, subject to completion of
mutually acceptable documentation, financing to the Company on substantially
the terms set forth in the Subsequent Financing Notice.If Investor shall fail
to notify the Company of its intention to enter into such negotiations within
such time period, then the Company may effect the Subsequent Financing
substantially upon the terms set forth in the Subsequent Financing Notice;
provided that the Company shall provide Investor with a second Subsequent
Financing Notice, and Investor shall again have the right of first refusal
set forth above in this Section, if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within
thirty Trading Days after the date of the initial Subsequent Financing
Notice. The rights granted to Investor in this Section are not subject to any
prior right of first refusal given to any other person disclosed on Schedule
4(c).
(W) LOCK-UP. The Company shall cause its officers, insiders, directors, and
affiliates or other related parties under control of the Company, to refrain
from selling Common Stock during each Pricing Period.
(X) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation
D) in connection with the offer or sale of the Common Stock offered hereby.
(Y) NO BROKERS, FINDERS OR FINANCIAL ADVISORY FEES OR COMMISSIONS will be
payable by the Company with respect to the transactions contemplated by this
Agreement.
16
SECTION 5. COVENANTS OF THE COMPANY
(A) BEST EFFORTS. The Company shall use commercially reasonable efforts
timely to satisfy each of the conditions to be satisfied by it as provided in
Section 7 of this Agreement.
(B) BLUE SKY. The Company shall, at its sole cost and expense, on or before
each of the Closing Dates, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Investor at each of the Closings pursuant to
this Agreement under applicable securities or "Blue Sky" laws of such states
of the United States, as reasonably specified by Investor, and shall provide
evidence of any such action so taken to the Investor on or prior to the
Closing Date.
(C) REPORTING STATUS. Until the earlier to occur of (I) the first date
which is after the date this Agreement is terminated pursuant to Section 9
and on which the Holders (as that term is defined in the Registration Rights
Agreement) may sell all of the Securities without restriction pursuant to
Rule 144(k) promulgated under the 1933 Act (or successor thereto); and (II)
the date on which (A) the Holders shall have sold all the Securities; and (B)
this Agreement has been terminated pursuant to Section 9 (the "Registration
Period"), the Company shall file all reports required to be filed with the
SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as a reporting company under the 1934 Act.
(D) USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes and
acquisitions or assets, businesses or operations or for other purposes that
the Board of Directors deem to be in the best interest of the Company.
(E) FINANCIAL INFORMATION. The Company agrees to make available to the
Investor via XXXXX or other electronic means the following to the Investor
during the Registration Period: (I) within five Trading Days after the filing
thereof with the SEC, a copy of its Annual Reports on Form 10-KSB, its
Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
Registration Statements or amendments filed pursuant to the 1933 Act; (II) on
the same day as the release thereof, copies of all press releases issued by
the Company or any of its Subsidiaries; (III) copies of any notices and other
information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to
the shareholders; and (IV) within two calendar days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to,
the Principal Market, any securities exchange or market, or the National
Association of Securities Dealers, Inc., unless such information is material
nonpublic information.
(F) RESERVATION OF SHARES. Subject to the following sentence, the Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the issuance of the Securities hereunder. In the event that the
Company determines that it does not have a sufficient number of authorized
shares of Common Stock to reserve and keep available for issuance as
described in this Section 5(f), the Company shall use its best efforts to
17
increase the number of authorized shares of Common Stock by seeking
shareholder approval for the authorization of such additional shares.
(G) LISTING. The Company shall promptly secure and maintain the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon the Principal Market and each other national securities
exchange and automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. Neither the Company
nor any of its Subsidiaries shall take any action which would be reasonably
expected to result in the delisting or suspension of the Common Stock on the
Principal Market (excluding suspensions of not more than one trading day
resulting from business announcements by the Company). The Company shall
promptly provide to the Investor copies of any notices it receives from the
Principal Market regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 5(g).
