Exhibit 10.1
Execution Copy
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SECURITIES PURCHASE AGREEMENT
by and among
Cubic Energy, Inc.
and
CERTAIN PURCHASERS
IDENTIFIED HEREIN
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Dated as of December 12, 2005
TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS.........................................................1
Section 1.1 Defined Terms.................................................1
Section 1.2 Accounting Procedures and Interpretation......................6
ARTICLE II. PURCHASE AND SALE OF SECURITIES....................................7
Section 2.1 Purchase and Sale of Securities...............................7
Section 2.2 Consideration for Securities..................................7
Section 2.3 Escrow Agreement..............................................7
ARTICLE III. CLOSING...........................................................7
Section 3.1 Closing.......................................................7
Section 3.2 Condition to Each Party's Obligations.........................7
Section 3.3 Conditions to the Company's Obligations.......................8
Section 3.4 Conditions to Each Purchaser's Obligations....................8
Section 3.5 Deliveries at Closing.........................................8
Section 3.6 Independent Nature of Purchasers' Obligations and Rights.....10
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................10
Section 4.1 Organization of the Company..................................10
Section 4.2 Capitalization of the Company................................11
Section 4.3 Authorization of Issuance....................................11
Section 4.4 Due Authorization............................................11
Section 4.5 No Conflict..................................................12
Section 4.6 Consents and Approvals.......................................12
Section 4.7 Subsidiaries.................................................12
Section 4.8 SEC Filings; Interim Financial Statements....................13
Section 4.9 Absence of Undisclosed Liabilities...........................14
Section 4.10 Absence of Certain Changes...................................14
Section 4.11 Compliance With Laws.........................................14
Section 4.12 Litigation...................................................15
Section 4.13 Employee Benefit Plans and Other Agreements..................15
Section 4.14 Taxes........................................................15
Section 4.15 Oil and Gas Properties; Reserve Reports......................16
Section 4.16 Environmental Matters........................................18
Section 4.17 Insurance....................................................19
Section 4.18 Title to Assets..............................................19
Section 4.19 Condition of Tangible Assets.................................19
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Section 4.20 Labor Matters................................................20
Section 4.21 Intellectual Property........................................20
Section 4.22 No Brokers...................................................20
Section 4.23 Affiliated Transactions......................................20
Section 4.24 Reporting Status; Eligibility to Use Form SB-2...............21
Section 4.25 Representations Complete.....................................21
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.......................21
Section 5.1 Standing of Purchaser........................................21
Section 5.2 Due Authorization............................................21
Section 5.3 Purchase for Investment......................................22
Section 5.4 No Legal, Tax or Investment Advice...........................22
Section 5.5 No Brokers...................................................23
ARTICLE VI. COVENANTS.........................................................23
Section 6.1 Continuing Operations........................................23
Section 6.2 Press Releases...............................................24
Section 6.3 Financial Statements, Reports, Etc...........................24
Section 6.4 Use of Proceeds..............................................25
Section 6.5 Continued Eligibility to Use Form SB-2 or S-3................25
Section 6.6 Listing......................................................25
Section 6.7 Legend.......................................................25
Section 6.8 Confidentiality..............................................26
Section 6.9 Issuance of Warrants.........................................26
Section 6.10 Disclosure of Affiliated Transactions........................26
Section 6.11 Capitalization...............................................27
ARTICLE VII. INDEMNIFICATION..................................................27
Section 7.1 Survival of Representations, Etc.............................27
Section 7.2 Indemnification by the Company...............................27
Section 7.3 Defense of Claims............................................27
ARTICLE VIII. MISCELLANEOUS...................................................28
Section 8.1 Termination..................................................28
Section 8.2 In the Event of Termination..................................28
Section 8.3 Expenses.....................................................28
Section 8.4 Injunctive Relief............................................29
Section 8.5 Assignment...................................................29
Section 8.6 Notices......................................................29
Section 8.7 Choice of Law; Venue.........................................30
Section 8.8 Interpretation of Provisions.................................30
Section 8.9 Entire Agreement; Amendments and Waivers;
No Side Agreements...........................................31
Section 8.10 Acknowledgment...............................................31
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Section 8.11 Counterparts.................................................31
Section 8.12 Invalidity...................................................31
Section 8.13 Headings.....................................................31
Names, Addresses and Share Amounts of Purchasers.......................Exhibit A
Form of Escrow Agreement...............................................Exhibit B
Form of Registration Rights Agreement..................................Exhibit C
Form of Warrant........................................................Exhibit D
Form of Opinion........................................................Exhibit E
Form of Press Release..................................................Exhibit F
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement"), dated as of
December 12, 2005, is by and among Cubic Energy, Inc., a Texas corporation (the
"Company"), and those individuals and entities identified on the signature
page(s) to this Agreement (each a "Purchaser" and collectively the
"Purchasers").
RECITAL
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to sell to the Purchasers, and each Purchaser
desires severally to purchase from the Company, the number of shares ("Purchased
Shares") of common stock, par value $0.05 per share ("Common Stock"), and
Warrants to purchase the number of shares of Common Stock, in each case as
listed opposite such Purchaser's name on Exhibit A, for the consideration as set
forth in Section 2.2. The aggregate number of Purchased Shares being purchased
is 2,500,000 shares and the aggregate number of Warrants being purchased is
Warrants to purchase 1,000,000 shares of Common Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Defined Terms. As used herein, the terms below shall have
the following meanings:
"Affiliate" shall mean any entity controlling, controlled by or under
common control with the Company. For the purposes of this definition, "control"
shall have the meaning presently specified for that word in Rule 405 promulgated
by the SEC under the Securities Act.
"Agreement" shall mean this Securities Purchase Agreement, together
with all schedules and exhibits referenced herein.
"Applicable Law" means any statute, law, rule or regulation or any
judgment, order, writ, injunction or decree of any Governmental Entity to which
a specified Person or property is subject.
"Articles of Incorporation" means the Articles of Incorporation of the
Company, as amended or restated, and as in effect on the date hereof.
"Awards" means outstanding options to purchase, or restricted stock
units convertible into, Common Stock of the Company or common stock of any of
its Subsidiaries.
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"Board of Directors" means the Board of Directors of the Company as it
may be constituted from time to time.
"Business Day" means a day other than a Saturday or Sunday or a legal
holiday for commercial banks located in Dallas, Texas.
"Bylaws" means the Bylaws of the Company as in effect on the date
hereof.
"Claim" has the meaning set forth in Section 7.3 of this Agreement.
"Claim Notice" has the meaning set forth in Section 7.3 of this
Agreement.
"Closing" has the meaning set forth in Section 3.1 of this Agreement.
"Closing Date" means December 12, 2005, or such other date two (2)
business days immediately following the date on which each Purchaser notifies
the Company that the conditions to each of the Purchaser's obligations to
Closing have been satisfied in the sole and absolute discretion of such
Purchaser.
"Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
"Common Stock" has the meaning set forth in the recitals of this
Agreement.
"Confidential Private Placement Memorandum" has the meaning set forth
in Section 4.8(d) of this Agreement.
"Disclosure Letter" means a letter delivered by the Company to the
Purchasers which provides exceptions, qualifications and other information
relating to the Company's representations and warranties.
"Employee Plans" means all Multiemployer Plans, Pension Plans and
Welfare Plans.
"Encumbrance" means any claim, lien, pledge, easement, security
interest or encumbrance of third parties, and, with respect to any securities,
any agreements, understandings or restrictions affecting the voting rights or
other incidents of record or beneficial ownership pertaining to such securities.
"Environmental Conditions" means the Release or threatened Release of
any Hazardous Material (whether or not upon a Facility or any former facility or
other property and whether or not such Release constituted at the time thereof a
violation of any Environmental Law) as a result of which the Company is
reasonably expected to be, or to become, liable to any Person, or by reason of
which any Facility, any former facility or any of the assets of the Company is
reasonably expected to be subjected to any Encumbrances.
"Environmental Laws" means any and all foreign, federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances, codes,
legally binding decrees, or other requirement of any Governmental Entity
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regulating, relating to or imposing liability or standards of conduct concerning
protection of the environment or of human health relating to exposure of any
kind of Hazardous Materials, as is now in effect.
"Environmental Permits" means any and all permits, licenses,
registrations, notifications, exemptions and any other authorization required
under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity which is (or at any relevant time
was) a member of a "controlled group of corporations" with, under "common
control" with, a member of an "affiliated service group" with, or otherwise
required to be aggregated with the Company, as set forth in Section 414(b), (c),
(m) or (o) of the Code.
"Escrow Agent" has the meaning set forth in Section 2.3(a) of this
Agreement.
"Escrow Agreement" means the escrow agreement by and among the Escrow
Agent and the Purchasers in the form attached hereto as Exhibit B.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the SEC thereunder.
"Facilities" means the offices and buildings and all other real
property which are owned, leased or operated by the Company or any Subsidiary.
"Fixtures and Equipment" means all of the furniture, fixtures,
furnishings, machinery and equipment owned by the Company or any Subsidiary.
"GAAP" has the meaning set forth in Section 4.8 of this Agreement.
"Governmental Entity" means with respect to a particular Person, the
country, state, county, city and political subdivisions in which such Person or
such Person's Property is located or which exercises valid jurisdiction over any
such Person or such Person's Property, and any court, agency, department,
commission, board, bureau or instrumentality of any of them and any monetary
authority which exercises valid jurisdiction over any such Person or such
Person's Property. Unless otherwise specified, all references to Governmental
Authority herein with respect to the Company or a Subsidiary of the Company
means a Governmental Authority having jurisdiction over the Company, its
Subsidiaries or any of their respective Properties.
"Hazardous Materials" means any hazardous substance, gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, ureaformaldehyde insulation, asbestos or
asbestos-containing materials, pollutants, contaminants, radioactivity, and any
other materials or substances of any kind, whether solid, liquid or gas, and
whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or that
could give rise to liability under any Environmental Law.
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"Interim Period" has the meaning set forth in Section 6.1 of this
Agreement.
"IRS" has the meaning set forth in Section 4.13(b)(i)(C) of this
Agreement.
