EXHIBIT 10.1
LETTER AGREEMENT WITH DAMASCUS ENERGY INC.
DATED DECEMBER 1, 2006
PATCH INTERNATIONAL INC.
1220, 000 Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
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CONFIDENTIAL
December 1, 2006
DAMASCUS ENERGY INC.
00 Xxxxxxx Xxxx X.X.
Xxxxxxx, Xxxxxxx X0X 0X0
ATTENTION: XXXXXXX X. XXXXXXX, PRESIDENT
Dear Sirs:
RE: ACQUISITION OF ALL THE ISSUED AND OUTSTANDING SHARES
OF DAMASCUS ENERGY INC. - AGREEMENT
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Further to our previous discussions in connection with the above, we wish to set
forth in this letter agreement (the "AGREEMENT") our mutual intentions and
understandings with regard to the proposed acquisition of all of the issued and
outstanding shares (the "OFFERED SHARES") of Damascus Energy Inc. ("DAMASCUS"),
directly or indirectly, by Patch International Inc. (the "OFFEROR" or "PATCH")
such that Damascus will be wholly owned subsidiary of Patch. As of the Closing
Date (as herein defined) the only issued and outstanding securities of Damascus,
will be 11,576,489 common shares issued and outstanding in the capital of
Damascus ("DAMASCUS SHARES").
The Offeror understands that as of the Closing Date, Xxxxxxx X. Xxxxxxx and
Bounty Developments Ltd. (the "PRINCIPAL SHAREHOLDERS") will have direct or
indirect or beneficial control over not less than 6,754,051 Damascus Shares,
representing 58% of the issued and outstanding Damascus Shares.
The Acceptance of this Agreement will be followed by the negotiation of
definitive documentation (the "TRANSACTION DOCUMENTS"), including the Share
Exchange Agreement (as herein defined) and related documentation, which shall
contain the terms and conditions set out in this Agreement and such other terms
and conditions as are customary for transactions of the nature and magnitude
contemplated herein. All documentation shall be in form and content satisfactory
to each of the Offeror, the Principal Shareholders and Damascus.
PURCHASE OF SHARES
1. Subject to any regulatory, shareholder, director or other approvals as
may be required, the completion of satisfactory due diligence by the
Offeror, the execution of the Lock Up Agreement (as herein defined) by
the Principal Shareholders and any other conditions contained herein,
the Offeror agrees to make an offer (the "OFFER") either by the Offeror
or a wholly owned Canadian subsidiary of the Offeror (the
"SUBSIDIARY"), to acquire 100% of the Offered Shares in consideration
for, directly or indirectly, 11,576,489 common shares of the Offeror
("COMMON SHARES") at a deemed price of (U.S.) $0.90 per Common Share,
for a deemed consideration of approximately $10,418,840 (the
"ACQUISITION").
2. It is intended that pursuant to the Acquisition, the Offeror will issue
an aggregate of 11,576,489 Common Shares or will cause the Subsidiary
to issue exchangeable shares (the "EXCHANGEABLE
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SHARES"), convertible into such Common Shares to the holders of
Damascus Shares for a total deemed consideration of approximately
$10,418,840.
3. It is intended that the Offer will be made by way of exempt take-over
bid in the Province of Alberta and such other jurisdictions in which
holders of the Offered Shares reside where such bid may lawfully be
made; provided however, that final determination of the structure will
be based on the securities and tax aspects of the transaction and will
be made in the most legally and tax effective manner as agreed to by
the parties. The Acquisition is intended to result in a "reverse
take-over" of the Offeror by Damascus and its shareholders.
4. Damascus acknowledges and agrees that in order to satisfy regulatory
requirements, Damascus shall forthwith commence the preparation of a
satisfactory engineering evaluation, acquisition agreement and
financial statements (the "FINANCIAL STATEMENTS") as required by the
OTC Bulletin Board ("OTCBB"), and that these will include: i) audited
statements for Damascus recently completed financial year; ii) audited
statements for Damascus prior year if required by the OTCBB; and iii)
interim statements reviewed by a certified professional accountant for
Damascus most recently completed quarter or other interim period
satisfactory to the OTCBB.
5. Damascus shall prepare and deliver a share exchange agreement (the
"SHARE EXCHANGE AGREEMENT") evidencing the purchase of all of the
Offered Shares upon the terms and conditions as herein provided (and
which agreement may be subject to such conditions as are customary for
a transaction of this nature) in compliance with applicable
regulations.
6. As soon as reasonably practicable, each of the Principal Shareholders
will enter into a formal lock up agreement (the "LOCK UP AGREEMENT") or
become a party to the Share Exchange Agreement with the Offeror,
containing, among other things, the terms and conditions set forth
herein and the representations, warranties, covenants, agreements,
terms and conditions customarily found in such agreements and
acceptable to the Offeror and their counsel.
7. Each of the Offeror, Damascus and the Principal Shareholders shall
diligently pursue all matters necessary to complete the Acquisition,
including obtaining necessary court orders as may be applicable if the
Acquisition is proceeded with by way of plan of arrangement and to
solicit proxies in favour of the Acquisition.