(H) TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall cause
each of its Subsidiaries not to, enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement, any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, persons who were officers or directors at
any time during the previous two years, shareholders who beneficially own 5%
or more of the Common Stock, or affiliates or with any individual related by
blood, marriage or adoption to any such individual or with any entity in
which any such entity or individual owns a 5% or more beneficial interest
(each a "Related Party"), except for (I) customary employment arrangements
and benefit programs on reasonable terms, (II) any agreement, transaction,
commitment or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, or (III) any agreement, transaction, commitment or arrangement
which is approved by a majority of the disinterested directors of the
Company. For purposes hereof, any director who is also an officer of the
Company or any Subsidiary of the Company shall not be a disinterested
director with respect to any such agreement, transaction, commitment or
arrangement. "Affiliate" for purposes hereof means, with respect to any
person or entity, another person or entity that, directly or indirectly, (I)
has a 5% or more equity interest in that person or entity, (II) has 5% or
more common ownership with that person or entity, (III) controls that person
or entity, or (IV) is under common control with that person or entity.
"Control" or "Controls" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
(I) FILING OF FORM 8-K. On or before the date which is three Trading Days
after the Execution Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents in the form required by the 1934 Act, if such filing is
required.
(J) CORPORATE EXISTENCE. The Company shall use its best efforts to preserve
and continue the corporate existence of the Company.
18
(K) NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO
MAKE A PUT. The Company shall promptly notify Investor upon the occurrence of
any of the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (I) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or
related prospectus; (II) the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness
of any Registration Statement or the initiation of any proceedings for that
purpose; (III) receipt of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Securities
for sale in any jurisdiction or the initiation or notice of any proceeding
for such purpose; (IV) the happening of any event that makes any statement
made in such Registration Statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case
of a Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and (V) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate, and the Company shall promptly
make available to Investor any such supplement or amendment to the related
prospectus. The Company shall not deliver to Investor any Put Notice during
the continuation of any of the foregoing events.
(L) REIMBURSEMENT. If (I) Investor becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the
Company, in connection with or as a result of the consummation of the
transactions contemplated by the Transaction Documents, or if Investor is
impleaded in any such action, proceeding or investigation by any person
(other than as a result of a breach of the Investor's representations and
warranties set forth in this Agreement); or (II)Investor becomes involved in
any capacity in any action, proceeding or investigation brought by the SEC
against or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Documents
(other than as a result of a breach of the Investor's representations and
warranties set forth in this Agreement), or if Investor is impleaded in any
such action, proceeding or investigation by any person, then in any such
case, the Company will reimburse Investor for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred
in connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this section shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms and conditions to any affiliates of Investor that are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees, attorneys, accountants, auditors and controlling persons (if any),
as the case may be, of Investor and any such affiliate, and shall be binding
upon and inure to the benefit of any successors of the Company, Investor and
any such affiliate and any such person.
19
SECTION 6. COVER.
If the number of Shares represented by any Put Notices become restricted or
are no longer freely trading for any reason, and after the applicable Closing
Date, the Investor purchases, in an open market transaction or otherwise, the
Company's Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Investor (the "Sold Shares"),
which delivery such Investor anticipated to make using the Shares represented
by the Put Notice (a "Buy-In"), the Company shall pay to the Investor the
Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount"
is the amount equal to the excess, if any, of (A) the Investor's total
purchase price (including brokerage commissions, if any) for the Covering
Shares over (B) the net proceeds (after brokerage commissions, if any)
received by the Investor from the sale of the Sold Shares. The Company shall
pay the Buy-In Adjustment Amount to the Investor in immediately available
funds immediately upon demand by the Investor. By way of illustration and not
in limitation of the foregoing, if the Investor purchases Common Stock having
a total purchase price (including brokerage commissions) of $11,000 to cover
a Buy-In with respect to the Common Stock it sold for net proceeds of
$10,000, the Buy-In Adjustment Amount which the Company will be required to
pay to the Investor will be $1,000.