"Knowledge of the Company" (or similar language to that effect) means
to the knowledge, after due inquiry, of any executive officer of the Company.
"Losses" has the meaning set forth in Section 7.2 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean an
event, occurrence or condition that has had, or would be reasonably expected to
have, a material adverse change or effect on the business, condition (financial
or otherwise), operating prospects, assets, liabilities, or results of
operations of the Company or its Subsidiaries, taken as a whole, other than as a
result of (i) changes generally adversely affecting the economy or (ii) changes
in prices for oil and natural gas.
"Multiemployer Plan" means with respect to the Company and any of its
Subsidiaries any "multiemployer plan," as defined in Section 4001(a)(3) of
ERISA, (A) to which the Company and any of its Subsidiaries or any ERISA
Affiliate of the Company and any of its Subsidiaries maintains, administers,
contributes or is required to contribute and (B) which covers any employee or
former employee of the Company and any of its Subsidiaries or any ERISA
Affiliate of the Company and any of its Subsidiaries (with respect to their
relationship with such entities).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means with respect to the Company and any of its
Subsidiaries any "employee pension benefit plan" as defined in Section 3(2) of
ERISA (other than a Multiemployer Plan) (A) which the Company and any of its
Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries
maintains, administers, contributes to or is required to contribute to and (B)
which covers any current employee or former employee, director or consultant of
the Company and any of its Subsidiaries or any ERISA Affiliate of the Company
and any of its Subsidiaries (with respect to their relationship with such
entities).
"Permits" means with respect to the Company and its Subsidiaries, any
licenses, permits, variances, waivers, grants, franchises, concessions, orders,
consents, approvals, registrations, authorizations, qualifications, filings or
approvals of any Governmental Entity required for the ownership, leasing,
operation, occupancy and use of its Properties and the conduct of its business
as currently conducted entity.
"Permitted Encumbrances" means any (i) mechanic's or materialmen's lien
or similar Encumbrances with respect to amounts not yet due and payable or which
are being contested in good faith, (ii) Encumbrances for Taxes not yet due and
payable or which are being contested in good faith, (iii) easements,
rights-of-way, servitudes, exceptions, encroachments, reservations,
restrictions, covenants, conditions or limitations which do not in the aggregate
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materially interfere with or impair the operation, value or use of the
properties affected thereby for the purposes for which they have been used by
the Company or its Subsidiaries in the ordinary course of its business, and (iv)
zoning and other land use laws.
"Permitted Oil and Gas Encumbrances" has the meaning set forth in
Section 4.15(b).
"Person" means any individual, corporation, association, partnership,
joint venture, limited liability company, trust, estate or government or any
agency, instrumentality or political subdivision thereof, or any other form of
entity or organization.
"Private Placement Legend" has the meaning set forth in Section 6.7(a)
of this Agreement.
"Proceeding" means any action, suit or proceeding by or before any
Governmental Entity, whether civil, criminal, administrative, arbitrative or
investigative or any appeal in such an action, suit or proceeding.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Proprietary Rights" has the meaning set forth in Section 4.21(a) of
this Agreement.
"Purchaser Indemnified Parties" has the meaning set forth in Section
7.2 of this Agreement.
"Purchased Shares" has the meaning set forth in the recitals of this
Agreement.
"Registration Rights Agreement" means the registration rights agreement
by and among the Company and the Purchasers in the form attached hereto as
Exhibit C.
"Release" means and includes any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment or the workplace of any Hazardous Materials.
"SEC" means the United States Securities and Exchange Commission.
"SEC Filings" means all forms, reports, schedules, statements and other
documents required to be filed by the Company under the Securities Act, Exchange
Act and the rules and regulations promulgated thereunder.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which at least a majority in interest of the outstanding voting stock is at the
time, directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any corporate or non-corporate entity in which such Person,
one or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
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determination thereof, has an ownership interest and 100% of the revenue of
which is included in the consolidated financial reports of such Person
consistent with GAAP.
"Tax" or "Taxes" means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax, including any interest, penalty or addition
thereto, whether disputed or not, imposed by any Governmental Authority or
arising under any Tax law or agreement.
"Taxpayer" has the meaning set forth in Section 4.14 of this Agreement.
"Tax Return" means any return, report, information return or other
document (including any related or supporting information) relating to Taxes,
including without limitation all information returns, any claims for refunds of
Taxes and any amendments or supplements to any of the foregoing.
"Third Party Notice" has the meaning set forth in Section 7.3 of this
Agreement.
"Transaction" means, taken together, the transactions contemplated
under this Agreement.
"Warrants" means the warrants to purchase Common Stock of the Company
issued to each Purchaser at the Closing Date, the form of which is attached as
Exhibit D.
"Warrant Shares" means the shares of Common Stock or other securities
issuable upon the exercise of the Warrants.
"Welfare Plan" means, with respect to the Company and any of its
Subsidiaries, any "employee welfare benefit plan" as defined in Section 3(1) of
ERISA, (A) which the Company and any of its Subsidiaries or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, and (B)
which covers any employee or former employee of the Company and its Subsidiaries
(with respect to their relationship with such entities).
Section 1.2 Accounting Procedures and Interpretation. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Purchasers hereunder shall be prepared, in
accordance with GAAP applied on a consistent basis during the periods involved
(except, in the case of unaudited statements, as permitted by Form 10-QSB
promulgated by the SEC) and in compliance as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto.
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ARTICLE II.
PURCHASE AND SALE OF SECURITIES
Section 2.1 Purchase and Sale of Securities. Upon the terms and subject
to the conditions contained herein, on the Closing Date, the Company will issue
and sell to each Purchaser, and each Purchaser will severally purchase from the
Company, that number of the Purchased Shares and a Warrant to purchase a number
of shares of Common Stock as set forth opposite such Purchaser's name on Exhibit
A hereto. The obligation of each Purchaser under this Agreement is several and
not joint and is independent of the obligation of each other Purchaser, and the
failure of, or the Company's waiver of, performance by any Purchaser does not
excuse performance by any other Purchaser or the Company.
Section 2.2 Consideration for Securities. Upon the terms and subject to
the conditions contained herein, as consideration for the purchase of the
Purchased Shares and Warrants, on the Closing Date, each Purchaser shall pay to
the Company by wire transfer of immediately available funds, the cash purchase
price set forth opposite such Purchaser's name on Exhibit A hereto.
Section 2.3 Escrow Agreement.
(a) Concurrently with the execution of this Agreement, each Purchaser
shall make a deposit with Colonial Bank, N.A. (the "Escrow Agent") equal to the
cash purchase price set forth opposite such Purchaser's name on Exhibit A
hereto, to be held by the Escrow Agent pursuant to the terms of the Escrow
Agreement. Upon Closing, the funds held in escrow shall be distributed to the
Company at the direction of each Purchaser as payment of such Purchaser's
purchase price.
(b) Concurrently with the execution of this Agreement, the Company
shall deliver the Purchased Shares and Warrants to Xxxxxx and Xxxxx, LLP to be
held at the offices of Xxxxxx and Xxxxx, LLP, until distributed to the
Purchasers at Closing. In the event this Agreement is terminated prior to
Closing, the Purchased Shares and Warrants will be returned to the Company.
ARTICLE III.
CLOSING
Section 3.1 Closing. The closing of the transactions contemplated
herein (the "Closing") shall be held at 10:00 a.m. Central Time on the Closing
Date at the offices of Xxxxxx and Xxxxx, LLP, 000 Xxxx Xxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxx 00000-0000, unless the parties hereto otherwise agree.
Section 3.2 Condition to Each Party's Obligations. Neither party shall
be obligated to consummate the transactions contemplated hereby if, on or prior
to the Closing Date, (i) any statute, rule, order, decree or regulation shall
have been enacted or promulgated, or any action shall have been taken, by or
before any Governmental Entity of competent jurisdiction which temporarily,
preliminarily or permanently restrains, precludes, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby or makes the
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transactions contemplated hereby illegal or (ii) there shall be any pending or
threatened action or proceeding by or before a court or governmental body
brought by or on behalf of any Governmental Entity seeking to restrain or
invalidate all or any portion of the transactions contemplated hereunder.
Section 3.3 Conditions to the Company's Obligations. The obligations of
the Company to consummate the transactions contemplated hereby on the Closing
Date with a Purchaser shall be subject to the satisfaction or waiver on the
Closing Date, of the condition that (i) each representation and warranty of such
Purchaser contained in this Agreement shall be true and correct in all material
respects (unless such representation or warranty is qualified as to materiality,
in which case it shall be true and correct in all respects) (A) on the date
hereof and (B) at and as of the Closing Date, as if such representations and
warranties were made by such Purchaser at and as of the Closing Date and (ii)
the Company shall have received adequate assurance from the Purchasers or Petro
Capital Advisors, LLC that $2,000,000 in good funds, representing the aggregate
consideration for the Purchased Shares and Warrants subscribed for hereunder,
will be available on the Closing Date.
Section 3.4 Conditions to Each Purchaser's Obligations. The obligation
of each Purchaser to consummate the transactions contemplated hereby on the
Closing Date is subject to the satisfaction or waiver by such Purchaser on the
Closing Date of each of the following conditions:
(a) Representations, Warranties and Covenants. Each representation and
warranty of the Company contained in this Agreement shall be true and correct in
all material respects (unless such representation or warranty is qualified as to
materiality, in which case it shall be true and correct in all respects) (i) on
the date hereof and (ii) at and as of the Closing Date, as if such
representations and warranties were made at and as of the Closing Date. The
Company shall have performed in all material respects all agreements and
covenants required hereby to be performed prior to or at the Closing Date. There
shall be delivered to such Purchaser a certificate (signed by the President and
Chief Executive Officer of the Company) to the foregoing effect.
(b) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to each such Purchaser and its counsel, and such Purchaser
and its counsel shall have received all such counterpart originals or certified
or other copies of such documents as reasonably requested.
(c) No Adverse Changes. Since June 30, 2005, there shall not have
occurred any Material Adverse Change, except as disclosed in the SEC Filings.
(d) Due Diligence.(e) Each of the Purchasers shall have completed its
due diligence investigation to its satisfaction, as determined in such
Purchaser's sole and absolute discretion.