8. Shareholders of Damascus shall not be entitled to acquire fractional
Common Shares of the Offeror, but will instead be entitled to the
relevant number of Common Shares rounded up or down to the next nearest
whole number, as the case may be.
CONDITIONS PRECEDENT FOR THE BENEFIT OF THE OFFEROR
9. The completion of the Acquisition shall be subject to the following
conditions precedent being satisfied prior to the date of the closing
(the "CLOSING DATE"):
(a) the entering into of a Share Exchange Agreement not later than
December 14, 2006, or such other date agreed to between the
parties, containing, among other things, the terms and
conditions set forth herein and the representations,
warranties, covenants, agreements, terms and conditions
customarily found in such agreements and acceptable to the
Offeror and their counsel;
(b) approval of all regulatory bodies having jurisdiction in
connection with the subject transactions, including the OTCBB,
the Alberta Securities Commission, the United States
Securities and Exchange Commission ("SEC"), as applicable;
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(c) approval of the final terms and conditions of the Acquisition
by the board of directors of each of the Offeror and Damascus;
(d) the entering into of definitive agreements as set out herein
which are agreeable to the Offeror and their counsel;
(e) the Offered Shares shall be free and clear of any and all
encumbrances, liens, charges, and demands of whatsoever nature
other than encumbrances acceptable to the Offeror and
expressly so stated in writing and shall be legally issued and
non-revocable.
(f) there shall be no other issued and outstanding securities in
the capital of Damascus other than as disclosed herein;
(g) the representations and warranties of the parties hereto
contained herein and in the Share Exchange Agreement shall be
deemed to have been made again on the Closing Date and shall
then be true and correct as of that date;
(h) no material adverse change shall have occurred in the affairs
of Damascus or the Principal Shareholders from the date hereof
to the Closing Date and, without limiting the generality of
the foregoing, Damascus shall not have disposed of any of its
oil and gas assets, as detailed in Schedule C hereto, without
the consent of the Offeror, acting reasonably;
(i) satisfactory completion of due diligence review by the
Offeror, acting reasonably in connection with all matters
relating to Damascus, the Acquisition and the Assets (as
hereinafter defined) of Damascus;
(j) as at the Closing Date, there being no debts or amounts owing
to Damascus by any of its officers, former officers,
directors, former directors, shareholders, employees or former
employees or any family member thereof, or any person with
whom Damascus do not deal at arm's length except for any
amounts advanced to such person for expenses incurred on
behalf of Damascus in the ordinary course;
(k) there being no legal proceeding or regulatory actions or
proceedings against Damascus at the Closing Date which may, if
determined against their respective interests, have a material
adverse effect on Damascus;
(l) there being no prohibition at law against the Acquisition;
(m) material compliance by Damascus and the Principal Shareholders
with the terms of the Share Exchange Agreement;
(n) there shall be no material breach of the covenants of Damascus
or the Principal Shareholders contained herein or in the
Transaction Documents;
(o) each of the Offeror and Damascus shall make available to the
other all financial statements, documents, reports, files,
books, papers, documents and agreements, and all other
information relating to the business, assets, operations,
prospects, financial condition and affairs of such respective
party, such that each respective party shall satisfactorily
complete their due diligence review of such materials on or
before December 14, 2006, or such other date as agreed to by
the parties;
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(p) on or before December 14, 2006, Damascus shall deliver to
Patch an originally executed farmout agreement, (the
"FARMOUT") substantially in the form that was delivered to
Patch prior to the execution of the Agreement, evidencing that
Damascus has the right to earn up to an 80% working interest
in the petroleum and natural gas rights, leases, tangibles and
miscellaneous interests as set forth on Schedule "A" hereto
(collectively the "ASSETS") and an engineering evaluation
prepared by Xxxxxxxx and MacNaugton Canada Limited which
complies with the requirements of National Instrument 51-101,
which confirms that Damascus has an interest in the Assets
which have probable and possible reserves of not less than 376
million stock tank barrels; and
(q) Damascus having a minimum net cash position of (Cdn.)
$1,860,000 being an amount equal to cash on hand less all
liabilities, other than those incurred in contemplation of
completing the Acquisition or the Farmout.
The above conditions are for the sole benefit of the Offeror and may be
waived in whole or in part at any time by the Offeror. If any one or
more of the above-noted conditions are not fulfilled and/or performed
on or before the Closing Date, then the Offeror may waive any such
condition without prejudice to the fulfillment and/or performance of
any other condition or conditions, require the Principal Shareholders
to deposit the Offered Securities held by the Principal Shareholders to
the Offer and close the Acquisition or, in the alternative, the Offeror
may withdraw from this Agreement without further liability or
obligations on the part of the Offeror, without any prejudice to any of
the remedies which the Offeror may have hereunder or at law.