SECTION 7. CONDITIONS OF THE COMPANY'S OBLIGATION TO SELL.
The obligation hereunder of the Company to issue and sell the Securities to
the Investor is further subject to the satisfaction, at or before each
Closing Date, of each of the following conditions set forth below. 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 Investor shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(B) The Investor shall have delivered to the Company the Purchase Price for
the Securities being purchased by the Investor between the end of the Pricing
Period and the Closing Date via a Put Settlement Sheet (hereto attached as
Exhibit G) After receipt of confirmation of delivery of such Securities to
the Investor, the Investor, by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company will disburse the
funds constituting the Purchase Amount.
(C) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
SECTION 8. FURTHER CONDITIONS OF THE INVESTOR'S OBLIGATION TO PURCHASE.
The obligation of the Investor hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.
20
(A) The Company shall have executed each of the Transaction Documents and
delivered the same to the Investor.
(B) The Common Stock shall be authorized for quotation on the Principal
Market and trading in the Common Stock shall not have been suspended by the
Principal Market or the SEC, at any time beginning on the date hereof and
through and including the respective Closing Date (excluding suspensions of
not more than one Trading Day resulting from business announcements by the
Company, provided that such suspensions occur prior to the Company's delivery
of the Put Notice related to such Closing).
(C) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as
though made at that time (except for (I) representations and warranties that
speak as of a specific date and (II) with respect to the representations made
in Sections 4(g), (h) and (j) and the third sentence of Section 4(k) hereof,
events which occur on or after the date of this Agreement and are disclosed
in SEC filings made by the Company at least ten Trading Days prior to the
applicable Put Notice Date) and the Company shall have performed, satisfied
and complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company on or before such Closing Date. The Investor may request an update as
of such Closing Date regarding the representation contained in Section 4(c)
above.
(D) The Company shall have executed and delivered to the Investor the
certificates representing, or have executed electronic book-entry transfer
of, the Securities (in such denominations as such Investor shall request)
being purchased by the Investor at such Closing.
(E) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above (the "Resolutions") and such
Resolutions shall not have been amended or rescinded prior to such Closing
Date.
(F) reserved
(G) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(H) The Registration Statement shall be effective on each Closing Date and no
stop order suspending the effectiveness of the Registration statement shall
be in effect or to the Company's knowledge shall be pending or threatened.
Furthermore, on each Closing Date (I) neither the Company nor Investor shall
have received notice that the SEC has issued or intends to issue a stop order
with respect to such Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of such Registration Statement,
either temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and Investor is reasonably
satisfied that the SEC no longer is considering or intends to take such
action), and (II) no other suspension of the use or withdrawal of the
effectiveness of such Registration Statement or related prospectus shall
exist.
21
(I) At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any
amendments or supplements thereto shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or which
would require public disclosure or an update supplement to the prospectus.
(J) If applicable, the shareholders of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(i) or the Company shall have obtained appropriate
approval pursuant to the requirements of Delaware law and the Company's
Articles of Incorporation and By-laws.
(K) The conditions to such Closing set forth in Section 2(f) shall have been
satisfied on or before such Closing Date.
(L) The Company shall have certified to the Investor the number of Shares of
Common Stock outstanding when a Put Notice is given to the Investor.
SECTION 9. TERMINATION. This Agreement shall terminate upon any of the
following events:
(I) when the Investor has purchased an aggregate of $10,000,000 in the Common
Stock of the Company pursuant to this Agreement;
(II) on the date which is thirty-six (36) months after the Effective
Date;SECTION 10. SUSPENSION
This Agreement shall be suspended upon any of the following events, and shall
remain suspended until such event is rectified:
(I) the trading of the Common Stock is suspended by the SEC, the
Principal Market or the NASD for a period of five consecutive Trading Days
during the Open Period;
(II) The Common Stock ceases to be registered under the 1934 Act or
listed or traded on the Principal Market. Upon the occurrence of one of the
above-described events, the Company shall send written notice of such event
to the Investor.