(f) Closing Deliveries. The Company shall have made the Closing
deliveries described in Section 3.5.
Section 3.5 Deliveries at Closing. At the Closing, subject to the terms
and conditions hereof, the Company will deliver, or cause to be delivered, to
each Purchaser:
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(a) The Purchased Shares. The Company shall deliver to each Purchaser
the Purchased Shares purchased by such Purchaser by delivery of certificates
evidencing such Purchased Shares meeting all of the requirements of Texas law
and the Company's Articles of Incorporation and Bylaws, free and clear of any
Encumbrances of any other Person and (subject to the terms of this Agreement)
such Purchaser will make payment to the Company of such Purchaser's purchase
price by wire transfer of immediately available funds to the Company's account
as specified by the Company to such Purchaser in writing.
(b) Opinions of Counsel. The Company shall have delivered to the
Purchasers the opinions of Gardere Xxxxx Xxxxxx LLP, counsel for the Company,
with respect to the matters set forth in Exhibit E.
(c) Certificates. The Purchasers and shall have received the following
certificates:
(i) The Company shall furnish the Purchasers with such
certificates of the Chief Executive Officer and the Secretary of the
Company and others to evidence compliance with the conditions set forth
in this Section 3.5 as may be reasonably requested by the Purchasers.
(ii) The Company shall furnish the Purchasers with a
certificate of the Company's transfer agent certifying as to the number
of issued and outstanding shares of capital stock of the Company as of
the Closing Date.
(d) Supporting Documents. The Purchasers and their counsel shall have
received copies of the following documents:
(i) (A) the Certificate of Good Standing of the Company,
certified as of a recent date by the Comptroller of Public Accounts of
the State of Texas, and (B) a Certificate of Existence of the Company,
certified as of a recent date by the Secretary of State of the State of
Texas as to the existence of the Company in Texas and listing all
documents of the Company on file with said Secretary;
(ii) a certificate of the Secretary of the Company dated the
Closing Date, addressed to such Purchaser and certifying: (A) that
attached thereto is a true and complete copy of the Bylaws of the
Company as in effect on the date of such certification; (B) that
attached thereto is a true and complete copy of all resolutions adopted
by the Board of Directors of the Company authorizing the execution,
delivery and performance of this Agreement, the Registration Rights
Agreement and the issuance, sale and delivery of the Purchased Shares
and the Warrants and the reservation, issuance and delivery of the
Warrant Shares, and that all such resolutions are in full force and
effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; and (C) the incumbency and
specimen signature of each officer of the Company executing any of this
Agreement, the Registration Rights Agreement and the Warrants, and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency
and signature of the Secretary; and
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(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchasers or their counsel reasonably may request.
(e) Registration Rights Agreement. The Company shall have duly executed
and delivered to such Purchaser a counterpart of the Registration Rights
Agreement.
(f) Warrants. The Company shall have duly executed and delivered to
such Purchaser the Warrants being purchased by such Purchaser.
Section 3.6 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser under this Agreement, the Registration Rights
Agreement and the Warrants are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under this Agreement, the
Registration Rights Agreement or the Warrants. Nothing contained herein or in
any of the Registration Rights Agreement or the Warrant, and no action taken by
any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
this Agreement, the Registration Rights Agreement or the Warrants. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this agreement or out of
the Registration Rights Agreement or Warrant, and it shall not be necessary for
any other Purchaser to be joined as an additional party in any proceeding for
such purpose.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce each Purchaser to purchase such Purchaser's
Purchased Shares and Warrants, the Company represents and warrants to each
Purchaser that, except as set forth in the Disclosure Letter, as follows:
Section 4.1 Organization of the Company. The Company is a corporation
legally incorporated, duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite corporate power and
authority to own, lease, and operate its Properties and to carry on its business
as presently being conducted. No actions or proceedings to dissolve the Company
are pending or, to the Knowledge of the Company, threatened. The copies of the
Articles of Incorporation and Bylaws heretofore delivered by the Company to the
Purchasers are accurate and complete as of the date of this Agreement. The
Company is duly qualified or licensed to do business as a foreign corporation
and is in good standing in each jurisdiction in which the property owned,
leased, or operated by it or the conduct of its business requires such
qualification or licensing, except where the failure to do so taken in the
aggregate would not have a Material Adverse Effect.
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Section 4.2 Capitalization of the Company.
(a) The authorized capital stock of the Company as of the date hereof,
consists solely of 50,000,000 shares of Common Stock, $0.05 par value per share,
and 10,000,000 shares of preferred stock, $0.01 par value per share. As of the
Closing Date, (i) 35,200,626 shares of Common Stock were issued and outstanding,
(ii) 3,750,000 shares of Common Stock were reserved for issuance upon exercise
of Awards (whether vested or unvested as of the date hereof), (iii) 2,635,000
shares of Common Stock were reserved for issuance upon exercise of outstanding
warrants, and (iv) 4,246,375 shares of Common Stock were reserved for issuance
upon conversion of outstanding convertible notes. All outstanding shares of
Common Stock have been validly issued and are fully paid and non-assessable,
conform in all material respects to the description thereof contained in the
Confidential Private Placement Memorandum and were issued in compliance with the
Securities Act and applicable state securities laws, and no shares of capital
stock of the Company are subject to, nor have any been issued in violation of,
any preemptive or similar rights.
(b) Except as set forth in Section 4.2(a), or as contemplated by this
Agreement, there are outstanding (i) no shares of capital stock or other voting
securities of the Company; (ii) no securities of the Company convertible into or
exchangeable for shares of capital stock or other voting securities of the
Company; or (iii) no subscriptions, options, warrants, calls, commitments,
preemptive rights or other rights of any kind to acquire from the Company, and
no obligation of the Company to issue or sell any shares of capital stock or
other voting securities of the Company or any securities of the Company
convertible into or exchangeable for such capital stock or voting securities.
There are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of Common Stock or any other securities
of the type described in clauses (i)-(iii) of the preceding sentence. Except as
provided in this Agreement, there are no restrictions upon the voting or
transfer of any share of the capital stock or other voting securities of the
Company pursuant to the Articles of Incorporation, the Bylaws or other governing
documents or any agreement or other instrument to which the Company is a party,
other than restricted stock held by certain employees.
Section 4.3 Authorization of Issuance. When acquired by a Purchaser as
provided in this Agreement, the Purchased Shares to be acquired by each
Purchaser from the Company will be duly authorized and validly issued, fully
paid and non-assessable and not subject to, or issued in violation of, any
preemptive or similar rights, and the Warrant Shares will be duly authorized and
reserved for issuance, and, upon issuance thereof upon the exercise of the
Warrants in accordance with their terms will be validly issued, fully paid and
non-assessable and not subject to, or issued in violation of, any preemptive or
similar rights. Assuming the accuracy of the representations and warranties of
the Purchasers, the issuance of the Purchased Shares to the Purchasers at the
Closing and the issuance of the Warrant Shares upon the exercise of the Warrants
will be exempt from the registration and prospectus delivery requirements of the
Securities Act and similar requirements of applicable state securities laws.
Section 4.4 Due Authorization. The Company has all required corporate
power and authority to execute and deliver this Agreement, the Warrants and the
Registration Rights Agreement, perform its obligations thereunder, including the
issuance of the Purchased Shares and Warrants, and to consummate the
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transactions contemplated hereby and thereby. The execution and delivery by the
Company of this Agreement, the Warrants and the Registration Rights Agreement,
and the consummation by it of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action of the Company. This
Agreement, the Warrants and the Registration Rights Agreement have been duly
executed and delivered by the Company and constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws relating to
or affecting creditors' rights generally, (ii) general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and (iii) laws and judicial decisions regarding
indemnification for violations of federal securities laws.
Section 4.5 No Conflict. The execution and delivery by the Company of
this Agreement, the Warrants and the Registration Rights Agreement, and the
performance by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Purchased Shares and the
Warrant Shares) do not and will not (i) conflict with or result in a violation
of any provision of the Articles of Incorporation or the Bylaws, or the charter,
articles of incorporation, bylaws, or other governing instruments of any
Subsidiary, (ii) conflict with or result in a material violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default or event of default under, give rise (with or without
the giving of notice or the passage of time or both) to any loss of benefit, or
of any right of termination, cancellation, or acceleration under, or require any
consent under any contract that would have a Material Adverse Effect, (iii)
result in the creation or imposition of any material Encumbrance upon the
Properties of the Company or any Subsidiary, or (iv) violate in any material
respect any Applicable Law binding upon the Company or any Subsidiary.
Section 4.6 Consents and Approvals. No consent, approval, order,
authorization of, or declaration, filing, or registration with, any Governmental
Entity, or any consent of any other Person is required to be obtained or made by
the Company or any Subsidiary in connection with the execution and delivery by
the Company of this Agreement, the Warrants or the Registration Rights
Agreement, or the consummation of the Transaction, other than (i) as would not
have a Material Adverse Effect or (ii) as is necessary for the Company to comply
with the terms of the Registration Rights Agreement.
Section 4.7 Subsidiaries.
(a) Set forth on Schedule 4.7 is a complete and accurate list of all
Subsidiaries of the Company. Each Subsidiary of the Company has been duly formed
and is validly existing under the laws of the jurisdiction of its formation and
has the requisite power and authority to own or lease and operate its Properties
and to conduct its business as it is now being conducted. The Company has
previously made available to the Purchasers copies of the organizational
documents, each as amended to date, of each Subsidiary of the Company. Such
copies are true, correct and complete and in full force and effect. Each such
Subsidiary is duly licensed or qualified and in good standing in each
jurisdiction in which its ownership or leasing and operation of its properties
and assets and the conduct of its business as it is now being conducted requires
such Subsidiary to be so licensed or qualified, except where the failure to be
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so licensed or qualified would not have a Material Adverse Effect. Set forth on
Schedule 4.7 is a list of the jurisdiction of incorporation, organization or
formation of each such Subsidiary. None of the Company and the Subsidiaries of
the Company own, or have the right to acquire, any shares of stock or any equity
interest in any other corporation, partnership, joint venture or any other
Person.