CONDITIONS PRECEDENT FOR THE BENEFIT OF DAMASCUS AND THE PRINCIPAL SHAREHOLDERS
10. The completion of the Acquisition shall be subject to the following
conditions precedent being satisfied prior to Closing Date:
(a) the entering into of a Share Exchange Agreement not later than
December 14, 2006, or such other date agreed to between the
parties, containing, among other things, the terms and
conditions set forth herein and the representations,
warranties, covenants, agreements, terms and conditions
customarily found in such agreements and acceptable to Patch,
Damascus and the Principal Shareholders and their counsel;
(b) receipt of all required approvals and consents to the
Acquisition, all related matters and the Transaction
Documents, including without limitation,
(i) the approval of OTCBB, if required;
(ii) the approval or consent of any third party whose
consent is required by Damascus to complete the
Acquisition, provided that this condition shall not
apply to third party consents or approvals which are
within the reasonable control of the Offeror or the
Principal Shareholders or that were not in existence
at the time of execution of this Agreement;
(c) the Exchangeable Shares issued in consideration for the
Offered Shares and subject to the effectiveness of a
registration statement qualifying the issuance of the Common
Shares on exercise of the rights under the Exchangeable Shares
and shareholder approval to increase the share capital of the
Offeror, the Common Shares issuable upon the exercise of the
rights under the Exchangeable Shares, shall be issued as fully
paid and non-assessable shares in the capital of the issuer of
such shares, free and clear of any and all encumbrances,
liens, charges, demands of whatsoever nature, except those
imposed pursuant to statutory "hold periods";
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(d) no material adverse change shall have occurred in business,
results of operations, assets, liabilities, financial
condition or affairs of the Offeror, financial or otherwise,
between the date of signing this Agreement and the completion
of the Acquisition;
(e) the representations and warranties of the Offeror contained
herein and in the Transaction Documents shall be deemed to
have been made again on the Closing Date and shall be true and
correct in all material respects as of all relevant dates;
(f) completion of satisfactory due diligence by Damascus on the
Offeror;
(g) there being no legal proceeding or regulatory actions or
proceedings against the Offeror at the Closing Date which, if
determined against the interest of the Offeror, may have a
material adverse effect on the Offeror;
(h) there being no prohibition at law against consummation of the
Acquisition or, if applicable, the making of the Offer or
acquiring the Offered Shares or against the shareholders of
Damascus accepting the Offer;
(i) no inquiry or investigation (whether formal or informal) in
relation to the Offeror or its directors or officers, shall
have been commenced or threatened by any officer or official
of the OTCBB or any securities commission, or similar
regulatory body having jurisdiction such that the outcome of
such inquiry or investigation could have a material adverse
effect on the Offeror;
(j) material compliance by the Offeror with the terms of this
Agreement and the Share Exchange Agreement;
(k) as at the Closing Date the Offeror having a minimum net cash
position of (U.S.) $2,349,950 being an amount equal to cash on
hand less all liabilities;
(l) the Common Shares are listed and posted for trading on the
OTCBB under the trading symbol "PTCH" and on the Frankfurt
Exchange under the trading symbol "PQGB". The Common Shares or
Exchangeable Shares issued pursuant to the Offer will be
validly issued in accordance with applicable laws so as to be
"freely tradeable" (except for statutory imposed "hold
periods" by the Damascus shareholders resident in Canada and
application will be made to the OTCBB to list such Common
Shares;
(m) at the Closing Date, the Offeror will have direct or indirect
or beneficial control over not less than 2,400,000 ordinary
shares of Pharmaxis Ltd. (the "PHARMAXIS SHARES"), an
Australian company listed on the Australian Stock Exchange;
and
(n) as at the Closing Date the Offeror shall not have any debt,
contingent or otherwise other than ordinary course trade
payables estimated at approximately (U.S.) $125,000,
contractual obligations which existed as at the date of this
Agreement of which approximately (U.S.) $1,000,000 are payable
within the next 30 days, lease obligations totalling (Cdn.)
$175,920, certain tax liabilities arising as a result of sales
of shares of Pharmaxis Ltd. by the Offeror estimated at (U.S.)
$2,300,000 and a U.S. tax liability of (U.S.) $71,349.
The above conditions are for the sole benefit of Damascus and/or the Principal
Shareholders and may be waived in whole or in part at any time by Damascus or
the Principal Shareholders, as applicable. If any one or more of the above-noted
conditions are not fulfilled and/or performed on or before the Closing Date,
then Damascus or the Principal Shareholders may waive any such condition without
prejudice to the
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fulfillment and/or performance of any other condition or conditions and require
the Offeror to issue the Common Shares pursuant to the terms of the Offer or, in
the alternative, Damascus or Principal Shareholders, as applicable, may withdraw
from this Agreement without further liability or obligations on the part of
Damascus or Principal Shareholders, as applicable, without any prejudice to any
of the remedies which Damascus or Principal Shareholders may have hereunder or
at law.
