SECURITIES PURCHASE AGREEMENT
Exhibit
10.4
THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
August 25, 2006, by and between BLAST ENERGY SERVICES, INC., a California
corporation (the “Company”), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the “Purchaser”).
1. Agreement
to Sell and Purchase.
Pursuant to the terms and conditions set forth in this Agreement, on the Closing
Date (as defined in Section 3), the Company shall sell to the Purchaser, and
the
Purchaser shall purchase from the Company, the Note. The sale of the Note on
the
Closing Date shall be known as the “Offering.” The Note will mature on the
Maturity Date (as defined in the Note). Collectively, the Note and Warrants
and
Common Stock issuable upon exercise of the Warrants are referred to as the
“Securities.”
(a) The
Company will issue and deliver to the Purchaser (i) the Par Value Warrant to
purchase up to 6,090,000 shares of Common Stock and (ii) the
Additional
Warrant
to purchase up to 6,090,000 shares of Common Stock (each subject to adjustment
as set forth therein) in connection with the Offering, pursuant to Section
1
hereof. All the representations, covenants, warranties, undertakings, and
indemnification, and other rights made or granted to or for the benefit of
the
Purchaser by the Company are hereby also made and granted for the benefit of
the
holder of the each Warrant and shares of the Company’s Common Stock issuable
upon exercise of the each Warrant (the “Warrant Shares”).
(b) Subject
to the terms of Section 2(d) below, the Company shall pay to Laurus Capital
Management, LLC, the investment manager of the Purchaser (“LCM”), a
non-refundable payment in an amount equal to three and one half percent (3.50%)
of the aggregate principal amount of the Note. The foregoing payment is referred
to herein as the “LCM Payment.” Such payment shall be deemed fully earned on the
Closing Date and shall not be subject to rebate or proration for any
reason.
(c) The
Company shall reimburse the Purchaser for its reasonable expenses (including
reasonable and customary legal fees and expenses) incurred in connection with
the entering into this Agreement and the Related Agreements (as hereinafter
defined). The Company shall reimburse the Purchaser for the expenses incurred
by
the Purchaser in connection with the Purchaser’s due diligence review of the
Company and its Subsidiaries (as defined in Section 4.2) and all related
matters, and such due diligence reimbursement shall not exceed $30,000 (the
“Due
Diligence Fee Cap”). Notwithstanding the prior sentence, the Due Diligence Fee
Cap shall not apply to the cost of any required third-party appraisals or
extraordinary diligence necessary for the Purchaser to complete its due
diligence. Amounts required to be paid under this Section 2(c) will be paid
on
the Closing Date.
(d) The
LCM
Payment and the expenses referred to in the preceding clause (c) (net of
deposits previously paid by the Company) shall be paid at closing out of funds
held pursuant to the Escrow Agreement (as defined below) and a disbursement
letter (the “Disbursement Letter”).
3.1 Closing.
Subject to the terms and conditions herein, the closing of the transactions
contemplated hereby (the “Closing”), shall take place on the date hereof, at
such time or place as the Company and the Purchaser may mutually agree (such
date is hereinafter referred to as the “Closing Date”).
3.2 Delivery.
Pursuant to the Escrow Agreement, at the Closing on the Closing Date, the
Company will deliver to the Purchaser, among other things, the Note and the
Warrants and the Purchaser will deliver to the Company, among other things,
the
amounts set forth in the Disbursement Letter by certified funds or wire
transfer. The Company hereby acknowledges and agrees that Purchaser’s obligation
to purchase the Note from the Company on the Closing Date shall be contingent
upon the satisfaction (or waiver by the Purchaser in its sole
discretion)
of the items and matters set forth in the closing checklist provided by the
Purchaser to the Company on or prior to the Closing Date.
4. Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchaser as follows:
4.1 Organization,
Good Standing and Qualification. Each of the Company and each of its
Subsidiaries is a corporation, partnership or limited liability company, as
the
case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of the Company and each of its
Subsidiaries has the corporate, limited liability company or partnership, as
the
case may be, power and authority to own and operate its properties and assets
and, insofar as it is or shall be a party thereto, to (1) execute and deliver
(i) this Agreement, (ii) the Note and the Warrants to be issued in connection
with this Agreement, (iii) the Master Security Agreement dated as of the date
hereof between the Company, certain Subsidiaries of the Company and the
Purchaser (as amended, modified and/or supplemented from time to time, the
“Master Security Agreement”), (iv) the Intellectual Property Security Agreement
dated as of the date hereof made by the Company in favor of the Purchaser (as
amended, modified and/or supplemented from time to time, the “IP Security
Agreement”), (v) the Registration Rights Agreement relating to the Securities
dated as of the date hereof between the Company and the Purchaser (as amended,
modified and/or supplemented from time to time, the “Registration Rights
Agreement”), (vi) the Subsidiary Guaranty dated as of the date hereof made by
certain Subsidiaries of the Company (as amended, modified and/or supplemented
from time to time, the “Subsidiary Guaranty”), (vii) the Membership Interest
Pledge Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified and/or
or
supplemented from time to time, the “Pledge Agreement”), (viii) the Funds Escrow
Agreement dated as of the date hereof among the Company, the Purchaser and
the
escrow agent referred to therein, substantially in the form of Exhibit D hereto
(as amended, modified and/or supplemented from time to time, the “Escrow
Agreement”) and (ix) all other documents, instruments and agreements entered
into in connection with the transactions contemplated hereby and thereby (the
preceding clauses (ii) through (ix), collectively, the “Related Agreements”);
(2) issue and sell the Note; (3) issue and sell the Warrants and the Warrant
Shares; and (4) carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. Each of the
Company and each of its Subsidiaries is duly qualified and is authorized to
do
business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which
the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions
in
which failure to do so has not, or could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company and its Subsidiaries, taken individually and as
a
whole (a “Material Adverse Effect”).
4.2 Subsidiaries.
Each direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2.
For the purpose of this Agreement, a “Subsidiary” of any person or entity means
(i) a corporation or other entity whose shares of stock or other ownership
interests having ordinary
voting
power (other than stock or other ownership interests having such power only
by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other persons or entities performing similar functions
for such person or entity, are owned, directly or indirectly, by such person
or
entity or (ii) a corporation or other entity in which such person or entity
owns, directly or indirectly, more than 50% of the equity interests at such
time.
(a) The
authorized capital stock of the Company as of the date hereof consists of
100,000,000 shares of Common Stock, no par value per share, 45,125,404 shares
of
which are issued and outstanding, including 1,150,000 shares reserved for
settlement of a law suit described in Schedule 4.3. The authorized, issued
and
outstanding capital stock of each Subsidiary of the Company is set forth on
Schedule 4.3.
(b) Except
as
disclosed on Schedule 4.3, other than: (i) the shares reserved for issuance
under the Company’s stock option plans; and (ii) shares which may be granted
pursuant to this Agreement and the Related Agreements, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the Company of
any
of its securities. Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of any of the Note or either of the Warrants, or the issuance
of any of the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(c) All
issued and outstanding shares of the Company’s Common Stock: (i) have been duly
authorized and validly issued and are fully paid and nonassessable; and (ii)
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities.
(d) The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company’s Certificate of Incorporation as amended
through the date hereof (the “Charter”). The Warrant Shares have been duly and
validly reserved for issuance. When issued in compliance with the provisions
of
this Agreement and the Company’s Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or
as
otherwise required by such laws at the time a transfer is proposed.