(b) The outstanding shares of capital stock of each Subsidiary of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights or
rights of first refusal or first offer. All of the capital stock or other equity
interests of each Subsidiary of the Company is wholly-owned of record and
beneficially by the Company or another wholly-owned Subsidiary and the ownership
interests of the Company in each such Subsidiary are owned of record and
beneficially by the Company (or another wholly-owned Subsidiary of the Company),
free and clear of any Encumbrances other than Permitted Encumbrances.
Section 4.8 SEC Filings; Interim Financial Statements.
(a) Since June 30, 2002, the Company and its Subsidiaries have filed
with the SEC all forms, reports, schedules, statements, and other documents
required to be filed by it under the Securities Act and the Exchange Act. Each
SEC Filing was prepared in accordance with, and at the time of filing complied
in all material respects with, the requirements of the Securities Act, the
Exchange Act or other applicable federal securities laws and the rules and
regulations promulgated thereunder, as applicable to such SEC Filing. None of
the SEC Filings, including, without limitation, any financial statements or
schedules included therein, at the time filed, contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. The
consolidated financial statements (including, in each case, any related notes
thereto) contained in the SEC Filings (i) have been prepared in conformity with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis (except as described therein or the notes thereto), (ii) comply
in all material respects as to form with applicable requirements and rules and
regulations of the SEC with respect thereto and (iii) present fairly the
consolidated financial position of the Company and its consolidated Subsidiaries
at the respective dates thereof and the consolidated results of its operations
and changes in cash flows for the period indicated (subject to normal year-end
audit adjustments in the case of any unaudited interim financial statements).
(b) Xxxxxx Xxxxx & Co. P.C., the Company's current public accounting
firm, is an independent public accounting firm with respect to the Company and
has not resigned or been dismissed as independent public accountants of the
Company as a result of or in connection with any disagreement with the Company
on a matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
(c) The Company is in compliance with any and all applicable
requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.
13
(d) The information included in or incorporation by reference in the
Confidential Private Placement Memorandum dated as of November 8, 2005 (the
"Confidential Private Placement Memorandum") in connection with the securities
offering does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the Closing Date, any event with respect to
the Company shall occur which is required to be described in the Confidential
Private Placement Memorandum in order for the Confidential Private Placement
Memorandum not to contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading, such event shall be so described, and an appropriate amendment or
supplement shall be prepared by the Company.
Section 4.9 Absence of Undisclosed Liabilities. Neither the Company nor
any of its Subsidiaries has any material liabilities or obligations (whether
absolute, contingent, liquidated or unliquidated, or due or to become due),
except for (i) obligations and liabilities that have arisen in the ordinary
course of business consistent with past practice and (ii) liabilities recorded
on the Company's financial statements.
Section 4.10 Absence of Certain Changes. Except to the extent
specifically identified in the SEC Filings, since June 30, 2005, there has not
occurred (i) any Material Adverse Change, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's currently outstanding capital
stock, (iii) any split, combination or reclassification of any of its
outstanding capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in substitution for shares
of the Company's outstanding capital stock, (iv) (x) any granting by the Company
or any of its Subsidiaries to any director or executive officer of the Company
or any of its Subsidiaries of any material increase in compensation or material
acceleration of benefits, (y) granting by the Company or any of its Subsidiaries
to any director, executive officer of the Company or any of its Subsidiaries of
any material increase in, or material acceleration of benefits in respect of,
severance or termination pay, or pay in connection with a change of control of
the Company or (z) any entry by the Company or any of its Subsidiaries into any
employment, change of control, or termination or similar agreement with any
director, executive officer or other employee or independent contractor, or (v)
any change in accounting methods, principles or practices by the Company or any
of its Subsidiaries materially affecting its assets, liability or business,
except insofar as may have been required or permitted by GAAP.
Section 4.11 Compliance With Laws. Except for matters that, in the
aggregate, would not have a Material Adverse Effect, (i) the Company and its
Subsidiaries are, and at all times during the past three years have been, in
material compliance with all Applicable Laws; (ii) each of the Company and its
Subsidiaries has obtained and holds all Permits necessary for the lawful conduct
of its business or the lawful ownership, use and operation of its assets; (iii)
14
neither the Company nor any of its Subsidiaries has received any written notice
of any material violation of any Applicable Law, which has not been dismissed or
otherwise disposed of; and (iv) neither the Company nor any of its Subsidiaries
is charged or, to the Knowledge of the Company, threatened with, or, to the
Knowledge of the Company, under investigation with respect to, any material
violation of any Applicable Law relating to any material aspect of the business
of the Company or any Subsidiary.
Section 4.12 Litigation. Except to the extent expressly disclosed in
the SEC Filings there are no Proceedings pending or, to the Knowledge of the
Company, threatened against or involving the Company or any Subsidiary (or any
of their respective directors or officers in connection with the business or
affairs of the Company or any Subsidiary) that are reasonably likely to have a
Material Adverse Effect. As of the date hereof, there are no Proceedings pending
or, to the Knowledge of the Company, threatened seeking to restrain, prohibit,
or obtain damages in connection with this Agreement or the transactions
contemplated hereby.
Section 4.13 Employee Benefit Plans and Other Agreements.
The Company has no (i) Employee Plans that cover present or former employees,
directors or consultants of the Company or any of its Subsidiaries (with respect
to their relationship with such entities), (ii) Employee Plans that cover or
have covered present or former employees, directors or consultants of the
Company or any of its Subsidiaries (with respect to their relationship with such
entities) with respect to which any unsatisfied liability exists, and (iii)
Pension Plans covered by Title IV of ERISA or Multiemployer Plans which cover or
have covered within the past five (5) years present or former employees,
directors or consultants of the Company or any of its Subsidiaries (with respect
to their relationship with such entities).
Section 4.14 Taxes. Since January 1, 2002, except as specifically
identified in the SEC Filings:
(a) The Company and each of its Subsidiaries (hereinafter sometimes
referred to collectively as the "Taxpayers" or individually as a "Taxpayer")
have timely filed with the appropriate Tax authorities all Tax Returns required
to be filed by each of them, and such Tax Returns are true, complete, and
correct in all material respects.
(b) The Taxpayers have duly paid in full all material Taxes that are
payable by each such Taxpayer on or prior to the Closing Date, and have accrued
Taxes for any period that begins prior to the Closing Date and ends after the
Closing Date in the Taxpayers' financial records and in the financial statements
contained in the SEC Filings to the extent that such Taxes are not required to
be paid on or prior to the Closing Date.
(c) There is no audit or other matter in controversy with respect to
any Taxes due and owing by any Taxpayer, and there is no Tax deficiency or claim
assessed or, to the Knowledge of the Company, proposed or threatened in writing
against any Taxpayer, other than in respect of any such audits, controversies,
deficiencies, assessments, or proposed assessments that are being contested in
good faith and, if the amount in controversy exceeds $100,000, are disclosed in
Schedule 4.14.
15
(d) The Taxpayers each have withheld all material Taxes required to
have been withheld and paid by them on their behalf in connection with amounts
paid or owing to any employee, independent contractor, creditor, shareholder, or
other third party, and such withheld Taxes have either been duly paid to the
proper Governmental Authority or set aside in accounts for such purpose.
(e) None of the Taxpayers (i) has waived any statutory period of
limitations for the assessment of any Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency other than in the case of any
such waivers or extensions in respect of an assessment or deficiency of Tax the
liability of which has been satisfied or settled or has expired, (ii) has filed
a consent under Internal Revenue Code Section 341(f) concerning collapsible
corporations, or (iii) has any liability for the Taxes of any other person as
defined in Section 7701(a)(1) of the Internal Revenue Code under Treasury
Regulation ss. 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee, successor or by contract other than with respect to the
other Taxpayers.
(f) No claim has been made in any taxable year which remains open by an
authority in a jurisdiction where a Taxpayer does not file Tax Returns that such
Taxpayer is or may be subject to taxation by that jurisdiction.
(g) None of the Taxpayers has agreed to or is required to make any
adjustment pursuant to Internal Revenue Code Section 481(a) by reason of a
change in accounting method initiated by such Taxpayer, and to the Knowledge of
the Company, the IRS has not proposed any such adjustment or change in
accounting method.
(h) None of the Taxpayers has any obligation under any Tax allocation
or sharing agreement, and after the Closing Date, no Taxpayer shall be a party
to, bound by or have any obligation under any Tax allocation or sharing
agreement or have any liability thereunder for amounts due in respect of periods
prior to and including the Closing Date.
(i) None of the Taxpayers (i) has made any payments, (ii) is obligated
to make any payments (whether as a result of the transactions contemplated
hereby or otherwise), and (iii) is a party to any agreement as of the Closing
Date that could obligate it to make any payments, in each case, that will not be
deductible under Internal Revenue Code Section 280G.
Section 4.15 Oil and Gas Properties; Reserve Reports.