CORPORATE GOVERNANCE
11. (a) Upon conclusion of the Acquisition, the board of directors of
Patch shall consist of:
(i) Xxxxxxx X. Xxxxxxx and such additional directors to be
determined by Xxxxxxx X. Xxxxxxx;
(b) Upon conclusion of the Acquisition, the officers of Patch
shall consist of:
Officer Office
--------------------- -------------------------------------
Xxxxxxx X. Xxxxxxx President and Chief Executive Officer
Xxxxxx X. Xxxxxxx Corporate Secretary
(c) (i) Except as otherwise herein contemplated, all employees,
officers, directors and consultants of the Offeror
(collectively the "Service Providers"), shall resign
(the "RESIGNATIONS") on or before the date of the
consummation of the Acquisition, without severance or
other compensation, except payment of remuneration up
to the date of such resignation or severance not to
exceed, in the case of any particular Service Provider,
an amount equal to 12 months worth of payments to which
such Service Provider would otherwise be entitled, and
all outstanding stock options of such resigning
officers and directors shall have been exercised,
cancelled or shall otherwise have terminated within 30
days of such Resignations in accordance with the terms
of the Offeror's stock option plan.
(ii) Other than agreements to effect the Employee
Obligations in an amount set forth in Section
11(c)(iii) herein, the Offeror is not a party to and
will not enter into any employment agreement or to any
written or oral policy, agreement, obligation or
understanding which contains any specific agreement as
to notice of termination or severance pay in lieu
thereof or which cannot be terminated without cause
upon giving reasonable notice as may be implied by law,
or which creates rights in respect of loss or
termination of office or employment in the event the
Acquisition is successful.
(iii) The Employee Obligations (as defined below) shall not
exceed (U.S.) $408,501.
For the purposes of this Agreement, "EMPLOYEE OBLIGATIONS"
means any obligations or liabilities of the Offeror to pay any
amount to its directors, officers, employees or consultants,
other than for salary, bonuses under their existing bonus
arrangement and directors' fees in the ordinary course in each
case in amounts consistent with historic practices and,
without limiting the generality of the foregoing, Employee
Obligations shall include the obligations of the Offeror to
officers, employees or consultants (i) for severance for
terminations payments on the change of control of the Offeror
pursuant to any severance and termination agreements in the
case of officers and pursuant to the Offeror's severance
provisions in the case of employees; and (ii) for cash
payments on the change of control of the Offeror pursuant to
any obligations, arrangements or policies of the Offeror.
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REPRESENTATIONS AND WARRANTIES OF THE OFFEROR
12. The Offeror represents and warrants to Damascus and the Principal
Shareholders as follows:
(a) the Offeror is a corporation incorporated under the provisions
of the Nevada with its registered office in the City of
Denver, Colorado, U.S.A. and its head office in the City of
Vancouver in the Province of British Columbia;
(b) the authorized share capital of the Offeror consists of
24,801,250 common shares without nominal or par value
(previously defined as "Common Shares") and 1,000,000
preferred shares without nominal or par value, of which as of
the date hereof 15,761,774 Common Shares and no preferred
shares are validly issued and outstanding as fully paid and
non-assessable shares in the capital of the Offeror;
(c) no person has any agreement or options or any right or
privilege (whether by law, pre-emptive or contractual) capable
of becoming an agreement or option or right or privilege, for
the purchase, subscription, allotment or issuance of any of
the unissued shares in the capital of the Offeror or for the
issue of any other securities of any nature or kind of the
Offeror except for directors' and officers' stock options
entitling the holders to acquire an aggregate of 1,605,000
Common Shares the details of which are set forth on Schedule
"B" hereto;
(d) the Offeror is a domestic filer with the SEC and no securities
commission, or regulatory authority, including the SEC, or the
OTCBB, has issued any order preventing the Acquisition or the
trading of any securities of the Offeror;
(e) the Offeror has the corporate power and authority to enter
into this Agreement and to carry out the transactions
contemplated hereby and the execution and delivery of this
Agreement and the completion of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action on the part of the Offeror except for the
requirement of shareholder approval pursuant to the CPC
Policy, if applicable;
(f) other than the approval of the directors of the Offeror, no
permit, authorization or consent of any party is necessary for
the consummation by the Offeror of the Acquisition and the
execution and delivery of this Agreement and the consummation
by the Offeror of the Acquisition will not result in a
violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default under any
indenture, agreement or other instrument to which the Offeror
is a party or by which it is bound; and
(g) the Offeror, Damascus and the Principal Shareholders shall
make such reasonable representations and warranties in the
Share Exchange Agreement as are customary in comparable
circumstances and in such form as mutually agreeable to the
parties. Such representations and warranties shall survive the
closing of the Acquisition for a period of one (1) year.