4.4 Authorization;
Binding Obligations. All corporate, partnership or limited liability company,
as
the case may be, action on the part of the Company and each of its Subsidiaries
(including their respective officers and directors) necessary for the
authorization of this Agreement and the Related Agreements, the performance
of
all obligations of the Company
and
its
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note and Warrants
has
been taken or will be taken prior to the Closing. This Agreement and the Related
Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of each of the Company and each of its
Subsidiaries, enforceable against each such person or entity in accordance
with
their terms, except:
(a) as
limited by applicable bankruptcy, insolvency, reorganization, xxxx-torium or
other laws of general application affecting enforcement of creditors’ rights;
and
(b) general
principles of equity that restrict the availability of equitable or legal
remedies.
The
sale
of the Note is not and will not be subject to any preemptive rights or rights
of
first refusal that have not been properly waived or complied with. The issuance
of the Warrant and the subsequent exercise of the Warrant for Warrant Shares
are
not and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with.
(a) Neither
the Company nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and liabilities
disclosed in any of the Company’s filings under the Securities Exchange Act of
1934 (“Exchange Act”) made prior to the date of this Agreement (collectively,
the “Exchange Act Filings”), copies of which have been filed on XXXXX or
otherwise provided to the Purchaser.
(b) Both
before and after giving effect to (a) the consummation of the transactions
contemplated hereby (b) the disbursement of the proceeds of, or the assumption
of the liability in respect of, the Note pursuant to the instructions or
agreement of the Company and (c) the payment and accrual of all transaction
costs in connection with the foregoing, the Company and each Subsidiary of
the
Company, is and will be, Solvent. For purposes of this Section 4.5(b), “Solvent”
means, with respect to any Person on a particular date, that on such date (a)
the fair value of the property of such Person is greater than the total amount
of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on
its
debts as they become absolute and matured; (c) such Person does not intend
to,
and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
and unreasonably small capital. The amount of contingent liabilities (such
as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected
to
become an actual or matured liability.
4.6 Agreements;
Action. Except as set forth on Schedule 4.6 or as disclosed in any Exchange
Act
Filings:
(a) there
are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company or any of its
Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company or any
of
its Subsidiaries in excess of $50,000 (other than obligations of, or payments
to, the Company or any of its Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company or any of its Subsidiaries (other than licenses
arising from the purchase of “off the shelf” or other standard products); or
(iii) provisions restricting the development, manufacture or distribution of
the
Company’s or any of its Subsidiaries products or services; or (iv)
indemnification by the Company or any of its Subsidiaries with respect to
infringements of proprietary rights.
(b) Since
June 30, 2006 (the “Balance Sheet Date”), neither the Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made
any
distribution upon or with respect to any class or series of its capital stock
and/or membership interests; (ii) incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course obligations) individually
in excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate; (iii)
made any loans or advances to any person or entity not in excess, individually
or in the aggregate, of $100,000, other than ordinary course advances for travel
expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets
or
rights, other than the sale of its inventory in the ordinary course of business.
(c) For
the
purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
or any Subsidiary of the Company has reason to believe are affiliated therewith)
shall be aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsections.
(d) The
Company maintains disclosure controls and procedures (“Disclosure Controls”)
designed to ensure that information required to be disclosed by the Company
in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the
rules and forms of the Securities and Exchange Commission (“SEC”).
(e) The
Company makes and keep books, records, and accounts, that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the Company’s
assets. The Company maintains internal control over financial reporting
(“Financial Reporting Controls”) designed by, or under the supervision of, the
Company’s principal executive and principal financial officers, and effected by
the Company’s board of directors, management, and other personnel, to provide
reasonable
assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles (“GAAP”), including that:
(i) transactions
are executed in accordance with management’s general or specific
authorization;
(ii) unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements are prevented or timely
detected;
(iii) transactions
are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that the Company’s receipts and expenditures are being
made only in accordance with authorizations of the Company’s management and
board of directors;
(iv) transactions
are recorded as necessary to maintain accountability for assets;
and
(v) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to any
differences.
(f) There
is
no weakness in any of the Company’s Disclosure Controls or Financial Reporting
Controls that is required to be disclosed in any of the Exchange Act Filings,
except as so disclosed.
4.7 Obligations
to Related Parties. Except as set forth on Schedule 4.7, there are no
obligations of the Company or any of its Subsidiaries to officers, directors,
stockholders or employees of the Company or any of its Subsidiaries other
than:
(a) for
payment of salary or fees for services rendered and for bonus
payments;
(b) reimbursement
for reasonable expenses incurred on behalf of the Company and its
Subsidiaries;
(c) for
other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by
the
Board of Directors of the Company and each Subsidiary of the Company, as
applicable); and
(d) obligations
listed in the Company’s and each of its Subsidiary’s financial statements or
disclosed in any of the Company’s Exchange Act Filings.
Except
as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company’s knowledge, key employees or stockholders of the
Company or any of its
Subsidiaries
or any members of their immediate families, are indebted to the Company or
any
of its Subsidiaries, individually or in the aggregate, in excess of $50,000
or
have any direct or indirect ownership interest in any firm or corporation with
which the Company or any of its Subsidiaries is affiliated or with which the
Company or any of its Subsidiaries has a business relationship, or any firm
or
corporation which competes with the Company or any of its Subsidiaries, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company or any
of
its Subsidiaries. Except as described above, no officer, director or stockholder
of the Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between the Company or any of its
Subsidiaries and any such person. Except as set forth on Schedule 4.7, neither
the Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
4.8 Changes.
Since the Balance Sheet Date, except as disclosed in any Exchange Act Filing
or
in any Schedule to this Agreement or to any of the Related Agreements, there
has
not been:
(a) any
change in the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company or any of its Subsidiaries,
which individually or in the aggregate has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect;
(b) any
resignation or termination of any officer, key employee or group of employees
of
the Company or any of its Subsidiaries;
(c) any
material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) any
damage, destruction or loss, whether or not covered by insurance, which has
had,
or could reasonably be expected to have, individually or in the aggregate,
a
Material Adverse Effect;
(e) any
waiver by the Company or any of its Subsidiaries of a valuable right or of
a
material debt owed to it;
(f) any
direct or indirect loans made by the Company or any of its Subsidiaries to
any
stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of
business;
(g) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its
Subsidiaries;
(h) any
declaration or payment of any dividend or other distribution of the assets
of
the Company or any of its Subsidiaries;
(i) any
labor
organization activity related to the Company or any of its
Subsidiaries;
(j) any
debt,
obligation or liability incurred, assumed or guaranteed by the Company or any
of
its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) any
sale,
assignment or transfer of any patents, trademarks, copyrights, trade secrets
or
other intangible assets owned by the Company or any of its
Subsidiaries;
(l) any
change in any material agreement to which the Company or any of its Subsidiaries
is a party or by which either the Company or any of its Subsidiaries is bound
which either individually or in the aggregate has had, or could reasonably
be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
(m) any
other
event or condition of any character that, either individually or in the
aggregate, has had, or could reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect; or
(n) any
arrangement or commitment by the Company or any of its Subsidiaries to do any
of
the acts described in subsection (a) through (m) above.
4.9 `Title
to
Properties and Assets; Liens, Etc. Except as set forth on Schedule 4.9, each
of
the Company and each of its Subsidiaries has good and marketable title to its
properties and assets, and good title to its leasehold interests, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than:
(a) those
resulting from taxes which have not yet become delinquent;
(b) minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company
or
any of its Subsidiaries, so long as in each such case, such liens and
encumbrances have no effect on the lien priority of the Purchaser in such
property; and
(c) those
that have otherwise arisen in the ordinary course of business, so long as they
have no effect on the lien priority of the Purchaser therein.
All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company
and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
(a) Each
of
the Company and each of its Subsidiaries owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names,
copyrights,
trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and, to the Company’s knowledge, as
presently proposed to be conducted (the “Intellectual Property”), without any
known infringement of the rights of others. Except as set forth on Schedule
4.10, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing proprietary rights, nor is the Company or any of
its
Subsidiaries bound by or a party to any options, licenses or agreements of
any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of “off the shelf” or standard products.