SECTION 11. INDEMNIFICATION.
In consideration of the parties mutual obligations set forth In the
Transaction Documents, each of the parties (in such capacity, an
"Indemnitor") shall defend, protect, indemnify and hold harmless the other
and all of the other party's shareholders, officers, directors, employees,
counsel, and direct or indirect investors and any of the foregoing person's
agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions,
22
causes of action, suits, claims, losses, costs, penalties, fees, liabilities
and damages, and reasonable expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Indemnified Liabilities"), incurred by any
Indemnitee as a result of, or arising out of, or relating to (I) any
misrepresentation or breach of any representation or warranty made by the
Indemnitor or any other certificate, instrument or document contemplated
hereby (except to the extent that the transaction documents breach any
agreements to which the Investor is subject) or thereby; (II) any breach of
any covenant, agreement or obligation of the Indemnitor contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby; or (III) any cause of action, suit or claim
brought or made against such Indemnitee by a third party and arising out of
or resulting from the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, except insofar as any such misrepresentation,
breach or any untrue statement, alleged untrue statement, omission or alleged
omission is made in reliance upon and in conformity with information
furnished to Indemnitor which is specifically intended for use in the
preparation of any such Registration Statement, preliminary prospectus,
prospectus or amendments to the prospectus. To the extent that the foregoing
undertaking by the Indemnitor may be unenforceable for any reason, the
Indemnitor shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law. The indemnity provisions contained herein shall be in
addition to any cause of action or similar rights Indemnitor may have, and
any liabilities the Indemnitor or the Indemnitees may be subject to.
SECTION 12. GOVERNING LAW; MISCELLANEOUS.
(A) GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts without regard
to the principles of conflict of laws. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of Boston, County of Suffolk, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law. 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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
(B) LEGAL FEES; AND MISCELLANEOUS FEES. Except as otherwise set forth in the
Transaction Documents, each party shall pay the fees and expenses of its
advisers, counsel, the accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
23
execution, delivery and performance of this Agreement. Any attorneys' fees
and expenses incurred by either the Company or by the Investor in connection
with the preparation, negotiation, execution and delivery of any amendments
to this Agreement or relating to the enforcement of the rights of any party,
after the occurrence of any breach of the terms of this Agreement by another
party or any default by another party in respect of the transactions
contemplated hereunder, shall be paid on demand by the party which breached
the Agreement and/or defaulted, as the case may be. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of
any Securities.
(C) COUNTERPARTS. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a
facsimile signature.
(D) HEADINGS; SINGULAR/PLURAL. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include
the feminine.
(E) 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
in that jurisdiction or the validity or enforceability of any provision of
this Agreement in any other jurisdiction.
(F) ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior
oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
(including the other Transaction Documents) contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
the Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other
than by an instrument in writing signed by the Company and the Investor, and
no provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.
(G) NOTICES. Any notices or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed
to have been delivered (I) upon receipt, when delivered personally; (II) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending
party); or (III) one day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
24
If to the Company:
Energas Resources, Inc.
000 Xxxxxxxxx 00xx Xxxxxx
0xx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Investor:
Dutchess Private Equities fund, LP, II
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Each party shall provide five days' prior written notice to the other party
of any change in address or facsimile number.
(H) NO ASSIGNMENT. This Agreement may not be assigned.
(I) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit
of the parties hereto and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
(J) SURVIVAL. The representations and warranties of the Company and the
Investor contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4 and 5, and the indemnification provisions set forth in
Section 10, shall survive each of the Closings and the termination of this
Agreement.
(K) PUBLICITY. The Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and no party shall issue any such
press release or otherwise make any such public statement without the prior
consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the
name of Investor without the prior consent of such Investor, except to the
extent required by law. Investor acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-B, and that the
Company may therefore be required to file such documents as exhibits to
reports or registration statements filed under the 1933 Act or the 1934 Act.