REPRESENTATIONS AND WARRANTIES OF DAMASCUS AND THE PRINCIPAL SHAREHOLDER
13. Damascus and the Principal Shareholders jointly and severally represent
and warrant to the Offeror as follows:
(a) Damascus is a closely-held issuer incorporated under the
BUSINESS CORPORATIONS ACT (Alberta) with a registered office
in Calgary, Alberta and has fewer than 50 shareholders,
exclusive of employees and employees of affiliates;
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(b) Damascus is not a "reporting issuer" in any jurisdiction as
such term is defined in the SECURITIES ACT (Alberta);
(c) the authorized share capital of Damascus consists of an
unlimited number of common shares of which as of the Closing
Date not more than 11,576,489 common shares (previously
defined as "DAMASCUS SHARES") will be validly issued and
outstanding as fully paid and non-assessable. As at the date
hereof, there are no other issued and outstanding securities
in the capital of Damascus;
(d) no person has any agreement, right or option (whether direct,
indirect or contingent or whether pre-emptive, contractual or
by law) to purchase, or otherwise acquire any of the unissued
shares in the capital of either Damascus or for the issue of
any other securities of any nature or kind of Damascus;
(e) the corporate and shareholder structure of Damascus are such
that the parties hereto can structure the Acquisition as an
"exempt take-over bid" as such term is defined in the
SECURITIES ACT (Alberta) and the SECURITIES ACT (British
Columbia);
(f) no person has any agreement, right, or option (whether direct,
indirect or contingent or whether pre-emptive, contractual or
by law) to purchase, or otherwise acquire any securities,
whether currently issued or otherwise, from the Principal
Shareholders;
(g) none of the outstanding Damascus Shares are subject to escrow
restrictions, pooling arrangements, voting trusts or unanimous
shareholders agreements, whether voluntary or otherwise;
(h) there are no claims, actions, suits, judgments, litigation or
proceedings pending against or affecting Damascus or the
Principal Shareholders which will or may have a material
adverse affect upon Damascus after giving effect to the
Acquisition or which may prevent the completion of the
Acquisition, and neither Damascus or the Principal
Shareholders is aware of any existing ground on which any such
claim, action, suit, judgment, litigation or proceeding might
be commenced with any reasonable likelihood of success;
(i) Damascus has the corporate power and authority to enter into
this agreement and to carry out the transactions contemplated
hereby and the execution and delivery of this Agreement and
the completion of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate
action on the part of Damascus;
(j) the Principal Shareholders own the Offered Shares represented
to be owned by them, free and clear of any and all claims,
encumbrances or other interest of any kind whatsoever, and
upon completion of the Acquisition shall convey to the Offeror
absolute title to such shares absolutely, free and clear of
any and all claims, encumbrances or other interest of any kind
whatsoever;
(k) other than the approval of the directors and shareholders of
Damascus, no permit, authorization or consent of any party is
necessary for the consummation by Damascus of the Acquisition,
and the execution and delivery of this Agreement and the
consummation by Damascus and the Principal Shareholders of the
Acquisition will not result in a violation or breach of, or
constitute (with or without due notice or lapse of time or
both) a default under any indenture, agreement or other
instrument to which Damascus or the Principal Shareholders is
a party or by which it is bound;
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(l) no person or corporation is entitled to a finder's fee or
other form of compensation from Damascus with respect to the
Acquisition;
(m) the Offeror, Damascus and the Principal Shareholders shall
make such reasonable representations and warranties in the
Share Exchange Agreement as are customary in comparable
circumstances and in such form as mutually agreeable to the
parties. Such representations and warranties shall survive the
closing of the Acquisition for a period of one (1) year:
(n) there will be not more than 11,576,489 Damascus Shares issued
and outstanding, all of which shall be fully paid and
non-assessable, and no other securities of Damascus shall be
issued and outstanding;
(o) except pursuant to this Agreement, no person, firm or
corporation has any agreement, option, right of privilege
(including, but without limitation, whether bylaw, preemptive
right, contract or otherwise) to purchase, subscribe for,
convert into, exchange for or otherwise require the issuance
of, nor any agreement, option, right or privilege capable of
becoming any such agreement, option, right or privilege, to
acquire any of the unissued shares or securities of Damascus
or any interest therein;
(p) Damascus has no subsidiaries or agreement of any nature to
acquire any subsidiary;
(q) Damascus has complied with and is in compliance with all laws
and regulations applicable to operation of its licences,
permits, orders or approvals of, and has made all required
registrations with, any governmental or regulatory body that
is material to the conduct of its business;
(r) there is no claim, action, proceeding or investigation pending
or, to the knowledge of Damascus, threatened against or
relating to Damascus or affecting any of its properties or
assets before any court or governmental or regulatory
authority or body, nor is Damascus aware of any basis for any
such claim, action, proceeding or investigation;
(s) Damascus is not subject to any outstanding order, cease trade
order, writ, injunction or decree that has had or is
reasonably likely to materially delay consummation of the
Acquisition; and
(t) the audited financial statements of Damascus truly and fairly
present the assets and liabilities of Damascus and its
financial position as at the date thereof and the results of
the operation of Damascus for the fiscal period reported on,
and, in particular, without limiting the generality of the
foregoing, include all liabilities or obligations of any
nature, whether accrued, contingent or otherwise, and whether
due or to become due as at the date of such financial
statements; and since the date of such financial statements,
there has not been any material adverse change in the
financial position of Damascus, computed on a basis consistent
with that used in the preparation of the balance sheets
included in such financial statements.