(b) Neither
the Company nor any of its Subsidiaries has received any communications alleging
that the Company or any of its Subsidiaries has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company or any
of
its Subsidiaries aware of any basis therefor.
(c) The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior
to
their employment by the Company or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company or any of its Subsidiaries.
4.11 Compliance
with Other Instruments. Neither the Company nor any of its Subsidiaries is
in
violation or default of (x) any term of its Charter or Bylaws, or (y) any
provision of any indebtedness, mortgage, indenture, contract, agreement or
instrument to which it is party or by which it is bound or of any judgment,
decree, order or writ, which violation or default, in the case of this clause
(y), has had, or could reasonably be expected to have, either individually
or in
the aggregate, a Material Adverse Effect. The execution, delivery and
performance of and compliance with this Agreement and the Related Agreements
to
which it is a party, and the issuance and sale of the Note by the Company and
the other Securities by the Company each pursuant hereto and thereto, will
not,
with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term or provision, or result in the creation of any mortgage, pledge,
lien,
encumbrance or charge upon any of the properties or assets of the Company or
any
of its Subsidiaries or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to
the
Company, its business or operations or any of its assets or
properties.
4.12 Litigation.
Except as set forth on Schedule 4.12 hereto, there is no action, suit,
proceeding or investigation pending or, to the Company’s knowledge, currently
threatened against the Company or any of its Subsidiaries that prevents the
Company or any of its Subsidiaries from entering into this Agreement or the
other Related Agreements, or from consummating the transactions contemplated
hereby or thereby, or which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect or any change
in the current equity ownership of the Company or any of its Subsidiaries,
nor
is
the
Company aware that there is any basis to assert any of the foregoing. Neither
the Company nor any of its Subsidiaries is a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court
or
government agency or instrumentality. There is no action, suit, proceeding
or
investigation by the Company or any of its Subsidiaries currently pending or
which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax
Returns and Payments. Each of the Company and each of its Subsidiaries has
timely filed all tax returns (federal, state and local) required to be filed
by
it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by the Company or any of its
Subsidiaries on or before the Closing, have been paid or will be paid prior
to
the time they become delinquent. Except as set forth on Schedule 4.13, neither
the Company nor any of its Subsidiaries has been advised:
(a) that
any
of its returns, federal, state or other, have been or are being audited as
of
the date hereof; or
(b) of
any
adjustment, deficiency, assessment or court decision in respect of its federal,
state or other taxes.
The
Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees.
Except as set forth on Schedule 4.14, neither the Company nor any of its
Subsidiaries has any collective bargaining agreements with any of its employees.
There is no labor union organizing activity pending or, to the Company’s
knowledge, threatened with respect to the Company or any of its Subsidiaries.
Except as disclosed in the Exchange Act Filings or on Schedule 4.14, neither
the
Company nor any of its Subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company’s knowledge, no employee of the
Company or any of its Subsidiaries, nor any consultant with whom the Company
or
any of its Subsidiaries has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, the Company or any of its Subsidiaries because of the nature of the
business to be conducted by the Company or any of its Subsidiaries; and to
the
Company’s knowledge the continued employment by the Company and its Subsidiaries
of their present employees, and the performance of the Company’s and its
Subsidiaries’ contracts with its independent contractors, will not result in any
such violation. Neither the Company nor any of its Subsidiaries is aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries has received any notice alleging that
any such violation has occurred. Except for employees who have a current
effective employment agreement with the Company or any of its Subsidiaries,
no
employee of the Company or any of its Subsidiaries has been granted the right
to
continued employment by the Company or any of its Subsidiaries or to any
material compensation following termination of
employment
with the Company or any of its Subsidiaries. Except as set forth on Schedule
4.14, the Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company
or
any of its Subsidiaries, nor does the Company or any of its Subsidiaries have
a
present intention to terminate the employment of any officer, key employee
or
group of employees.
4.15 Registration
Rights and Voting Rights. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, neither the Company nor any of its
Subsidiaries is presently under any obligation, and neither the Company nor
any
of its Subsidiaries has granted any rights, to register any of the Company’s or
its Subsidiaries’ presently outstanding securities or any of its securities that
may hereafter be issued. Except as set forth on Schedule 4.15 and except as
disclosed in Exchange Act Filings, to the Company’s knowledge, no stockholder of
the Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of the Company or any of its
Subsidiaries.
4.16 Compliance
with Laws; Permits. Neither the Company nor any of its Subsidiaries is in
violation of any provision of the Xxxxxxxx-Xxxxx Act of 2002 or any SEC related
regulation or rule or any rule of the Principal Market (as hereafter defined)
promulgated thereunder or any other applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality
or
agency thereof in respect of the conduct of its business or the ownership of
its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to
be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as
have
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. Each of
the
Company and its Subsidiaries has all material franchises, permits, licenses
and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
4.17 Environmental
and Safety Laws. Neither the Company nor any of its Subsidiaries is in violation
of any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute,
law
or regulation. Except as set forth on Schedule 4.17, no Hazardous Materials
(as
defined below) are used or have been used, stored, or disposed of by the Company
or any of its Subsidiaries or, to the Company’s knowledge, by any other person
or entity on any property owned, leased or used by the Company or any of its
Subsidiaries. For the purposes of the preceding sentence, “Hazardous Materials”
shall mean:
(a) materials
which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, federal and/or foreign laws and regulations that govern
the existence and/or remedy of contamination on property, the protection of
the
environment
from contamination, the control of hazardous wastes, or other activities
involving hazardous substances, including building materials; or
(b) any
petroleum products (other than crude oil or natural gas) or nuclear
materials.
4.18 Valid
Offering. Assuming the accuracy of the representations and warranties of the
Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
4.19 Full
Disclosure. Each of the Company and each of its Subsidiaries has provided the
Purchaser with all information requested by the Purchaser in connection with
its
decision to purchase the Note and Warrant, including all information the Company
and its Subsidiaries believe is reasonably necessary to make such investment
decision. Neither this Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto nor any other document delivered by the Company
or
any of its Subsidiaries to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein,
in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company or
any
of its Subsidiaries were based on the Company’s and its Subsidiaries’ experience
in the industry and on assumptions of fact and opinion as to future events
which
the Company or any of its Subsidiaries, at the date of the issuance of such
projections or estimates, believed to be reasonable.
4.20 Insurance.
Each of the Company and each of its Subsidiaries has general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company and
its
Subsidiaries in the same or similar business.
4.21 SEC
Reports. Except as set forth on Schedule 4.21, the Company has filed all proxy
statements, reports and other documents required to be filed by it under the
Securities Xxxxxxxx Xxx 0000, as amended (the “Exchange Act”). The Company has
furnished the Purchaser or has made available on XXXXX copies of: (a) its Annual
Reports on Form 10-KSB for its fiscal years ended December 31, 2005; and (b)
its
Quarterly Reports on Form 10-QSB for its fiscal quarter ended March 31, 2006
and
June 30, 2006, and the Form 8-K filings which it has made during the fiscal
year
2006 to date (collectively, the “SEC Reports”). Except as set forth on Schedule
4.21, each SEC Report was, at the time of its filing or as subsequently amended,
in substantial compliance with the requirements of its respective form and
none
of the SEC Reports, nor the financial statements (and the notes thereto)
included in the SEC Reports, as of their respective filing dates, 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.
4.22 Listing.
The Company’s Common Stock is listed or quoted, as applicable, on a Principal
Market and satisfies and at all times hereafter will satisfy, all requirements
for the continuation of such listing or quotation, as applicable. The Company
has not received any notice that its Common Stock will be delisted from, or
no
longer quoted on, as applicable, the Principal Market or that its Common Stock
does not meet all requirements for such listing or quotation, as applicable.