Investor further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
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(L) 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.
(M) reserved
(N) 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.
(O) REMEDIES. The Investor and each holder of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which
such holders have under any law. Any person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages
by reason of any default or breach of any provision of this Agreement,
including the recovery of reasonable attorneys fees and costs, and to
exercise all other rights granted by law.
(P) PAYMENT SET ASIDE. To the extent that the Company makes a payment or
payments to the Investor hereunder or the Registration Rights Agreement or
the Investor enforces or exercises its rights hereunder or thereunder, and
such payment or payments or the proceeds of such enforcement or exercise or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
(Q) PRICING OF COMMON STOCK. For purposes of this Agreement, the bid price
of the Common Stock in this Agreement shall be as reported on Xxxxxxxxx.xxx.
* * *
26
SIGNATURE PAGE OF INVESTMENT AGREEMENT
Your signature on this Signature Page evidences your agreement to be bound by
the terms and conditions of the Investment Agreement and the Registration
Rights Agreement as of the date first written above.
The undersigned signatory hereby certifies that he has read and understands
the Investment Agreement, and the representations made by the undersigned in
this Investment Agreement are true and accurate, and agrees to be bound by
its terms.
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER,
DUTCHESS CAPITAL MANAGEMENT, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxxx, Managing Member
Energas Resources, Inc.
By: /s/ Xxxxxx Xxxx
-------------------------------
Xxxxxx Xxxx, President
27
LIST OF EXHIBITS
EXHIBIT A Registration Rights Agreement
EXHIBIT B Opinion of Company's Counsel
EXHIBIT C [reserved]
EXHIBIT D [reserved]
EXHIBIT E Board Resolution
EXHIBIT F Put Notice
EXHIBIT G Put Settlement Sheet
EXHIBIT F
Date:
RE: Put Notice Number __
Dear Xx. Xxxxxxxx,
This is to inform you that as of today, Energas Resources, Inc., a Delaware
corporation (the "Company"), hereby elects to exercise its right pursuant to
the Investment Agreement to require Dutchess Private Equities Fund, II, LP.
to purchase shares of its common stock. The Company hereby certifies that:
The amount of this put is $__________.
The Pricing Period runs from ________ until _______.
The current number of shares issued and outstanding as of the Company are:
____________
Regards,
Xxxxxx Xxxx
President
Energas Resources, Inc.
EXHIBIT G
PUT SETTLEMENT SHEET
Date:
Xxxxxxx,
Pursuant to the Put given by Energas Resources, Inc. to Dutchess Private
Equities Fund, II, L.P. on _________________ 200x, we are now submitting the
amount of common shares for you to issue to Dutchess.
Please have a certificate bearing no restrictive legend totaling __________
shares issued to Dutchess Private Equities Fund, II, LP immediately and send
via DWAC to the following account:
XXXXXX
If not DWAC eligible, please send FedEx Priority Overnight to:
XXXXXX
Once these shares are received by us, we will have the funds wired to the
Company.
Regards,
Xxxxxxx X. Xxxxxxxx
DATE PRICE
Date of Day 1 Closing Bid of Day 1
Date of Day 2 Closing Bid of Day 2
Date of Day 3 Closing Bid of Day 3
Date of Day 4 Closing Bid of Day 4
Date of Day 5 Closing Bid of Day 5
LOWEST 1 (ONE) CLOSING BID IN PRICING PERIOD
------------
PUT AMOUNT
------------
AMOUNT WIRED TO COMPANY
------------
PURCHASE PRICE (95% (NINETY-FIVE PERCENT))
------------
AMOUNT OF SHARES DUE
------------
The undersigned has completed this Put as of this ___th day of _________,
20xx.
Energas Resources, Inc.
Xxxxxx Xxxx, President