STANDSTILL AND AGREEMENT TO SUPPORT TRANSACTION
14. (a) The Offeror, Damascus and the Principal Shareholders hereby
agree from the date hereof until the Termination Date (as
hereinafter defined) not to initiate, propose, assist or
participate in any activities in opposition to or in
competition with the Acquisition, and without limiting the
generality of the foregoing, to undertake any transaction or
negotiate any transaction which would be or potentially could
be in conflict with the Acquisition
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and not to take actions out of the ordinary course of business
of any kind which may reduce the likelihood of success of the
Acquisition.
(b) The Offeror covenants and agrees that, prior to the earlier of
the Termination Date and the Closing Date, unless Damascus
shall otherwise agree in writing or as otherwise expressly
contemplated or permitted by this Agreement:
(i) it will conduct its operations in the ordinary and
normal course of business and consistent with past
practice and in accordance with applicable laws,
generally accepted industry practice and any
operating and other agreements applicable to its
properties and assets and shall maintain and preserve
its business organization, assets and advantageous
business and government relationships;
(ii) it will within two business days of receipt of any
written audit inquiry, assessment, reassessment,
confirmation or variation of an assessment,
indication that a reassessment is being considered,
request for filing of a waiver or extension of time
of any notice in writing relating to taxes, interest,
penalties or losses (collectively, a "TAX
ASSESSMENT"), deliver to Damascus a copy thereof
together with a statement setting out, to the extent
then determinable, an estimate of the obligations, if
any, of the Offeror on the assumption that such Tax
Assessment is valid and binding;
(iii) it will as soon as reasonably practical notify
Damascus of any actual, imminent or incipient
Material Adverse Change, in its business or affairs;
for the purposes of this Agreement "MATERIAL ADVERSE
CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used
in connection with a corporation, any change or
effect (or any condition, event or development
involving a prospective change or effect) in or on
the business, operations, results of operations,
assets, capitalization, financial condition,
licenses, permits, concessions, rights, liabilities,
prospects, or privileges, whether contractual or
otherwise, of the corporation, which is materially
adverse to the business, operations or financial
condition of the corporation, considered as a whole
other than a change or effect (i) which has been
publicly disclosed or otherwise disclosed in writing
by the corporation to the other corporation prior to
the date hereof, (ii) resulting from conditions
affecting the oil and gas exploration and production
industry as a whole, or (iii) resulting from general
economic, financial, currency exchange, securities or
commodity market conditions (including, without
limitation the prices of oil and gas) in Canada, the
United States or elsewhere;
(iv) other than commitments entered into by the Offeror
prior to the date of this Agreement and which have
been disclosed in writing to Damascus, the Offeror
shall not, directly or indirectly, do or permit to
occur any of the following:
A. issue, sell, pledge, lease, dispose of, encumber
or agree to issue, sell, pledge, lease, dispose
of or encumber:
any additional Common Shares, or any
options, warrants, calls, conversion
privileges or rights of any kind to acquire
any Common Shares, other than Common Shares
issuable pursuant to existing Patch stock
options ("OPTIONS"); or
any assets or property of the Offeror,
except in the ordinary course of business
and consistent with past practice;
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B. enter into any material transactions;
C. sell, lease, farmout, surrender or otherwise
dispose of any of the Offeror's oil and gas
properties, rights or interests;
D. amend or propose to amend its articles, by-laws
or other constating documents other than as
contemplated or permitted by this Agreement to
give effect to the Acquisition;
E. split, combine or reclassify any outstanding
Common Shares, or declare, set aside or pay any
dividends or other distributions payable in
cash, stock, property or otherwise with respect
to the Common Shares;
F. redeem, purchase or offer to purchase any Common
Shares or other securities of the Offeror,
including under any normal course issuer bid
other than outstanding Options;
G. reorganize, amalgamate, merge or otherwise
continue the Offeror with any other person,
corporation, partnership or other business
organization whatsoever;
H. acquire or agree to acquire (by merger,
amalgamation, acquisition of stock or assets or
otherwise) any person, corporation, partnership
or other business organization whatsoever
(including any division) or acquire or agree to
acquire any material assets;
I. enter into rate swap transactions, basis swaps,
forward rate transactions, commodity swaps,
commodity options, equity or equity index swaps,
equity or equity index options, bond options,
interest rate options, foreign exchange
transactions, cap transactions, floor
transactions, collar transactions, currency swap
transactions, cross-currency rate swap
transactions, currency options, production sales
transactions having terms greater than 30 days,
or any other similar transactions (including any
option with respect to any of such transactions)
or any combination of such transactions (the
foregoing are collectively and individually
referred to as "FORWARD TRANSACTIONS");
J. except in the usual, ordinary and regular course
of business and consistent with past practice,
satisfy any material claims or liabilities
except such as have been reserved against in the
Offeror's financial statements delivered to the
Offeror, relinquish any material contractual
rights or enter into any interest rate, currency
or commodity swaps, xxxxxx or other similar
financial instruments;
K. other than matters contemplated by this
Agreement, incur or commit to incur any
indebtedness for borrowed money or issue any
debt securities, except in the ordinary course
of business and consistent with past practice;
L. commit to any individual capital expenditures in
excess of $25,000 to an aggregate of $100,000
without the prior written consent of Damascus,