For
purposes hereof, the term “Principal Market” means the NASD Over The Counter
Bulletin Board, NASDAQ Capital Market, NASDAQ National Markets System, American
Stock Exchange or New York Stock Exchange (whichever of the foregoing is at
the
time the principal trading exchange or market for the Common
Stock).
4.23 No
Integrated Offering. Neither the Company, nor any of its Subsidiaries or
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers
to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement or any of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to
Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings in such manner.
4.24 Stop
Transfer. The Securities are restricted securities as of the date of this
Agreement. Neither the Company nor any of its Subsidiaries will issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or
an
exemption from registration is available, except as required by state and
federal securities laws.
4.25 Dilution.
The Company specifically acknowledges that its obligation to issue the shares
of
Common Stock upon exercise of either or both of the Warrants is binding upon
the
Company and enforceable regardless of the dilution such issuance may have on
the
ownership interests of other shareholders of the Company.
4.26 Patriot
Act. The Company certifies that, to the best of Company’s knowledge, neither the
Company nor any of its Subsidiaries has been designated, nor is or shall be
owned or controlled, by a “suspected terrorist” as defined in Executive Order
13224. The Company hereby acknowledges that the Purchaser seeks to comply with
all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and
covenants that: (a) none of the cash or property that the Company or any of
its
Subsidiaries will pay or will contribute to the Purchaser has been or shall
be
derived from, or related to, any activity that is deemed criminal under United
States law; and (b) no contribution or payment by the Company or any of its
Subsidiaries to the Purchaser, to the extent that they are within the Company’s
and/or its Subsidiaries’ control shall cause the Purchaser to be in violation of
the United States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. The Company
shall
promptly notify the Purchaser if any of these representations, warranties or
covenants ceases to be true and accurate regarding the Company or any of its
Subsidiaries. The Company shall provide the
Purchaser
all additional information regarding the Company or any of its Subsidiaries
that
the Purchaser deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. The Company
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties or covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Purchaser may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Purchaser’s investment in the Company. The
Company further understands that the Purchaser may release confidential
information about the Company and its Subsidiaries and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in its
sole discretion, determines that it is in the best interests of the Purchaser
in
light of relevant rules and regulations under the laws set forth in subsection
(b) above.
4.27 ERISA.
Based upon the Employee Retirement Income Security Act of 1974 (“ERISA”), and
the regulations and published interpretations thereunder: (a) neither the
Company nor any of its Subsidiaries has engaged in any Prohibited Transactions
(as defined in Section 406 of ERISA and Section 4975 of the Internal Revenue
Code of 1986, as amended (the “Code”)); (b) each of the Company and each of its
Subsidiaries has met all applicable minimum funding requirements under Section
302 of ERISA in respect of its plans; (c) neither the Company nor any of its
Subsidiaries has any knowledge of any event or occurrence which would cause
the
Pension Benefit Guaranty Corporation to institute proceedings under Title IV
of
ERISA to terminate any employee benefit plan(s); (d) neither the Company nor
any
of its Subsidiaries has any fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than the Company’s
or such Subsidiary’s employees; and (e) neither the Company nor any of its
Subsidiaries has withdrawn, completely or partially, from any multi-employer
pension plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.
5. Representations
and Warranties of the Purchaser.
The
Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations
and
warranties of the Company set forth in this Agreement):
5.1 No
Shorting. The Purchaser or any of its affiliates and investment partners has
not, will not and will not cause any person or entity, to directly engage in
“short sales” of the Company’s Common Stock as long as the Note shall be
outstanding.
5.2 Requisite
Power and Authority. The Purchaser has all necessary power and authority under
all applicable provisions of law to execute and deliver this Agreement and
the
Related Agreements and to carry out their provisions. All corporate action
on
the Purchaser’s part required for the lawful execution and delivery of this
Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and
the
Related Agreements will be valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, except:
(a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and
(b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.3 Investment
Representations. The Purchaser understands that the Securities are being offered
and sold pursuant to an exemption from registration contained in the Securities
Act based in part upon the Purchaser’s representations contained in this
Agreement, including, without limitation, that the Purchaser is an “accredited
investor” within the meaning of Regulation D under the Securities Act of 1933,
as amended (the “Securities Act”). The Purchaser confirms that it has received
or has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Note
and
the Warrant to be purchased by it under this Agreement and the Warrant Shares
acquired by it upon the exercise of the Warrant, respectively. The Purchaser
further confirms that it has had an opportunity to ask questions and receive
answers from the Company regarding the Company’s and its Subsidiaries’ business,
management and financial affairs and the terms and conditions of the Offering,
the Note, the Warrant and the Securities and to obtain additional information
(to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify any information
furnished to the Purchaser or to which the Purchaser had access.
5.4 The
Purchaser Bears Economic Risk. The Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect
its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration
is
available with respect to such sale.
5.5 Acquisition
for Own Account. The Purchaser is acquiring the Note and Warrants and the
Warrant Shares for the Purchaser’s own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.6 The
Purchaser Can Protect Its Interest. The Purchaser represents that by reason
of
its, or of its management’s, business and financial experience, the Purchaser
has the capacity to evaluate the merits and risks of its investment in the
Note,
the Warrants and the Securities and to protect its own interests in connection
with the transactions contemplated in this Agreement and the Related Agreements.
Further, the Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Related
Agreements, and the Purchaser is not purchasing the Note due to any general
solicitation made by the Company.
5.7 Accredited
Investor. The Purchaser represents that it is an accredited investor within
the
meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The
Warrant Shares, if not issued by DWAC system (as hereinafter defined), shall
bear a legend which shall be in substantially the following form until such
shares are covered by an effective registration statement filed with the
SEC:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BLAST ENERGY SERVICES, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”
(b) Each
Warrant shall bear substantially the following legend:
“THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO BLAST ENERGY SERVICES,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”
6. Covenants
of the Company.
The
Company covenants and agrees with the Purchaser as follows:
6.1 Stop-Orders.
The Company will advise the Purchaser, promptly after it receives notice of
issuance by the SEC, any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such
purpose.
6.2 Listing.
The Company shall promptly secure the listing or quotation, as applicable,
of
the shares of Common Stock issuable upon exercise of either Warrant on the
Principal Market upon which shares of Common Stock are listed or quoted for
trading, as applicable (subject to official notice of issuance) and shall
maintain such listing or quotation, as applicable, so long as any other shares
of Common Stock shall be so listed or quoted, as applicable. The Company will
maintain the listing or quotation, as applicable, of its Common Stock on the
Principal Market, and will comply in all material respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers (“NASD”) and such exchanges, as
applicable.
6.3 Market
Regulations. The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchaser
and promptly provide copies thereof to the Purchaser.