(a) The Company has delivered to each Purchaser a copy of the reserve
report ("Reserve Report") dated as of June 30, 2005, prepared by Netherland,
Xxxxxx & Associates, Inc., independent reserve engineers ("Reserve Engineers"),
relating to the oil and gas reserves of the Company. The factual information
underlying the estimates of the reserves of the Company, to the extent supplied
by the Company to the Reserve Engineers for the purpose of preparing the Reserve
Report, including, without limitation, production, volumes, sales prices for
production, contractual pricing provisions under oil or gas sales or marketing
contracts under hedging arrangements, costs of operations and development, and
working interest and net revenue information relating to the Company's ownership
interests in properties, was true and correct in all material respects on the
date of such Reserve Report; the estimates of future capital expenditures and
16
other future exploration and development costs supplied to the Reserve Engineers
were prepared in good faith and with a reasonable basis; the information
provided to the Reserve Engineers for purposes of preparing the Reserve Reports
were prepared in accordance with customary industry practices; each of the
Reserve Engineers were, as of the date of any Reserve Report prepared by it, and
are, as of the date hereof, independent petroleum engineers with respect to the
Company; other than normal production of the reserves and intervening oil and
gas price fluctuations, the Company is not as of the date hereof and as of the
date of Closing will not be, aware of any facts or circumstances that would
result in a materially adverse change in the reserves in the aggregate, or the
aggregate present value of future net cash flows therefrom, as described in the
Reserve Report; estimates of such reserves and the present value of the future
net cash flows therefrom in the Reserve Report comply in all material respects
to the applicable requirements of Regulation S-X and Industry Guide 2 under the
Securities Act
(b) Each of the Company and its Subsidiaries has good and marketable
title to and is possessed of the oil and gas properties included in the Reserve
Reports and acquired since the date of such report and has good title to all of
its personal property including concessions, licenses, production sharing
contracts, joint operating agreements, and gas contracts, free of any and all
adverse claims, rights of others, liens, encumbrances, security interests,
contracts, agreements, preferential purchase rights or other restrictions or
limitations of any nature or kind except those which are Permitted Oil and Gas
Encumbrances as defined below. All proceeds from the sale of the Company's or
its Subsidiaries' share of the hydrocarbons being produced from its oil and gas
properties are currently being paid in full to the Company or its Subsidiaries
by the purchasers thereof on a timely basis in all material respects and none of
such proceeds are currently being held in suspense by such purchaser or any
other party. "Permitted Oil and Gas Encumbrances" means:
(i) the matters reflected in or otherwise disclosed by the
provisions of this Agreement, or the matters referred to herein;
(ii) liens for taxes not yet delinquent;
(iii) mechanics' and materialmen's liens (and other similar
liens), and liens under operating and similar agreements, to the extent
the same relate to expenses incurred in the ordinary course of business
and which are not yet due or are being withheld by law or the validity
of which is being contested in good faith by appropriate action;
(iv) preferential purchase rights and third party consents and
transfer restrictions entered into in the ordinary course of business
which affect the transferability of interests in the oil and gas
properties;
(v) easements, rights-of-way, servitudes, exceptions,
encroachments, reservations, restrictions, covenants, conditions or
limitations which do not in the aggregate materially interfere with or
impair the operation, value or use of the oil and gas properties
affected thereby for the purposes for which they have been used by the
Company or its Subsidiaries in the ordinary course of its business;
17
(vi) rights reserved to, or vested in, or any obligations or
duties affecting any of the oil and gas properties, to any public or
governmental or regulatory body, agency, department, commission, board,
bureau or other authority or instrumentality by the terms of any
permit;
(vii) present or future zoning laws and ordinances;
(viii) third party interests and division orders and sales
contracts entered into in the ordinary course of business containing
such terms and provisions as are typical and customary for the oil and
gas industry covering oil, gas or associated liquid or gaseous
hydrocarbons, reversionary interests, similar burdens and all
contractually binding arrangements to which the oil and gas properties
are subject which do not in the aggregate materially interfere or
impair the operation, value or use of any of the oil and gas properties
for the purposes for which they have been used by the Company or its
Subsidiaries in the ordinary course of its business;
(ix) all other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects and irregularities
affecting the assets of the Company and its Subsidiaries which
individually or in the aggregate are not such as to interfere
materially with the operation, value or use of any of the assets of the
Company and its Subsidiaries, do not prevent the Company and its
Subsidiaries from receiving the proceeds of production from any of the
oil and gas properties;
(x) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any
asset of the Company and its Subsidiaries in any manner, and all
applicable laws, rules and orders of governmental authority, which do
not in the aggregate materially interfere or impair the operation,
value or use of any of the oil and gas properties for the purposes for
which they have been used by the Company and its Subsidiaries in the
ordinary course of its business; and
(xi) typical and customary agreements among owners of oil and
gas interests relating to oil field operations and pipelines which do
not in the aggregate materially interfere or impair the operation,
value or use of any of the oil and gas properties for the purposes for
which they have been used by the Company and its Subsidiaries in the
ordinary course of its business.
Section 4.16 Environmental Matters.
(a) The Company and its Subsidiaries: (i) are in material compliance
with all applicable Environmental Laws; and (ii) hold all material Environmental
Permits (each of which is in full force and effect) required for any of their
current operations or for any property owned, leased or otherwise operated by
any of them.
(b) The Company and its Subsidiaries have not received any written
notice of alleged, actual or potential responsibility for, or any inquiry or
investigation regarding, any material Environmental Condition.
18
(c) To the Knowledge of the Company, Hazardous Materials have not been
transported, disposed of or otherwise released, to or at any real property
presently owned or leased by the Company or any of its Subsidiaries, or any
other location, which Hazardous Materials are reasonably expected to (i) give
rise to any material liability of the Company or any Subsidiary under any
applicable Environmental Law, or (ii) interfere in any material respect with the
Company's or any Subsidiary's continued operations.
(d) Neither the Company nor any of its Subsidiaries is charged or, to
the Knowledge of the Company, threatened with, or, to the Knowledge of the
Company, under investigation with respect to, any material violation of any
applicable Environmental Law relating to any material aspect of the business of
the Company or any Subsidiary.
Section 4.17 Insurance. The Disclosure Letter sets forth a list of all
insurance policies held by, or for the benefit of, the Company and its
Subsidiaries as of the date hereof, and further sets forth the name of the
insurer, type of coverage, policy limits and deductibles and additional
insureds, if any, and the annual premium for each such policy. Each of the
Company and its Subsidiaries carry insurance with reputable insurers (except as
to self-insurance) with respect to each of their respective properties and
business, in such amounts and against such risks as is customarily maintained by
other entities of similar size engaged in similar businesses (which may include
self-insurance in amounts customarily maintained by companies similarly situated
or has been maintained in the past by the Company and its Subsidiaries). Neither
the Company nor any of its Subsidiaries has received any notice of cancellation
or non-renewal of any insurance policies or binders set forth in the Disclosure
Letter.
Section 4.18 Title to Assets. Except for Permitted Encumbrances, the
Company and its Subsidiaries have good and indefeasible title to, or valid and
subsisting leasehold interests in, all tangible personal assets material to
their business as currently conducted, and valid ownership or licensing rights
to all intangible assets material to their businesses as currently conducted.
Except for Permitted Encumbrances, none of the material assets is subject to any
Encumbrance, except for Encumbrances which, individually or in the aggregate,
are not material in amount and do not materially detract from the value of the
property or assets of the Company and its Subsidiaries, taken as a whole, or
materially interfere with the present use of such property or assets (taken as a
whole). All such material leases are valid, binding and enforceable with respect
to the Company and its Subsidiaries, to the extent each is a party thereto, in
accordance with their terms (except that such enforceability may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium, and similar
laws relating to or affecting creditors' rights generally, and (ii) general
equitable principles) and are in full force and effect; no event of default has
occurred which constitutes a material default thereunder on the part of the
Company or any Subsidiary and to the Knowledge of the Company, no event has
occurred which constitutes a material default thereunder by any other party.
Section 4.19 Condition of Tangible Assets. The Facilities of the
Company and its Subsidiaries and the Fixtures and Equipment taken as a whole are
in a condition reasonably sufficient for the operation of the business of the
Company and its Subsidiaries as presently conducted.
19
Section 4.20 Labor Matters. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining or similar agreement with
any labor union, collective bargaining unit or similar organization. There is no
material unfair labor practice charge or complaint against the Company or any
Subsidiary pending before the National Labor Relations Board or any other
governmental agency arising out of the activities of the Company or any of its
Subsidiaries. There is no labor strike or labor disturbance pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries. To the Knowledge of the Company, there is no material grievance
currently being asserted against the Company or its Subsidiaries and neither the
Company nor any Subsidiary has experienced since June 30, 2005, the assertion of
a material grievance, a work stoppage or other labor difficulty.
Section 4.21 Intellectual Property.
(a) The Company and its Subsidiaries either own or have valid licenses
or other rights to use all patents, copyrights, trademarks, tradenames,
software, other intellectual property used in their businesses as presently
conducted ("Proprietary Rights"), subject to the limitations contained in the
agreements governing the use of the same. There are no limitations contained in
the agreements of the type described in the immediately preceding sentence
which, upon consummation of the Transaction, will alter or impair any such
rights, breach any such agreement with any third party vendor, or require
payments of additional sums thereunder. The Company and its Subsidiaries are in
compliance in all material respects with the material licenses and agreements
with respect to their Proprietary Rights.
(b) The Proprietary Rights constitute all material intellectual
property rights necessary to conduct the business as presently conducted. To the
Knowledge of the Company, the use by the Company and its Subsidiaries of the
Proprietary Rights does not infringe in any material respect on the intellectual
property or other Proprietary Rights of any other Person, and, to the Knowledge
of the Company, no other Person is infringing, in any material respects, on the
Proprietary Rights.
Section 4.22 No Brokers. Except for any fees payable to Petro Capital
Advisors, LLC pursuant to Section 8.10 hereof, the Company has not employed, and
is not subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the Transaction who might be entitled to a fee
or commission from the Company in connection with the Transaction.
Section 4.23 Affiliated Transactions. Except as specifically identified
in the SEC Filings filed, and except for payments under an individual's
compensation or other benefit arrangements with the Company or any of its
Subsidiaries and reimbursement of expenses in the ordinary course of employment,
none of the officers, directors or other Affiliates of the Company or any of its
Subsidiaries or members of their families is, or at any time in the last three
years has been, a party to any agreement, indebtedness or transaction with the
Company or any of its Subsidiaries or is directly or indirectly interested in
any contract with, or received payments from, the Company or any of its
Subsidiaries other than (i) ordinary course employment arrangements between the
Company and its Subsidiaries and their respective employees, (ii) payment of
customary directors fees to directors of the Company (and reimbursement of
20
related expenses) and (iii) transactions between or among the Company and its
Subsidiaries. Except as specifically identified in the SEC Filings, neither the
Company nor any of its Subsidiaries has guaranteed or assumed any obligations of
their respective officers, directors or other Affiliates or members of any of
their families.
Section 4.24 Reporting Status; Eligibility to Use Form SB-2. The Common
Stock is registered under Section 12(g) of the Exchange Act. The Company
currently meets the "registrant eligibility" requirements set forth in the
general instructions to Form SB-2 to enable the registration of the resale of
the Registrable Securities (as defined in the Registration Rights Agreement).