other than expenditures for (i) matters that
involve safety or emergency situations where the
consent of Damascus cannot be received in a
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12
reasonably expedient manner, and (ii) the fees
and expenses contemplated herein;
M. amend any material agreements or undertakings to
which the Offeror is a party, or which otherwise
bind the Offeror; or
N. other than as previously disclosed to Damascus
in writing prior to the date of this Agreement
enter into or modify any employment, severance,
collective bargaining or similar agreements,
policies or arrangements with, or grant any
bonuses, salary increases, employee benefits,
severance or termination pay to, any employees,
consultants, officers or directors of the
Offeror;
(v) the Offeror shall use reasonable commercial efforts
to cause its current insurance (or re-insurance)
policies not to be cancelled or terminated or any of
the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or
lapse, replacement policies underwritten by insurance
and re-insurance companies of nationally recognized
standing providing coverage equal to or greater than
the coverage under the cancelled, terminated or
lapsed policies for substantially similar premiums
are in full force and effect;
(vi) the Offeror shall:
A. use reasonable commercial efforts to preserve
intact its business organization, goodwill and
tax accounts, to keep available the services of
its officers and employees as a group and to
maintain satisfactory relationships with
suppliers, agents, distributors, customers and
others having business relationships with it;
B. not take any action that would render, or that
reasonably may be expected to render, any
representation or warranty made by it in this
Agreement untrue in any material respect at any
time prior to the Closing Date;
C. use reasonable commercial efforts to enable the
conditions set forth in Sections 9 and 10 herein
and Schedule A attached hereto to be satisfied,
subject to applicable fiduciary duties of
directors and officers of the Offeror;
X. xxxxxx on a regular basis with Damascus with
respect to unusual operational matters and
promptly notify Damascus orally and in writing
of any Material Adverse Change in the normal
course or operation of its businesses or
properties, and of any governmental or third
party complaints, investigations or hearings (or
communications indicating that the same may be
contemplated); and
E. not settle or compromise any claim brought by
any present, former or purported holder of any
securities of the Offeror in connection with the
transactions contemplated by this Agreement or
the Acquisition without the prior written
consent of Damascus;
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(vii) the Offeror shall not enter into or modify any
contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this
Section 14, without the prior written consent of
Damascus, not to be unreasonably withheld.
15. At the time of execution and delivery of this Agreement, Patch shall
advance to Damascus (U.S.) $150,000 by way of a non-interest bearing
loan (the "LOAN"). The Loan shall be forgiven upon the closing of the
Acquisition and, if the parties fail to close and complete the
Acquisition due to the actions or inactions of Patch, the Loan shall be
forfeited to Damascus as liquidated damages and constitute a genuine
pre-estimate by Patch and Damascus as liquidated damages suffered or to
be suffered by Damascus by virtue of the failure of the parties to
close and complete the Acquisition contemplated herein in accordance
with the terms of this Agreement. If the parties fail to close and
complete the Acquisition by mutual agreement or due to the actions or
inactions of Damascus the Loan will be due and payable effective as of
the Termination Date (as herein defined).
ACCESS TO INFORMATION
16. Upon acceptance of this Agreement and until the completion of the
transactions contemplated by this Acquisition or the Termination Date,
Damascus will allow the Offeror and its authorized representatives,
including legal counsel and consultants, access to all information,
books or records relevant for the purpose of the transactions
contemplated herein. The Offeror agrees that all information and
documents so obtained will be kept confidential and the contents
thereof will not be disclosed to any person without the prior written
consent of Damascus.
17. Upon acceptance of this Agreement and until the completion of the
transactions contemplated by this Acquisition or the Termination Date,
Offeror will allow Damascus and its authorized representatives,
including legal counsel and consultants, access to all information,
books or records relevant for the purpose of the transactions
contemplated herein. Damascus agrees that all information and documents
so obtained will be kept confidential and the contents thereof will not
be disclosed to any person without the prior written consent of the
Offeror.
CONDUCT OF BUSINESS
18. From the date of the acceptance of this Agreement until completion of
the Acquisition or the Termination Date, the Offeror and Damascus will
operate their respective businesses in a prudent and business-like
manner in the ordinary course and in a manner consistent with past
practice.
EXPENSES
19. (a) Each of the parties shall be responsible for their own
costs and charges incurred with respect to the transactions
contemplated herein including, without limitation, all costs
and charges incurred prior to the date of this Agreement and
all legal and accounting fees and disbursements relating to
preparing the Transaction Documents or otherwise relating to
the transactions contemplated herein.
(b) The Offeror has not retained any financial advisor, broker,
legal advisor, agent or finder, or paid or agreed to pay any
financial advisor, broker, legal advisor, agent or finder on
account of this Agreement or any transaction presently ongoing
or contemplated hereby, except that Lang Xxxxxxxx LLP has been
retained as the Offeror's legal advisor and Wellington West
Capital Inc. has been retained as the Offeror's financial
advisor in connection with certain matters including the
transactions contemplated hereby. The aggregate fees and
expenses payable by the Offeror to all legal, financial, and
accounting
0000000.6
14
advisors in connection with this Agreement and the
transactions contemplated hereby shall not exceed $100,000.