6.4 Reporting
Requirements. The Company will deliver, or cause to be delivered, to the
Purchaser each of the following, which shall be in form and detail acceptable
to
the Purchaser:
(a) As
soon
as available, and in any event within ninety (90) days after the end of each
fiscal year of the Company, each of the Company’s and each of its Subsidiaries’
audited financial statements with a report of independent certified public
accountants of recognized standing selected by the Company and acceptable to
the
Purchaser (the “Accountants”), which annual financial statements shall be
without qualification and shall include each of the Company’s and each of its
Subsidiaries’ balance sheet as at the end of such fiscal year and the related
statements of each of the Company’s and each of its Subsidiaries’ income,
retained earnings and cash flows for the fiscal year then ended, prepared on
a
consolidating and consolidated basis to include the Company, each Subsidiary
of
the Company and each of their respective affiliates, all in reasonable detail
and prepared in accordance with GAAP, together with (i) if and when available,
copies of any management letters prepared by the Accountants; and (ii) a
certificate of the Company’s President, Chief Executive Officer or Chief
Financial Officer stating whether or not such officer has knowledge of the
occurrence of any Event of Default (as defined in the Note) and, if so, stating
in reasonable detail the facts with respect thereto;
(b) As
soon
as available and in any event within forty five (45) days after the end of
each
fiscal quarter of the Company, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of the Company and each
of its Subsidiaries as at the end of and for such quarter and for the year
to
date period then ended, prepared on a consolidating and consolidated basis
to
include all the Company, each Subsidiary of the Company and each of their
respective affiliates, in reasonable detail and stating in comparative form
the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of the Company’s President, Chief
Executive
Officer or Chief Financial Officer, stating (i) that such financial statements
have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Event of Default (as defined in the Note) not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
(c) As
soon
as available and in any event within fifteen (15) days after the end of each
calendar month, an unaudited/internal statement of cash flows of each of the
Company and its Subsidiaries as at the end of and for such month and for the
year to date period then ended, prepared on a consolidating and consolidated
basis to include the Company, each Subsidiary of the Company and each of their
respective affiliates, in reasonable detail and stating in comparative form
the
figures for the corresponding date and periods in the previous year and
accompanied by a certificate of the Company’s President, Chief Executive Officer
or Chief Financial Officer, stating (i) that such statement of cash flows have
been prepared diligently and (ii) whether or not such officer has knowledge
of
the occurrence of any Event of Default (as defined in the Note) not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
(d) The
Company shall timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange
Act
or the rules or regulations thereunder would permit such termination. Promptly
after (i) the filing thereof, copies of the Company’s most recent registration
statements and annual, quarterly, monthly or other regular reports which the
Company files with the SEC, and (ii) the issuance thereof, copies of such
financial statements, reports and proxy statements as the Company shall send
to
its stockholders; and
(e) The
Company shall deliver, or cause the applicable Subsidiary of the Company to
deliver, such other information as the Purchaser shall reasonably
request.
6.5 Use
of
Funds. The Company shall use the proceeds of the sale of the Note and the
Warrants only (a) to acquire 100% of the membership interests of Eagle Domestic
Drilling Operations LLC pursuant to such documentation as shall be acceptable
to
the Purchaser and (b) for general working capital purposes only, or such other
matters as approved by the Purchaser in writing.
6.6 Access
to
Facilities. Each of the Company and each of its Subsidiaries will permit any
representatives designated by the Purchaser (or any successor of the Purchaser),
upon reasonable notice and during normal business hours, at such person’s
expense and accompanied by a representative of the Company or any Subsidiary
(provided that no such prior notice shall be required to be given and no such
representative of the Company or any Subsidiary shall be required to accompany
the Purchaser in the event the Purchaser believes such access is necessary
to
preserve or protect the Collateral (as defined in each of the Master Security
Agreement, the IP Security Agreement, the Pledge Agreement and each other
security agreement entered into by the Company and/or any of its Subsidiaries
for the benefit of the Purchaser)
(hereinafter,
the “Collateral”) or following the occurrence and during the continuance of an
Event of Default (as defined in the Note)), to:
(a) visit
and
inspect any of the properties of the Company or any of its
Subsidiaries;
(b) examine
the corporate and financial records of the Company or any of its Subsidiaries
(unless such examination is not permitted by federal, state or local law or
by
contract) and make copies thereof or extracts therefrom; and
(c) discuss
the affairs, finances and accounts of the Company or any of its Subsidiaries
with the directors, officers and independent accountants of the Company or
any
of its Subsidiaries.
Notwithstanding
the foregoing, neither the Company nor any of its Subsidiaries will provide
any
material, non-public information to the Purchaser unless the Purchaser signs
a
confidentiality agreement and otherwise complies with Regulation FD, under
the
federal securities laws.
6.7 Taxes.
Each of the Company and each of its Subsidiaries will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all taxes,
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company and its Subsidiaries; provided, however,
that any such tax, assessment, charge or levy need not be paid currently if
(i)
the validity thereof shall currently and diligently be contested in good faith
by appropriate proceedings, (ii) such tax, assessment, charge or levy shall
have
no effect on the lien priority of the Purchaser in any property of the Company
or any of its Subsidiaries and (iii) if the Company and/or such Subsidiary
shall
have set aside on its books adequate reserves with respect thereto in accordance
with GAAP; and provided, further, that the Company and its Subsidiaries will
pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor.
6.8 Insurance.
(a) The Company shall bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral and the Company, and each of its
Subsidiaries, will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for their respective Obligations (as defined in the Master
Security Agreement, the Pledge Agreement and the IP Security Agreement).
Furthermore, the Company and each Subsidiary will insure or cause the Collateral
to be insured in the Purchaser’s name as an additional insured and lender loss
payee, with an appropriate lender’s loss payable endorsements in form and
substance satisfactory to the Purchaser, against loss or damage by fire, flood,
theft, burglary, pilferage, loss in transit and other risks customarily insured
against by companies in similar business similarly situated as the Company
and
its Subsidiaries including but not limited to product liability, and such other
hazards as the Purchaser shall reasonably specify in amounts and under insurance
policies and bonds by insurers reasonably acceptable to the Purchaser and all
premiums thereon shall be paid by the Company and the Subsidiaries, as
applicable, and the policies delivered to the Purchaser. If the Company or
any
of its Subsidiaries fails to obtain the insurance and in such amounts
of
coverage
as otherwise required pursuant to this Section 6.8, the Purchaser may procure
such insurance and the costs thereof shall be promptly reimbursed by the Company
and shall constitute Obligations (as defined in the Master Security Agreement,
the Pledge Agreement and the IP Security Agreement).
(i) The
Company’s insurance coverage shall not be impaired or invalidated by any act or
neglect of the Company or any of its Subsidiaries and the insurer will provide
the Purchaser with no less than thirty (30) days notice prior of
cancellation;
(ii) The
Purchaser, in connection with its status as a lender loss payee, will be
assigned at all times to a first lien position until such time as all the
Purchaser’s Obligations (as defined in the Master Security Agreement, the Pledge
Agreement and the IP Security Agreement) have been indefeasibly satisfied in
full, except in the case of worker’s compensation insurance with respect to
which the Purchaser shall be named as loss payee only to the extent permitted
under the terms of the policy.
6.9 Intellectual
Property. Each of the Company and each of its Subsidiaries shall maintain in
full force and effect its existence, rights and franchises and all licenses
and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
6.10 Properties.
Each of the Company and each of its Subsidiaries will keep its properties,
including, without limitation, the Rig Collateral (as defined in the Master
Security Agreement), in good repair, working order and condition, protecting
the
same from deterioration, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions
and
improvements thereto; and each of the Company and each of its Subsidiaries
will
at all times comply with each provision of all leases to which it is a party
or
under which it occupies property if the breach of such provision could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.11 Confidentiality.
The Company will not, and will not permit any of its Subsidiaries to, disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of
such
requirement. Notwithstanding the foregoing, the Company may disclose the
Purchaser’s identity and the terms of this Agreement to its current and
prospective debt and equity financing sources.
