PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT, dated as of August 28,
2006 (the "Agreement"), by and between PURE CYCLE
CORPORATION, a Delaware corporation ("Pure Cycle"), and INCO
SECURITIES CORPORATION, a Delaware corporation ("Inco").
RECITALS
A. Pursuant to the Comprehensive Amendment Agreement
No. 1, dated as of April 11, 1996 (the "CAA"), between Pure
Cycle and certain investors (including Inco), Pure Cycle is
obligated to pay such investors certain proceeds it receives
from the sale of "Export Water" (as defined in the CAA);
B. Inco is referenced in Section 2.1(c), (j), (s)(i)
and (s)(ii) of the CAA and is entitled to receive "Gross
Proceeds" (as defined in the CAA) totaling $1,450,400,
$1,450,400, $1,498,334 and $299,666.80, respectively, under
these subsections of the CAA (collectively, the "Gross
Proceeds");
C. Inco is the holder of (i) an Amended Term Note
issued by Pure Cycle dated as of August 12, 1992, in the
principal amount of $199,500, and (ii) an Amended Term Note
issued by Pure Cycle dated as of August 12, 1992, in the
principal amount of $225,000, as amended by letter agreements
between Inco and Pure Cycle dated September 12, 2000 and
September 23, 2002 (collectively, the "Notes"), which the
parties have understood and agreed would be held by Inco as
security for payment of the Gross Proceeds and cancelled upon
payment of the Gross Proceeds;
D. Pure Cycle has offered to purchase from Inco all of
its rights to receive payments under the CAA at a discount to
the face amount of the Gross Proceeds, in consideration of
the issuance of certain shares in the capital stock of Pure
Cycle, and Inco has accepted the offer, on and subject to the
terms set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises
herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. Purchase and Sale of CAA Interest. Inco hereby
unconditionally and irrevocably sells, transfers, assigns and
conveys to Pure Cycle, and Pure Cycle hereby purchases and
accepts from Inco, all of Inco's right, title and interest in
and to the CAA, including without limitation: (i) the right
of Inco to receive monies and other property or assets due
and to become due to Inco pursuant to the CAA (including,
without limitation, the Gross Proceeds) and (ii) all rights
of Inco to compel performance and otherwise exercise all
remedies thereunder (collectively, the "Transferred
Interest"). Pure Cycle hereby assumes all of the
obligations, liabilities, responsibilities and commitments of
Inco under the CAA.
2. Cancellation of the Notes. Inco hereby delivers the
certificates representing the Notes to Pure Cycle for
cancellation.
3. Purchase Price. In consideration of the sale of the
Transferred Interest and the cancellation of the Notes, Pure
Cycle hereby issues and delivers to Inco 242,169 shares of
common stock of Pure Cycle (the "PC Shares"). The PC Shares
shall bear the legend restricting transfer set forth in
Section 10 hereof; provided, however that such legend shall
be removed in connection with the registration of the PC
Shares as described in Section 5 below. Pure Cycle shall
also deliver an opinion of its counsel, ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇
LLP, that the PC Shares are duly authorized, validly issued,
fully paid and non-assessable.
4. Effect of Purchase. Upon issuance to Inco of the PC
Shares, all rights of Inco relating in any way to the CAA
will be owned by Pure Cycle and all rights of Inco or any
subsequent holder in the Notes will be extinguished. Pure
Cycle and Inco agree that this Agreement constitutes an
assignment to Pure Cycle of all of Inco's rights, title and
interest in and to the CAA as of the date hereof, and that as
of the date hereof Inco shall cease to possess any rights
with respect to the CAA or the Notes.
5. Registration of the PC Shares.
(a) As soon as practicable following the date of
this Agreement and in any event not later than November 14,
2006, Pure Cycle shall file a selling shareholder
registration statement on Form S-3 to register the PC Shares
under the Securities Act of 1933, as amended (the "Securities
Act"). Pure Cycle shall use reasonable efforts to cause such
registration statement to become effective and to maintain
the effectiveness of such registration statement for two (2)
years or until the date that all of the PC Shares have been
sold or otherwise transferred by Inco, whichever is earlier.
Pure Cycle shall prepare and file with the SEC such
amendments and supplements to such Registration Statement
(including documents incorporated by reference into the
Registration Statement) and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective for the applicable period provided in the
immediately preceding sentence, and to comply with the
provisions of the Securities Act and the Securities Exchange
Act of 1934 (the "Exchange Act") with respect to the
disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by Inco set forth in such registration
statement. A reasonable period of time prior to filing the
registration statement, or any amendment or supplement
thereto, Pure Cycle shall provide copies thereof to Inco and
shall incorporate any reasonable comments Inco may have
thereon. Pure Cycle shall furnish Inco with as many copies
of the prospectus contained within the registration statement
as it shall reasonably request for purposes of disposing of
the PC Shares.