OTHER ITEMS
20. The Transaction Documents shall also contain such other terms,
conditions and agreements to which the parties hereto may reasonably
request and agree in order to complete the transactions contemplated in
this Agreement. The parties hereby acknowledge and agree that the
obligations of Patch to its Service Providers in connection with the
Resignations in the aggregate amount of (U.S.) $408,501 will be paid
and satisfied in full by Patch on or before the Closing Date and that
the employer obligations of Damascus to Xxxxxxx X. Xxxxxxx in the
aggregate amount of (Cdn.) $300,000 will be paid and satisfied in full
by Damascus on or before the Closing Date
CLOSING AND GOOD FAITH NEGOTIATIONS
21. (a) The Offeror, the Principal Shareholders and Damascus agree
to proceed diligently and in good faith to negotiate and
settle the terms of the Transaction Documents for execution on
or before December 14, 2006 or such other date as may be
mutually agreed to in writing between the parties hereto and
to complete all transactions contemplated herein as soon as
practicable but in any event no later than December 15, 2006
or such other date as may be mutually agreed to in writing
between the parties hereto.
(b) Each party shall permit the other party and its counsel to
participate fully in the preparation of all documentation to
be used in connection with the approval of the Acquisition.
CONFIDENTIALITY
22. (a) No disclosure or announcement, public or otherwise, in
respect of this Agreement or the transactions contemplated
herein will be made by any party without the prior approval of
the other party as to timing, content and method, hereto,
provided that the obligations herein will not prevent any
party from making, after consultation with the other party,
such disclosure as its counsel advises is required by
applicable law or the rules and policies of the OTCBB.
(b) Unless and until the transactions contemplated in this
Agreement have been completed, or the Termination Date, except
with the prior written consent of the other party, each of the
parties hereto and their respective employees, officers,
directors, shareholders, agents, advisors and other
representatives will hold all information received from the
other party in strictest confidence, except such information
and documents available to the public or as are required to be
disclosed by applicable law.
(c) All such information in written form and documents will be
returned to the party originally delivering them in the event
that the transactions provided for in this Agreement are not
consummated.
TERMINATION
23. Subject to written agreement to extend this Agreement, this
Agreement shall terminate with the parties having no
obligations to each other, other than in respect of the cost
and expense provisions contained in section 19, the deposit
provisions contained in section 15 and confidentiality
provisions contained in sections 16, 18 and 22, on the day
(the "TERMINATION Date") on which the earliest of the
following events occurs:
1375181.6
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(a) written agreement of the parties to terminate the Acquisition;
(b) the Offeror not being reasonably satisfied with its due
diligence review of Damascus and written notification of such
is provided to Damascus on or before December 14, 2006;
(c) Damascus not being reasonably satisfied with its due diligence
review of the Offeror and written notification of such is
provided to the Offeror on or before December 14, 2006
(d) the parties not entering into the Lock Up Agreement or the
Share Exchange Agreement on or before December 14, 2006;
(e) the board of directors of the Offeror not approving the
Transaction Documents by December 14, 2006;
(f) the board of directors of Damascus not approving the
Transaction Documents by December 14, 2006;
(g) Damascus not providing the acquisition agreement and
satisfactory National Instrument 51-101 report as referenced
in section 9(p);
(h) any applicable regulatory authority having notified in writing
any of the parties that it will not permit the Acquisition to
proceed;
(i) by Damascus, if the ten day weighted trading average price of
the Pharmaxis Shares is less than (AUS) $3.00 for the ten
trading days preceding the Closing Date; and
(j) by the Offeror, if the Offeror does not receive a fairness
opinion from its financial advisor with respect to the
Acquisition in form and substance satisfactory to the Offeror,
acting reasonably, on or before December 14, 2006.
GOVERNING LAW
24. This Agreement, the Transaction Documents and other agreements
contemplated herein and therein, if entered into, will be construed in
all respects under and be subject to the laws of the Province of
Alberta and the laws of Canada applicable therein which are applicable
to agreements entered into and performed within the Province of
Alberta.
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EXECUTION
25. This Agreement may be executed in counterpart and evidenced by a
facsimile copy thereof and all such counter part execution or facsimile
copies shall constitute one document.
If this Agreement is acceptable, please communicate your acceptance by executing
the duplicate copy hereof in the appropriate space below and returning such
executed copy to the Offeror, prior to 5:00 p.m. (Calgary time) December 1, 2006
at the address set out above.
Yours very truly
PATCH INTERNATIONAL INC.
Per: /s/ XXXX XXXXXXXX
-------------------------------------
Xxxx Xxxxxxxx, Interim President
THIS AGREEMENT is hereby accepted on
the terms and conditions set forth herein
as of December 1, 2006.
DAMASCUS ENERGY INC.
Per: /s/ XXXXXXX X. XXXXXXX
-------------------------------------
Xxxxxxx X. Xxxxxxx
President
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