6.12 Required
Approvals. (I) For so long as twenty-five percent (25%) of the principal amount
of the Note is outstanding, the Company, without the prior written consent
of
the Purchaser, shall not, and shall not permit any of its Subsidiaries
to:
(a) (i)
directly or indirectly declare or pay any dividends, other than dividends paid
to the Company or any of its wholly-owned Subsidiaries, (ii) issue any preferred
stock that is manditorily redeemable prior to the one year anniversary of the
Maturity Date (as defined in the Note) or (iii) redeem any of its preferred
stock or other equity interests;
(b) liquidate,
dissolve or effect a material reorganization (it being understood that in no
event shall the Company or any of its Subsidiaries dissolve, liquidate or merge
with any other person or entity (unless, in the case of such a merger, the
Company or, in the case of merger not involving the Company, such Subsidiary, as
applicable, is the surviving entity);
(c) become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under
any
circumstances) restrict the Company’s or any of its Subsidiaries, right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;
(d) materially
alter or change the scope of the business of the Company and its Subsidiaries
taken as a whole; or
(e) (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt and debt incurred to finance the purchase of equipment (not in excess
of
five percent (5%) of the fair market value of the Company’s and its
Subsidiaries’ assets)) whether secured or unsecured other than (x) the Company’s
obligations owed to the Purchaser, (y) indebtedness set forth on Schedule
6.12(e) attached hereto and made a part hereof and any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced, and (z) any indebtedness incurred
in
connection with the purchase of assets (other than equipment) in the ordinary
course of business, or any refinancings or replacements thereof on terms no
less
favorable to the Purchaser than the indebtedness being refinanced or replaced,
so long as any lien relating thereto shall only encumber the fixed assets so
purchased and no other assets of the Company or any of its Subsidiaries; (ii)
cancel any indebtedness owing to it in excess of $50,000 in the aggregate during
any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
person or entity, except the endorsement of negotiable instruments by the
Company or any Subsidiary thereof for deposit or collection or similar
transactions in the ordinary course of business or guarantees of indebtedness
otherwise permitted to be outstanding pursuant to this clause (e);
and
(II)
The
Company, without the prior written consent of the Purchaser, shall not, and
shall not permit any of its Subsidiaries to, create or acquire any Subsidiary
after the date hereof unless (i) such Subsidiary is a wholly-owned Subsidiary
of
the Company and (ii) such Subsidiary becomes a party to the Master Security
Agreement, the IP Security Agreement, the Pledge Agreement and the Subsidiary
Guaranty (either by executing a counterpart thereof or an assumption or joinder
agreement in respect thereof) and, to the extent required by the Purchaser,
satisfies each condition of this Agreement and the Related Agreements as if
such
Subsidiary were a Subsidiary on the Closing Date.
6.13 Reissuance
of Securities. The Company agrees to reissue certificates representing the
Securities without the legends set forth in Section 5.8 above at such time
as:
(a) the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or
(b) upon
resale subject to an effective registration statement after such Securities
are
registered under the Securities Act.
The
Company agrees to cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary
to
allow such resales provided the Company and its counsel receive reasonably
requested representations from the Purchaser and broker, if any.
6.14 Opinion.
On the Closing Date, the Company will deliver to the Purchaser an opinion
acceptable to the Purchaser from the Company’s external legal counsel. The
Company will provide, at the Company’s expense, such other legal opinions in the
future as are deemed reasonably necessary by the Purchaser (and acceptable
to
the Purchaser) in connection with the exercise of the Warrants.
6.15 Margin
Stock. The Company will not permit any of the proceeds of the Note or either
of
the Warrants to be used directly or indirectly to “purchase” or “carry” “margin
stock” or to repay indebtedness incurred to “purchase” or “carry” “margin stock”
within the respective meanings of each of the quoted terms under Regulation
U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
6.16 FIRPTA.
Neither the Company, nor any of its Subsidiaries, is a “United States real
property holding corporation” as such term is defined in Section 897(c)(2) of
the Code and Treasury Regulation Section 1.897-2 promulgated thereunder and
neither the Company nor any of its Subsidiaries shall at any time take any
action or otherwise acquire any interest in any asset or property to the extent
the effect of which shall cause the Company and/or such Subsidiary, as the
case
may be, to be a “United States real property holding corporation” as such term
is defined in Section 897(c)(2) of the Code and Treasury Regulation Section
1.897-2 promulgated thereunder.
6.18 Authorization
and Reservation of Shares. The Company shall at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide for the
exercise of each of the Warrants.
6.19 Compliance
with Laws. The Rig Collateral (as defined in the Master Security Agreement)
will
not be maintained, used or operated in violation of an law or any rule,
regulation or order of any applicable local, state, federal and/or foreign
laws
and regulations that govern the existence and/or use of the Rig
Collateral.
7.1 Confidentiality.
The Purchaser will not disclose, and will not include in any public
announcement, the name of the Company, unless expressly agreed to by the Company
or unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
7.2 Non-Public
Information. The Purchaser will not effect any sales in the shares of the
Company’s Common Stock while in possession of material, non-public information
regarding the Company if such sales would violate applicable securities
law.
7.3 Limitation
on Acquisition of Common Stock of the Company. Notwithstanding anything to
the
contrary contained in this Agreement, any Related Agreement or any document,
instrument or agreement entered into in connection with any other transactions
between the Purchaser and the Company, the Purchaser may not acquire stock
in
the Company (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other rights
shall not be enforceable or exercisable) to the extent such stock acquisition
would cause any interest (including any original issue discount) payable by
the
Company to the Purchaser not to qualify as “portfolio interest” within the
meaning of Section 881(c)(2) of the Code, by reason of Section 881(c)(3) of
the
Code, taking into account the constructive ownership rules under Section
871(h)(3)(C) of the Code (the “Stock Acquisition Limitation”). The Stock
Acquisition Limitation shall automatically become null and void without any
notice to the Company upon the earlier to occur of either (a) the Company’s
delivery to the Purchaser of a Notice of Redemption (as defined in the Note)
or
(b) the existence of an Event of Default (as defined in the Note) at a time
when
the average closing price of the Company’s common stock as reported by
Bloomberg, L.P. on the Principal Market for the immediately preceding five
(5)
trading days is greater than or equal to 150% of the Exercise Price (as defined
in each Warrant).
8.1 Company
Indemnification. The Company agrees to indemnify, hold harmless, reimburse
and
defend the Purchaser, each of the Purchaser’s officers, directors, agents,
affiliates, control persons, and principal shareholders, against all claims,
costs, expenses, liabilities, obligations, losses or damages (including
reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser
which result, arise out of or are based upon: (a) any misrepresentation by
the
Company or any of its Subsidiaries or breach of any representation or warranty
by the Company or any of its Subsidiaries in this Agreement, any other Related
Agreement or in any exhibits or schedules attached hereto or thereto; or (b)
any
breach or default in performance by Company or any of its Subsidiaries of any
covenant or undertaking to be performed by Company or any of its Subsidiaries
hereunder, under any other Related Agreement or any other agreement entered
into
by the Company and/or any of its Subsidiaries and the Purchaser relating hereto
or thereto.
8.2 Purchaser’s
Indemnification. The Purchaser agrees to indemnify, hold harmless, reimburse
and
defend the Company and each of the Company’s officers, directors, agents,
affiliates, control persons and principal shareholders, at all times against
any
claims, costs, expenses, liabilities, obligations, losses or damages (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company
which result, arise out of or are based upon: (a) any misrepresentation by
the
Purchaser or breach of any representation or warranty by the Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (b) any breach or default in performance by the Purchaser of
any
covenant or undertaking to be performed by the Purchaser hereunder, or any
other
agreement entered into by the Company and the Purchaser relating
hereto.
(a) Provided
the Purchaser has notified the Company of the Purchaser’s intention to sell the
Warrant Shares and the Warrant Shares are included in an effective registration
statement or are otherwise exempt from registration when sold: (i) upon the
exercise of the Warrant or part thereof, the Company shall, at its own cost
and
expense, take all necessary action (including the issuance of an opinion of
counsel reasonably acceptable to the Purchaser following a request by the
Purchaser) to assure that the Company’s transfer agent shall issue shares of the
Company’s Common Stock in the name of the Purchaser (or its nominee) or such
other persons as designated by the Purchaser in accordance with Section 9.1(b)
hereof and in such denominations to be specified representing the number of
Warrant Shares issuable upon such exercise; and (ii) the Company warrants that
no instructions other than these instructions have been or will be given to
the
transfer agent of the Company’s Common Stock and that after the Effectiveness
Date (as defined in the Registration Rights Agreement) the Warrant Shares issued
will be freely transferable subject to the prospectus delivery requirements
of
the Securities Act and the provisions of this Agreement, and will not contain
a
legend restricting the resale or transferability of the Warrant
Shares.