Section 4.25 Representations Complete. The representations and
warranties made by the Company in this Agreement, and the statements made in any
certificates furnished by the Company pursuant to this Agreement, taken as a
whole, do not contain and will not contain, as of their respective dates and as
of the Closing Date, any untrue statement of a material fact or omit to state
any material fact necessary in order to make such statements, taken as a whole,
in light of the circumstances under which they were made, not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser hereby represents and warrants, severally and not
jointly, to the Company as follows:
Section 5.1 Standing of Purchaser. If such Purchaser is an entity, such
Purchaser is duly formed or incorporated, validly existing and in good standing
under the laws of its jurisdiction of formation or incorporation, and duly
qualified and in good standing in all other jurisdictions in which it is
required to so qualify.
Section 5.2 Due Authorization.
(a) If such Purchaser is an entity, such Purchaser has full corporate,
partnership, trust, or other applicable power and authority to enter into this
Agreement and the Registration Rights Agreement, and to perform its obligations
hereunder and thereunder. This Agreement and the Registration Rights Agreement
have been duly executed and delivered by such Purchaser and constitute valid and
legally binding obligations of such Purchaser, enforceable against such
Purchaser in accordance with their terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally, (ii) general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and (iii) laws and judicial decisions regarding
indemnification for violations of federal securities laws.
(b) If such Purchaser is not an entity, such Purchaser has full right,
power, authority and capacity to enter into this Agreement and to consummate the
Transaction and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement. Upon the execution and delivery of
this Agreement, this Agreement shall constitute a valid and binding obligation
21
of the Purchaser enforceable in accordance with its terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally, (ii) general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and (iii) laws
and judicial decisions regarding indemnification for violations of federal
securities laws.
Section 5.3 Purchase for Investment.
(c) Such Purchaser has been furnished with all information that it has
requested for the purpose of evaluating the proposed acquisition of the
Purchased Shares and the Warrants pursuant hereto, and such Purchaser has had an
opportunity to ask questions of and receive answers from the Company regarding
the Company and its business, assets, results of operations, financial condition
and prospects and the terms and conditions of the issuance of the Purchased
Shares and the Warrants.
(d) Such Purchaser is acquiring the Purchased Shares and Warrants
solely by and for its own account, for investment purposes only and not for the
purpose of resale or distribution; and such Purchaser has no contract,
undertaking, agreement or arrangement with any Person to sell, transfer or
pledge to such Person or anyone else any Purchased Shares or Warrants; and such
Purchaser has no present plans or intentions to enter into any such contract,
undertaking, agreement or arrangement.
(e) Such Purchaser acknowledges and understands that (i) no
registration statement relating to the Purchased Shares, the Warrants or the
Warrant Shares has been filed with the SEC under the Securities Act or pursuant
to the securities laws of any state; (ii) the Purchased Shares, the Warrants and
the Warrant Shares cannot be sold or transferred without compliance with the
registration provisions of the Securities Act or compliance with exemptions, if
any, available thereunder; (iii) the certificates representing the respective
Purchased Shares will include a legend thereon that refers to the foregoing; and
(iv) the Company has no obligation or intention to register the Purchased
Shares, the Warrants or the Warrant Shares under any federal or state securities
act or law, except as provided in the Registration Rights Agreement.
(f) Such Purchaser (i) is an "accredited investor" as defined in Rule
501 of Regulation D promulgated under the Securities Act; (ii) has such
knowledge and experience in financial and business matters in general that it
has the capacity to evaluate the merits and risks of an investment in the
Purchased Shares and the Warrants and to protect its own interest in connection
with an investment in the Purchased Shares and the Warrants; (iii) has such a
financial condition that it has no need for liquidity with respect to its
investment in the Purchased Shares and the Warrants to satisfy any existing or
contemplated undertaking, obligation or indebtedness; and (iv) is able to bear
the economic risk of its investment in the Purchased Shares and the Warrants for
an indefinite period of time.
Section 5.4 No Legal, Tax or Investment Advice. Without otherwise
limiting the representations and the warranties made in this Agreement, such
Purchaser understands that nothing in this Agreement or any other materials
presented to such Purchaser in connection with the purchase and sale of the
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Purchased Shares or the Warrants constitutes legal, tax or investment advice.
Such Purchaser has consulted such legal, tax and investment advisors as it, in
its sole discretion, has deemed necessary or appropriate in connection with its
purchase of the Purchased Shares and the Warrants.
Section 5.5 No Brokers. Purchaser has not employed, and is not subject
to the valid claim of, any broker, finder, consultant or other intermediary in
connection with the Transaction who might be entitled to a fee or commission in
connection with the Transaction.
ARTICLE VI.
COVENANTS
Section 6.1 Continuing Operations. From the date of this Agreement to
the earlier of (i) the Closing Date and (ii) the termination of this Agreement
in accordance with Section 7.1 (the "Interim Period"), the Company and its
Subsidiaries shall conduct their businesses in the ordinary and usual course
consistent with past practices, and, neither the Company nor any Subsidiary
shall, without the prior consent of Purchasers:
(a) make any loans or advances to any Person in excess of $10,000 in
the aggregate, other than (i) advances to employees in the ordinary and usual
course of business and (ii) transactions among or between the Company and its
Subsidiaries conducted in the ordinary and usual course of business;
(b) sell, lease, transfer or otherwise dispose of, all or substantially
all of the assets of the Company or its Subsidiaries, taken as a whole (other
than the sale of inventory in the ordinary course), or any equity securities of
the Company or its Subsidiaries (other than the issuance of shares of Common
Stock upon exercise of Awards or warrants currently outstanding);
(c) approve or implement any employment severance arrangements (other
than payments made under the Company's existing severance policy in accordance
with past practice) or hire or discharge any executive officers; authorize or
enter into any employment, severance, consulting services or other agreement
with any directors, officers and executive management personnel or any of their
Affiliates; or change the compensation or benefits provided to any director,
officer, or employee as of September 30, 2005;
(d) enter into any speculative or commodity swaps, xxxxxx or other
derivatives transactions or purchase any securities for investment purposes,
other than in connection with cash management of the Company or in the ordinary
course of business;
(e) issue any shares of capital stock (other than shares of Common
Stock issuable upon exercise of currently outstanding Awards or warrants);
(f) declare or pay dividends on, or make any other distribution in
respect of, any outstanding shares of the Company's capital stock or repurchase,
redeem or otherwise retire for value any shares of its capital stock, other than
shares of Common Stock acquired in connection with the cashless exercise of
Awards; or
(g) enter into a binding agreement to do any of the foregoing.
23
Section 6.2 Press Releases. Except for the press release attached as
Exhibit F, which the Company will issue promptly following the Closing, neither
Purchasers nor the Company shall issue any press release with respect to this
Agreement or the transactions contemplated hereby without the prior consent of
the other (which consent shall not be unreasonably withheld under the
circumstances). The Company will file a Form 8-K with the SEC that contains the
aforementioned press release and a copy of this Agreement as exhibits thereto,
as well as any other disclosure related to the Transaction required by the
Exchange Act, or the rules and regulations promulgated thereunder.
Section 6.3 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser:
(a) within ninety (90) days (including any extension pursuant to Rule
12b-25 of the Exchange Act) after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Subsidiaries, as of the end of
such fiscal year and the related consolidated statements of income for the
fiscal year then ended, prepared in accordance with GAAP and certified by a firm
of independent public accountants of recognized regional standing selected by
the Board of Directors of the Company, provided such accounting firm satisfies
the SEC's qualifications for public accountants set forth in Rule 2-01 of
Regulation S-X;
(b) within forty five (45) days (including any extension pursuant to
Rule 12b-25 of the Exchange Act) after the end of each of the first three fiscal
quarters in each fiscal year, a consolidated balance sheet of the Company and
its Subsidiaries, and the related consolidated statements of income unaudited
but prepared in accordance with GAAP and certified by the Chief Financial
Officer of the Company, such consolidated balance sheet to be as of the end of
such fiscal quarter and such consolidated statements of income to be for such
fiscal quarter and for the period from the beginning of the fiscal year to the
end of such fiscal quarter;
(c) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries of the type described
in Section 4.12 of this Agreement that could materially adversely affect the
Company or any of its Subsidiaries, if any;
(d) promptly upon sending, making available or filing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the Commission; and
(e) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its Subsidiaries as such Purchaser reasonably may request.
Notwithstanding this Section 6.3, so long as the Company is required to
make filings pursuant to the Exchange Act and makes such filings in a timely
manner (including any extension pursuant to Rule 12b-25 of the Exchange Act),
the Company shall be deemed to have furnished to the Purchasers the financial
statements and other reports required by this Section 6.3.
24
Section 6.4 Use of Proceeds.
The Company shall use the proceeds from the sale of the Purchased Shares and
Warrants solely for (i) payment of a drilling deposit to Energy Drilling, Inc.
in the aggregate amount of $830,000 related to drilling two xxxxx on existing
acreage of the Company and (ii) general working capital.
Section 6.5 Continued Eligibility to Use Form SB-2 or S-3. Throughout
the Registration Period (as defined in the Registration Rights Agreement), the
Company will timely file all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission under the reporting
requirements of the Exchange Act, and the Company will not terminate its status
as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonably necessary action to continue
to meet the "registrant eligibility" requirements set forth in the general
instructions to Form SB-2 to enable the registration of the Registrable
Securities (as defined in the Registration Rights Agreement), and will file all
reports required to be filed by the Company with the SEC in a timely manner so
as to become eligible, and thereafter to maintain the "registrant eligibility"
requirements, to use Form S-3.
Section 6.6 Listing. So long as any Purchased Shares or Warrants remain
outstanding, the Company shall use its best efforts to ensure that the Common
Stock continues to be listed for trading on the OTC Bulletin Board, the NASDAQ
Stock Market or the American Stock Exchange.
Section 6.7 Legend.