(b) The
Purchaser will give notice of its decision to exercise its right to exercise
each or both of the Warrants or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
subscribed to the Company (the “Form of Subscription”). The Purchaser will not
be required to surrender any Warrant until the Purchaser receives a credit
to
the account of the Purchaser’s prime broker through the DWAC system,
representing the Warrant Shares or until the applicable Warrant has been fully
exercised. Each date on which a Form of Subscription is telecopied or delivered
to the Company in accordance with the provisions hereof shall be deemed a
“Exercise Date.” Pursuant to the terms of the Form of Subscription, the Company
will issue instructions to the transfer agent accompanied by an opinion of
counsel, if required by such transfer agent, within two (2) business days of
the
date of the delivery to the Company of the Form of Subscription and shall cause
the transfer agent to transmit the certificates representing the Warrant Shares
set forth in the applicable Form of Subscription to the Holder by crediting
the
account of the Purchaser’s
prime
broker with the Depository Trust Company (“DTC”) through its Deposit Withdrawal
Agent Commission (“DWAC”) system within three (3) business days after receipt by
the Company of the Form of Subscription (the “Delivery Date”).
(c) The
Company understands that a delay in the delivery of the Warrant Shares in the
form required pursuant to Section 9 hereof beyond the Delivery Date could result
in economic loss to the Purchaser. In the event that the Company fails to direct
its transfer agent to deliver the Warrant Shares to the Purchaser via the DWAC
system within the time frame set forth in Section 9.1(b) above and the Warrant
Shares are not delivered to the Purchaser by the Delivery Date, as compensation
to the Purchaser for such loss, the Company agrees to pay late payments to
the
Purchaser for late issuance of the Warrant Shares in the form required pursuant
to Section 9 hereof upon exercise of the Warrant in the amount equal to the
greater of: (i) $500 per business day after the Delivery Date; or (ii) the
Purchaser’s actual damages from such delayed delivery. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand
and, in the case of actual damages, accompanied by reasonable documentation
of
the amount of such damages. Such documentation shall show the number of shares
of Common Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon such exercise,
and
shall be calculated as the amount by which (A) the Purchaser’s total purchase
price (including customary brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate amount the Exercise Price
for the applicable Warrant, as the case may be, for which such Form of
Subscription was not timely honored.
10. Registration
Rights.
10.1 Registration
Rights Granted. The Company hereby grants registration rights to the Purchaser
pursuant to the Registration Rights Agreement.
10.2 Offering
Restrictions. Except as previously disclosed in the SEC Reports or in the
Exchange Act Filings, or stock or stock options granted to employees or
directors of the Company (these exceptions hereinafter referred to as the
“Excepted Issuances”), or as set forth on Schedule 10.2 hereto, neither the
Company nor any of its Subsidiaries will, prior to the full repayment of the
Note (together with all accrued and unpaid interest and fees related thereto)
(x) enter into any equity line of credit agreement or similar agreement or
(y)
issue, or enter into any agreement to issue, any securities with a
variable/floating conversion and/or pricing feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement).
11. Miscellaneous.
11.1 Governing
Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS
AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE
TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
(b) THE
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND,
AND THE PURCHASER, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF
THE
RELATED AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT THE PURCHASER AND THE
COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A
COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT, NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
THE PURCHASER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY
AGREEMENT, THE PLEDGE AGREEMENT AND THE IP SECURITY AGREEMENT), TO REALIZE
ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS (AS DEFINED IN THE
MASTER SECURITY AGREEMENT, THE PLEDGE AGREEMENT AND THE IP SECURITY AGREEMENT),
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER. THE
COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY
OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF
THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE
BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH
IN SECTION 11.9 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS
TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR
THE
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT,
ANY
OTHER
RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
11.2 Severability.
Wherever possible each provision of this Agreement and the Related Agreements
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or any Related Agreement
shall be prohibited by or invalid or illegal under applicable law such provision
shall be ineffective to the extent of such prohibition or invalidity or
illegality, without invalidating the remainder of such provision or the
remaining provisions thereof which shall not in any way be affected or impaired
thereby.
11.3 Survival.
The representations, warranties, covenants and agreements made herein shall
survive any investigation made by the Purchaser and the closing of the
transactions contemplated hereby to the extent provided therein. All statements
as to factual matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or
instrument. All indemnities set forth herein shall survive the execution,
delivery and termination of this Agreement and the Note and the making and
repayment of the obligations arising hereunder, under the Note and under the
other Related Agreements.
11.4 Successors.
Except as otherwise expressly provided herein, the provisions hereof shall
inure
to the benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and
be
enforceable by each person or entity which shall be a holder of the Securities
from time to time, other than the holders of Common Stock which has been sold
by
the Purchaser pursuant to Rule 144 or an effective registration statement.
The
Purchaser shall not be permitted to assign its rights hereunder or under any
Related Agreement to a competitor of the Company unless an Event of Default
(as
defined in the Note) has occurred and is continuing.
11.5 Entire
Agreement; Maximum Interest. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
Nothing contained in this Agreement, any Related Agreement or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law. In the event that the
rate of interest or dividends required to be paid or other charges hereunder
exceed the maximum rate permitted by such law, any payments in excess of such
maximum shall be credited against amounts owed by the Company to the Purchaser
and thus refunded to the Company.
(a) This
Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.
(b) The
obligations of the Company and the rights of the Purchaser under this Agreement
may be waived only with the written consent of the Purchaser.
(c) The
obligations of the Purchaser and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.
11.7 Delays
or
Omissions. It is agreed that no delay or omission to exercise any right, power
or remedy accruing to any party, upon any breach, default or noncompliance
by
another party under this Agreement or the Related Agreements, shall impair
any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or
in
any similar breach, default or noncompliance thereafter occurring. All remedies,
either under this Agreement or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
11.8 Notices.
All notices required or permitted hereunder shall be in writing and shall be
deemed effectively given:
(a) upon
personal delivery to the party to be notified;
(b) when
sent
by confirmed facsimile if sent during normal business hours of the recipient,
if
not, then on the next business day;
(c) three
(3)
business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or
(d) one
(1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt.
All
communications shall be sent as follows:
If
to the Company, to:
|
00000
Xxxxxx Xxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxxx,
Xxxxx 00000
Attention: Chief
Financial Officer
Facsimile: 000-000-0000
|
with
a copy to:
|
|
Xxxxx
and Xxxxx LLP
4400
One Houston Center
0000
XxXxxxxx
Xxxxxxx,
Xxxxx 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxxxx X. Xxxxxx
|
|
If
to the Purchaser, to:
|
Laurus
Master Fund, Ltd.
c/o
M&C Corporate Services Limited
X.X.
Xxx 000 XX
Xxxxxx
Xxxxx
Xxxxxx
Xxxx
South
Church Street
Grand
Cayman, Cayman Islands
Facsimile: 000-000-0000
|
with
a copy to:
|
|
Xxxx
X. Xxxxxx, Esq.
000
Xxxxx Xxxxxx 00xx Xxxxx
Xxx
Xxxx, XX 00000
Facsimile: 000-000-0000
|
|
with
a copy to:
|
|
Loeb
& Loeb LLP
000
Xxxx Xxxxxx
Xxx
Xxxx, XX 00000
Attention: Xxxxx
X. Xxxxxxxx, Esq.
Facsimile: 000-000-0000
|
or
at
such other address as the Company or the Purchaser may designate by written
notice to the other parties hereto given in accordance herewith.
11.9 Attorneys’
Fees. In the event that any suit or action is instituted to enforce any
provision in this Agreement or any Related Agreement, the prevailing party
in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement and/or such Related Agreement, including, without
limitation, such reasonable and customary fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
11.10 Titles
and Subtitles. The titles of the sections and subsections of this Agreement
are
for convenience of reference only and are not to be considered in construing
this Agreement.
11.11 Facsimile
Signatures; Counterparts. This Agreement may be executed by facsimile signatures
and in any number of counterparts, each of which shall be an original, but
all
of which together shall constitute one agreement.
11.12 Broker’s
Fees. Except as set forth on Schedule 11.12 hereof, each party hereto represents
and warrants that no agent, broker, investment banker, person or firm acting
on
behalf of or under the authority of such party hereto is or will be entitled
to
any broker’s or
finder’s
fee or any other commission directly or indirectly in connection with the
transactions contemplated herein. Each party hereto further agrees to indemnify
each other party for any claims, losses or expenses incurred by such other
party
as a result of the representation in this Section 11.12 being
untrue.
11.13 Construction.
Each party acknowledges that its legal counsel participated in the preparation
of this Agreement and the Related Agreements and, therefore, stipulates that
the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Agreement or any
Related Agreement to favor any party against the other.
For
good
and valuable consideration, receipt of which is hereby acknowledged, Purchaser
hereby appoints Company (the “Proxy Holder”), with a mailing address set forth
in Section 11.8, with full power of substitution, as proxy, to vote all shares
of Common Stock of the Company, now or in the future owned by Purchaser, but
only to the extent issuable upon exercise of the Par Value Warrant and all
other
warrants and/or options issued by the Company in favor of the Purchaser with
an
exercise price equal to the par value of the Company’s Common Stock
(collectively, the “Shares”).
This
proxy is irrevocable and coupled with an interest. Upon the sale or other
transfer of the Shares, in whole or in part, this proxy shall automatically
terminate with respect to such sold or transferred Shares at the time of such
sale and/or transfer without any further action required by any
Person.
Purchaser
shall use its best efforts to forward to Proxy Holder within two (2) business
days following Purchaser’s receipt thereof, at the address for Proxy Holder set
forth in Section 11.8, copies of all materials received by Purchaser relating,
in each case, to the solicitation of the vote of shareholders of the
Company.
This
proxy shall remain in effect with respect to the Shares of the Company during
the period commencing on the date hereof and continuing until the earlier of
(a)
payment in full of all obligations and liabilities owing by the Company to
Purchaser (as the same may be amended, restated, extended or modified from
time
to time) and (b) the occurrence and continuance of a default or event of default
under any document, instrument or agreement between any Company and, or made
by
any Company in favor of, Purchaser.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY:
|
PURCHASER:
|
LAURUS
MASTER FUND, LTD.
|
|
By:
/s/
Xxxx X’Xxxxx
|
By:
/s/
Laurus Master Fund, LTD
|
Name:
Xxxx X’Xxxxx
|
Name:
|
Title:
EVP, CFO & Co-CEO
|
Title:
|
EXHIBIT
A
FORM
OF SECURED TERM NOTE
EXHIBIT
B
FORM
OF PAR VALUE WARRANT
EXHIBIT
C
FORM
OF Additional Warrant
EXHIBIT
D
FORM
OF OPINION
(e) The
Company and each of its Subsidiaries is a corporation duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
formation and has all requisite corporate and limited liability company power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
(f) Each
of
the Company and each of its Subsidiaries has the requisite corporate and limited
liability company power and authority to execute, deliver and perform its
obligations under the Agreement and the Related Agreements. All corporate and
limited liability company action on the part of the Company and each of its
Subsidiaries and its officers, directors and stockholders and members necessary
has been taken for: (i) the authorization of the Agreement and the Related
Agreements and the performance of all obligations of the Company and each of
its
Subsidiaries thereunder; and (ii) the authorization, sale, issuance and delivery
of the Securities pursuant to the Agreement and the Related Agreements. The
Warrant Shares, when issued pursuant to and in accordance with the terms of
the
Agreement and the Related Agreements and upon delivery shall be validly issued
and outstanding, fully paid and non assessable.
(g) The
execution, delivery and performance by each of the Company and each of its
Subsidiaries of the Agreement and the Related Agreements (to which it is a
party) and the consummation of the transactions on its part contemplated by
any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate
the provisions of their respective Charter, bylaws or operating agreement;
or
(b) Violate
any judgment, decree, order or award of any court binding upon the Company
or
any of its Subsidiaries; or
(c) Violate
any New York, California, Texas, Louisiana, Arkansas, Oklahoma or federal
law.
(h) The
Agreement and the Related Agreements will constitute, valid and legally binding
obligations of each of the Company and each of its Subsidiaries (to the extent
such entity is a party thereto), and are enforceable against each of the Company
and each of its Subsidiaries party thereto in accordance with their respective
terms, except:
(a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and
(b) general
principles of equity that restrict the availability of equitable or legal
remedies.
(i) To
such
counsel’s knowledge, the sale of the Note is not subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. To such counsel’s knowledge, the sale of either or both of the Warrants
and the subsequent exercise of each such Warrant for Warrant Shares are not
subject to any preemptive rights or, to such counsel’s knowledge, rights of
first refusal that have not been properly waived or complied with.
(j) Assuming
the accuracy of the representations and warranties of the Purchaser contained
in
the Agreement, the offer, sale and issuance of the Securities on the Closing
Date will be exempt from the registration requirements of the Securities Act.
To
such counsel’s knowledge, 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 of any security or solicited any offers to buy and security
under circumstances that would cause the offering of the Securities pursuant
to
the Agreement or any Related Agreement to be integrated with prior offerings
by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act,
or
any applicable exchange-related stockholder approval provisions.
(k) There
is
no action, suit, proceeding or investigation pending or, to such counsel’s
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the right of the Company or any of its Subsidiaries to enter
into
this Agreement or any Related Agreement, or to consummate the transactions
contemplated thereby. To such counsel’s knowledge, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree
of
any court or government agency or instrumentality; nor is there any action,
suit, proceeding or investigation by the Company currently pending or which
the
Company intends to initiate.
(l) The
terms
and provisions of the Master Security Agreement, the IP Security Agreement
and
the Pledge Agreement create a valid security interest in favor of the Purchaser,
in the respective rights, title and interests of the Company and its
Subsidiaries in and to the Collateral (as defined in each of the Master Security
Agreement, the Pledge Agreement and the IP Security Agreement). Each UCC-1
Financing Statement naming the Company or any Subsidiary thereof as debtor
and
the Purchaser as secured party are in proper form for filing (the “UCC-1
Financing Statements”) and assuming that such UCC-1 Financing Statements have
been filed with the Secretary of State of ___________, the security interest
created under the Master Security Agreement will constitute a perfected security
interest under the Uniform Commercial Code in favor of the Purchaser in respect
of the Collateral that can be perfected by filing a financing statement. A
security interest in the Rig Collateral (as defined in the Master Security
Agreement) will be perfected by the filing of each UCC-1 Financing Statement
with the Secretary of State of _____________. After giving effect to the
delivery to the Purchaser of the membership certificates representing the
ownership interests of each Subsidiary of the Company (together with effective
endorsements) and assuming the continued possession by the Purchaser of such
stock certificates in the State of New York, the security interest created
in
favor of the Purchaser under the Pledge Agreement constitutes a valid and
enforceable first perfected security interest in such ownership interests (and
the proceeds thereof) in favor of the Purchaser, subject to no other security
interest. No filings, registrations or recordings are required in order to
perfect
(or maintain the perfection or priority of) the security interest created under
the Pledge Agreement in respect of such ownership interests.
EXHIBIT
E
FORM
OF ESCROW AGREEMENT