(a) The Purchaser agrees to the placement on the certificates
representing the Purchased Shares and the Warrant Shares a legend (the "Private
Placement Legend") substantially as set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
(b) The Private Placement Legend shall be removed from any such
certificate if (i) the securities represented thereby are sold pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 under the Securities Act, (ii) there is delivered to the Company such
satisfactory evidence, which may include an opinion of counsel, as reasonably
may be requested by the Company, to confirm that neither such legend nor the
restrictions on transfer set forth therein are required to ensure that transfers
of such securities will not violate the registration and prospectus delivery
requirements of the Securities Act, or (iii) the securities represented thereby
may be resold pursuant to Rule 144(k) promulgated under the Securities Act.
25
(c) Except for any legend required by Texas law, no legend other than
the Private Placement Legend shall be placed on the certificates representing
the Purchased Shares and the Warrant Shares without the consent of the
Purchasers.
Section 6.8 Confidentiality.
(a) Without limiting the Purchasers' obligations under any
Confidentiality Agreement with the Company, each of the Purchasers agrees, on
behalf of itself and each of its Affiliates, directors, officers, employees and
representatives, to keep confidential any confidential non-public information
supplied to it by the Company or any of its Subsidiaries pursuant to this
Agreement; provided that nothing herein shall limit the disclosure of such
information (i) after such information shall have become public other than
through a violation of this Section 6.8, (ii) to the extent required pursuant to
a subpoena, civil investigative demand (or similar process), order, statute,
rule or other legal requirement promulgated or imposed by a court or by a
judicial, regulatory, self-regulatory or legislative body, organization, agency
or otherwise in connection with any judicial or administrative proceeding
(including, without limitation, in response to oral questions, interrogatories
or requests for information or documents), (iii) to counsel, auditors,
accountants or other representative for any of the Purchasers, so long as such
persons are subject to an obligation of confidentiality for the benefit of the
Company, (iv) to a Subsidiary, Affiliate, partner, director, officer or employee
of such Purchaser provided that such parties have a need to know such
information and are bound by provisions to maintain the confidentiality of such
information as least as restrictive as this Section 6.8, or (v) to the extent
such information has been independently developed by such Purchasers or its
representative. Purchasers shall bear the burden of demonstrating the
applicability of any of the exceptions set forth in clauses (i) - (v) of the
previous sentence.
(b) Unless specifically prohibited by applicable law or court order,
each of the Purchasers shall, to the extent practical, prior to disclosure
thereof, notify the Company of any request for disclosure of any such non-public
information by any governmental agency or representative thereof or pursuant to
legal process, and shall consult with the Company on the advisability of the
Company (at the Company's request) taking legally available steps to resist or
narrow any such request. Such Purchaser shall be entitled to reimbursement from
the Company for expenses incurred by it, including the fees and expense of
counsel, in connection with any action taken pursuant to this Section 6.8.
Section 6.9 Issuance of Warrants. At the Closing, the Company shall
issue to each Purchaser Warrants, substantially in the form attached as Exhibit
D, to purchase that number of shares of Common Stock set forth opposite such
Purchaser's name on Exhibit A. The Company shall also issue to each Person, if
any, as may be entitled thereto, additional warrants as may be required by the
Registration Rights Agreement.
Section 6.10 Disclosure of Affiliated Transactions. Except for the
transactions contemplated by the Confidential Private Placement Memorandum and
except to the extent otherwise disclosed in an SEC Filing, the Company shall
document and promptly disclose to Purchasers any transaction with an Affiliate
where the consideration, in cash or other tangible or intangible benefit to the
Company, exceeds $5,000, or which otherwise must be disclosed pursuant to the
26
Securities Act, the Exchange Act or the rules and regulations promulgated
thereunder.Section 6.11 Capitalization. If at any time after the Closing Date,
it is determined that the number of issued and outstanding shares of capital
stock of the Company on a fully diluted basis as of the Closing Date equals an
amount greater than that amount represented by the Company under Section 4.2,
the Company agrees to promptly issue each Purchaser that number of shares of
Common Stock necessary for such Purchaser to maintain its same percentage
ownership interest in the Company as determined by dividing the number of
Purchased Shares and Warrant Shares set forth opposite such Purchaser's name on
Exhibit A by the sum of (i) the number of shares of capital stock of the Company
on a fully diluted basis set forth in Section 4.2 and (ii) the aggregate number
of Purchased Shares and Warrant Shares subscribed for by the Purchasers
hereunder.
ARTICLE VII.
INDEMNIFICATION
Section 7.1 Survival of Representations, Etc. The representations,
warranties, covenants and agreements of the parties hereto contained herein
shall survive the Closing.
Section 7.2 Indemnification by the Company. The Company shall indemnify
and hold harmless each of the Purchasers and their respective Affiliates,
directors, officers, advisors, agents and employees (the "Purchaser Indemnified
Parties") from and against any and all demands, losses, damages, penalties,
claims, liabilities, obligations, actions, causes of action, and expenses
(including without limitation, costs of investigating, preparing or defending
any such claim or action and reasonable legal fees and expenses) (collectively,
"Losses"), arising by reason of or resulting from (a) any breach of any
warranty, representation, covenant or agreement of the Company contained in this
Agreement, or in any certificate, instrument or document contemplated hereby or
thereby, or (b) any cause of action, suit or claim brought against or made
against such Indemnified Party and arising out of or resulting from the
execution, delivery, performance, breach or enforcement of this Agreement, the
Warrants or the Registration Rights Agreement. The Company's aggregate liability
under this Section 7.2 shall not exceed $2,000,000; provided, however, such
limitation of liability shall not apply to Losses arising under or related to a
breach of Section 4.2.
Section 7.3 Defense of Claims. If a claim for Losses (a "Claim") is to
be made by an Indemnified Party, such Indemnified Party shall give written
notice (a "Claim Notice") to the indemnifying party as soon as practicable after
such Indemnified Party becomes aware of any fact, condition or event which may
give rise to Losses for which indemnification may be sought under this Article
VII. If any lawsuit or enforcement action is filed against any Indemnified Party
hereunder, notice thereof (a "Third Party Notice") shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The failure of
any indemnified party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After receipt of a Third
Party Notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i) to take control of
27
the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense unless the named parties to such
action or proceeding include both the indemnifying party and the indemnified
party and the indemnified party has been advised in writing by counsel that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party,
and (iii) to compromise or settle such claim, which compromise or settlement
shall be made only with the written consent of the Indemnified Party. The
Indemnified Party shall cooperate in all reasonable respects with the
indemnifying party and such attorneys in the investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom; and the Indemnified
Party may, at its own cost, participate in the investigation, trial and defense
of such lawsuit or action and any appeal arising therefrom and appoint its own
counsel therefore, at its own cost. The parties shall also cooperate with each
other in any notifications to insurers. If the indemnifying party fails to
assume the defense of such claim within fifteen (15) calendar days after receipt
of the Third Party Notice, the Indemnified Party against which such claim has
been asserted will (upon delivering notice to such effect to the indemnifying
party) have the right to undertake the defense, compromise or settlement of such
claim and the indemnifying party shall have the right to participate therein at
its own cost. In the event the Indemnified Party assumes the defense of the
claim, the Indemnified Party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 Termination. Prior to the Closing, this Agreement may be
terminated:
(a) by mutual written consent of the Company and the Purchasers;
(b) by any Purchaser (as to such Purchaser) or the Company if the
Closing shall not have occurred on or before December 31, 2005;
(c) by any Purchasers (as to such Purchaser), if there is a material
breach of any representation or warranty set forth in Article III hereof or any
covenant or agreement to be complied with or performed by the Company pursuant
to the terms of this Agreement; or
(d) by the Company, if there is a material breach of any representation
or warranty set forth in Article IV hereof by a Purchaser pursuant to the terms
of this Agreement.
Section 8.2 In the Event of Termination. In the event of termination of
this Agreement, no party hereto shall have any liability or further obligation
to any other party under this Agreement (other than the obligations of the
parties pursuant to Section 8.3), provided that no such termination shall
relieve any party from liability relating to breach of this Agreement occurring
prior to such termination.
Section 8.3 Expenses. The Company hereby covenants and agrees to
reimburse the Purchasers for reasonable and documented legal expenses of Xxxxxx
and Xxxxx LLP, incurred in connection with the negotiation, execution, delivery
and performance of this Agreement, the Registration Rights Agreement and the
28
Warrants and the Transaction. If any action at law or equity is necessary to
enforce or interpret the terms of this Agreement, the Registration Rights
Agreement or the Warrants, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
Section 8.4 Injunctive Relief. The parties hereto acknowledge and agree
that irreparable damage may occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of the provisions of
this Agreement to enforce specifically the provisions of this Agreement, in any
court of the State of Texas, without the need to post a bond or other security,
in addition to any other remedy to which the parties may be entitled under this
Agreement or at law or in equity.
Section 8.5 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by the Company without the prior written
consent of the Purchasers or by any Purchaser, without the consent of the
Company except by a Purchaser to an Affiliate of such Purchaser. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, and no other Person
shall have any right, benefit or obligation hereunder.
Section 8.6 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered by hand-delivery, registered first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery, as
follows:
If to the Company:
Cubic Energy, Inc.
0000 Xxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attn: Xxx X. Xxxx
Facsimile: (000) 000-0000
With a copy to:
Gardere Xxxxx Xxxxxx LLP
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
29
If to any Purchaser, to the address set forth immediately
below such Purchaser's name on Exhibit A hereto.
With a copy to:
Xxxxxx and Xxxxx, LLP
0000 XxXxxxxx Xx., Xxxxx 0000
Xxxxxxx Xxxxx 00000
Attn: Xxx Xxxxx
Facsimile: (000) 000-0000
or to such other place and with such other copies as any party may designate as
to itself by written notice to the others.
All such notices, requests, instructions or other documents shall be
deemed to have been duly given; at the time delivered by hand, if personally
delivered; four Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged by
addressee, if by telecopier transmission; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.
Section 8.7 Choice of Law; Venue. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the
internal laws of the State of Texas, without regard to the conflict of law
principles thereof, except with respect to matters of law concerning the
internal corporate affairs of any corporate entity which is a party to or the
subject of this Agreement, and as to those matters the law of the jurisdiction
under which the respective entity derives its powers shall govern. For any claim
or cause of action arising under this Agreement, the parties consent to the
exclusive jurisdiction of the state and federal courts sitting in Dallas County,
Texas, and waive any objection based on jurisdiction or venue, including forum
non conveniens; provided, however, to the extent any party seeks injunctive
relief, it may file such action wherever in its sole discretion it believes
relief might most effectively be obtained.
Section 8.8 Interpretation of Provisions. Article, Section, Schedule,
and Exhibit references are to this Agreement, unless otherwise specified. All
references to instruments, documents, contracts, and agreements are references
to such instruments, documents, contracts, and agreements as the same may be
amended, supplemented, and otherwise modified from time to time, unless
otherwise specified. All references to a party in this Agreement shall include
such party's successors and permitted assigns. The word "including" shall mean
"including but not limited to." The terms "will" and "shall" shall be
interpreted to have the same meaning. Words in the singular form will be
construed to include the plural and vice versa, unless the context otherwise
requires. The section headings contained in this Agreement are inserted for
convenience only and will not affect in any way the meaning or interpretation of
this Agreement. Whenever the Company has an obligation under this Agreement, the
Registration Rights Agreement or the Warrants, the expense of complying with
that obligation shall be an expense of the Company unless otherwise specified.
Whenever any determination, consent, or approval is to be made or given by a
Purchaser, such action shall be in such Purchaser's sole discretion unless
30
otherwise specified in this Agreement. This Agreement, the Registration Rights
Agreement and the Warrant have been reviewed and negotiated by sophisticated
parties with access to legal counsel and shall not be construed against the
drafter. All indemnification obligations of the Company and the provisions of
Article VIII shall remain operative and in full force and effect unless such
obligations are expressly terminated in a writing executed by all the parties to
this Agreement referencing that individual Section, regardless of any purported
general termination of this Agreement.
Section 8.9 Entire Agreement; Amendments and Waivers; No Side
Agreements. This Agreement, including all schedules attached hereto, the
exhibits attached hereto, the Registration Rights Agreement and the Warrants,
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties, including the written
summary of proposed terms between the Company and the Purchasers. Capitalized
terms used in the Schedules but not defined therein shall have the respective
meanings ascribed to such terms in this Agreement. There are no other Agreements
by, among or between the Company or its Affiliates, on the one hand, and any of
the Purchasers or their Affiliates, on the other hand, with respect to the
transactions contemplated hereby nor promises or inducements for future
transactions between or among such parties.
Section 8.10 Acknowledgment. Each Purchaser hereby acknowledges that
Petro Capital Advisors, LLC (a) is going to receive a fee in the amount of seven
and one-half percent (7.5%) of the aggregate purchase price paid by the
Purchasers for the Purchased Shares and Warrants hereunder, such fee to be paid
by the Company in cash at the Closing, and (b) has client relationships with,
and has acted as financial advisor to, the Company and certain of the other
Purchasers in transactions other than the transactions contemplated by this
Agreement. Each Purchaser hereby agrees to clauses (a) and (b) above and waives
any and all conflict of interest claims such Purchaser may have with respect
thereto. The Company acknowledges the affiliate and client relationships of
Petro Capital Advisors, LLC, and hereby waives any claim that Petro Capital
Advisors, LLC has a conflict of interest or has failed to protect or consider
the Company's interest in connection with the transactions contemplated herein.
Section 8.11 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.12 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
Section 8.13 Headings. The headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
* * * * *
31
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed as of the date and year first above written and to be bound
hereby.
CUBIC ENERGY, INC.
By:____________________________
Name:__________________________
Title:_________________________
S-1
PURCHASERS:
LEVY FAMILY PARTNERS, LLC
By:____________________________
Name:__________________________
Title:_________________________
_______________________________
XXXXXXX XXXXXX
BARGUS PARTNERSHIP
By:____________________________
Name:__________________________
Title:_________________________
_______________________________
XXXXX X. XXXXXXX
_______________________________
XXXXXX XXXXXXX
PETRO CAPITAL HOLDINGS, LLC
By:____________________________
Name:__________________________
Title:_________________________
S-2
X-MEN, LLC
By:____________________________
Name:__________________________
Title:_________________________
XXXXX X. XXXX IRREVOCABLE TRUST
By:____________________________
Name:__________________________
Title:_________________________
_______________________________
XXXXX XXXXXXXXX
S-3
Exhibit A
NAMES, ADDRESSES AND SHARE AMOUNTS OF PURCHASERS
--------------------------------- ----------------- ------------ ---------------
Purchaser Name and Address Purchased Shares Warrant Purchase
Shares Price
--------------------------------- ----------------- ------------ ---------------
Levy Family Partners, LLC
000 X. XxXxxxx, Xxxxx 000X
Xxxxxxx, Xxxxxxxx 00000 625,000 250,000 $500,000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
Xxxxxxx Xxxxxx
Xxxxxxxxxx Building
000 X. 0xx Xxxxxx, Xxxxx 000 250,000 100,000 $200,000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
Bargus Partnership
000 Xxxxx Xxxxxxxxx Xxx.
Xxxxxxxx Xxxxxxx, XX 00000 187,500 75,000 $150,000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
Xxxxx X. Xxxxxxx
00000 Xxxx Xxxx, Xxxxx 0000
Xxxxxx, XX 00000 125,000 50,000 $100,000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
Xxxxxx Xxxxxxx
000 Xxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000 125,000 50,000 $100,000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
Petro Capital Holdings, LLC
0000 Xxx Xxxx, Xxx. 0000
Xxxxxx, XX 00000 125,000 50,000 $100,000
Facsimile: 000-000-0000
--------------------------------- ----------------- ------------ ---------------
X-Men, LLC
000 Xxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000 812,500 325,000 $650,000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
Xxxxx X. Xxxx Irrevocable Trust
0000 Xxxxx Xxxxx
Xxxxxxxx, XX 00000 187,500 75,000 $150,000
Facsimile: (847) 564-2808
--------------------------------- ----------------- ------------ ---------------
0000 Xxxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000 62,500 25,000 $50,000
Facsimile: (000) 000-0000
--------------------------------- ----------------- ------------ ---------------
TOTAL 2,500,000 1,000,000 $2,000,000
--------------------------------- ----------------- ------------ ---------------
Exhibit B
FORM OF
ESCROW AGREEMENT
Exhibit C
FORM OF
REGISTRATION RIGHTS AGREEMENT
Exhibit D
FORM OF
WARRANT
Exhibit E
FORM OF
LEGAL OPINION
1. Based solely on a recently dated certificate of existence from the Secretary
of State of the State of Texas and a good standing certificate from the
Comptroller of Public Accounts of the State of Texas, the Company is validly
existing as a corporation and in good standing under the laws of the State of
Texas. The Company has all requisite corporate power to own, lease and operate
its material properties and assets and conduct its business in all material
respects as described in the Confidential Private Placement Memorandum.
2. The execution and delivery of the Securities Purchase Agreement, the
Registration Rights Agreement and the Warrant (collectively, the "Transaction
Documents") and the consummation by the Company of its obligations thereunder
have been duly authorized by all necessary corporate action on the part of the
Company.
3. Each of the Transaction Documents has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
4. The execution and delivery by the Company of each of the Transaction
Documents and the consummation by the Company of its obligations thereunder do
not result in (a) any violation by the Company of (i) the provisions of its
Articles of Incorporation or Bylaws, (ii) any provision of applicable law that
we, based on our experience, recognize as applicable to the Company in a
transaction of this type (other than federal and state securities and blue sky
laws, as to which we express no opinion other than as expressly set forth in
paragraph 7 below), or (iii) to our knowledge, any order, writ, judgment or
decree of any federal, Texas or Louisiana state court or governmental authority
or regulatory body having jurisdiction over the Company or any of its material
properties, or (b) a breach or default of any material agreement, contract or
instrument known to us to which the Company is a party or by which it is bound.
For purposes of the foregoing, we have assumed that the only material
agreements, contracts or instruments to which the Company is a party or by which
it is bound are those listed as exhibits to the Company's most recent Annual
Report on Form 10-KSB, any quarterly report on Form 10-QSB filed since such
annual report and any current report on Form 8-K filed since such annual report.
5. The Purchased Shares have been duly authorized and issued, and constitute
fully paid and non-assessable shares of Common Stock of the Company, and to our
knowledge, are free of pre-emptive rights. The Warrant Shares to be issued upon
exercise of the Warrants have been duly authorized and reserved for issuance
and, upon the exercise of the Warrants and delivery of the Warrant Shares in
accordance with the terms of the Warrants, without regard to the anti-dilution
provisions of the Warrants, and assuming any additional Warrant Shares which are
issuable based on such anti-dilution provisions have been duly reserved for
issuance by the Company, the Warrant Shares will be validly issued, fully paid
and non-assessable and, to our knowledge, will be free of preemptive rights.
6. No consent, approval, authorization or other action by any federal or Texas
state governmental authority that we, based on our experience, recognize as
applicable to the Company in a transaction of the type contemplated by the
Transaction Documents is required for the due execution, delivery and
consummation by the Company of the Transaction Documents, except (i) as would
not reasonably be expected to have a Material Adverse Effect, (ii) as would not
adversely affect the rights and remedies of holders of the Purchased Shares, or
(iii) for the filings and other actions required pursuant to federal and state
securities or blue sky laws, as to which we express no opinion other than as set
forth in paragraph 7.
7. Assuming (i) the accuracy of the representations and warranties of the
Company and each of the Purchasers set forth in the Securities Purchase
Agreement, (ii) the due performance by the Company and each of the Purchasers of
the covenants and agreements set forth in the Securities Purchase Agreement, and
(iii) compliance by each of the Purchasers with the offering and transfer
procedures described in the Confidential Private Placement Memorandum, based on
current published interpretations by the staff of the SEC, the offer, issuance,
sale and delivery of the Purchased Shares and Warrants by the Company to the
Purchasers under the circumstances contemplated by the Securities Purchase
Agreement are exempt from the registration and prospectus delivery requirements
of the Securities Act.
Exhibit F
PRESS RELEASE