(b) Pure Cycle shall use reasonable efforts to cause the
PC Shares registered pursuant to this Agreement to
be listed on the NASDAQ Capital Market or such other exchange
or quotation system as Pure Cycle's other shares of common
stock are listed. Pure Cycle shall use reasonable efforts to
register or qualify the PC Shares registered pursuant to this
Agreement under such other securities or "blue sky" laws of
such jurisdictions in the United States as Inco may
reasonably request.
(c) All expenses incurred in connection with the
registration of the PC Shares pursuant to this Agreement,
including all registration and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel
for Pure Cycle, shall be borne by Pure Cycle. Inco shall be
responsible for payment of all discounts, commissions or
other amounts payable to underwriters or brokers in
connection with offering the PC Shares pursuant to the
registration statement.
(d) After the filing of the registration statement,
Pure Cycle shall (i) cause the related prospectus to be
amended or supplemented by any required prospectus amendment
or supplement, and, as so amended or supplemented, to be
filed pursuant to Rule 424 under the Securities Act, (ii)
comply with the provisions of the Securities Act with respect
to the disposition of all PC Shares covered by such
registration statement during the applicable period in
accordance with the intended methods of disposition by Inco
set forth in such registration statement or amendment or
supplement to such prospectus and (iii) promptly notify Inco
of any stop order issued or threatened by the SEC or any
state securities commission and use reasonable best efforts
to prevent the entry of such stop order or to remove it if
entered. Pure Cycle shall immediately notify Inco, at any
time when a prospectus relating to the PC Shares is required
to be delivered under the Securities Act, of the occurrence
of an event requiring the preparation of a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such PC Shares, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading and
promptly prepare and make available to Inco and file with the
SEC any such supplement or amendment, and at the request of
Inco, prepare and furnish to Inco a reasonable number of
copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers
of such PC Shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of
the circumstances then existing.
6. Representations and Warranties of Inco.
(a) Inco has all corporate right, power, and
authority to execute, deliver and perform its obligations
under this Agreement. This Agreement has been duly and
validly authorized, executed and delivered by Inco. This
Agreement is the valid and binding obligation of Inco,
enforceable against Inco in accordance with its terms, except
as enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance, redemption, reinstatement,
and other laws affecting the rights or remedies of creditors
generally or (b) general principles of equity.
(b) The Transferred Interest represents the entire
interest of Inco under the CAA. Inco owns the Transferred
Interest and the Notes, and passes to Pure Cycle good and
marketable title to the Transferred Interest and the Notes,
free and clear of any lien, encumbrance, pledge, option,
adverse interest, charge or assessment of any kind (a
"Lien"). Inco has not taken any action to sell or otherwise
transfer the Transferred Interest or the Notes or to
mortgage, hypothecate or otherwise encumber the Transferred
Interest or the Notes, or to grant any Lien on the incidents
of ownership of the Transferred Interest or the Notes,
including any right of first offer or other contractual
obligation.
(c) The execution, delivery and performance by Inco
of this Agreement does not and will not (a)conflict with,
violate, result in a breach of or constitute a default under
any agreement, instrument or obligation to which Inco is a
party or by which Inco is bound; (b) conflict with or violate
any order, judgment, decree, statute, rule or regulation
applicable to Inco; (c) result in the creation or imposition
of any Lien against or upon the Transferred Interest or the
Notes; or (d) require any consent, approval or authorization
of, or filing with, any governmental authority or any other
third party.
(d) Inco understands that the valuation of
interests in the CAA and the common stock of Pure Cycle is
uncertain and that such value derives significantly from
future transactions and developments that are largely unknown
and unknowable. Inco acknowledges that the consideration
being paid hereunder represents the result of an arms' length
negotiation between Pure Cycle and Inco and represents the
fair market value of the Transferred Interest and the Notes.
Inco has read and understands the public filings made by Pure
Cycle with the United States Securities and Exchange
Commission. In addition, Inco has been given the opportunity
to solicit from Pure Cycle all information relevant to
valuation of rights under the CAA and regarding Pure Cycle's
business and operations, and has received all the information
requested. Inco has made an investigation of the pertinent
facts related to Pure Cycle, the PC Shares, and the
likelihood of payment under the CAA and has reviewed all
information regarding Pure Cycle to the extent it deems
necessary in order to be fully informed with respect thereto.
Except as contemplated by Section 5, Inco is acquiring the PC
Shares hereunder for its own account for the purpose of
investment and not with a view to or for sale in connection
with any distribution thereof. Inco is an "accredited
investor" within the meaning of Rule 501 under the Securities
Act and is knowledgeable and experienced in securities,
financial and business matters and in transactions of this
nature, and has made its own assessment of the value of the
PC Shares and of rights under the CAA. Inco is capable of
evaluating the merits and risks of this transaction and is
able to bear a complete loss of the investment in the PC
Shares. Inco understands that subsequent events may prove
that values of interests in the CAA were higher or lower than
the valuation indicated by the PC Shares paid hereunder.
7. Representations and Warranties of Pure Cycle.
(a) Pure Cycle has all corporate right, power, and
authority to execute, deliver and perform its obligations
under this Agreement. This Agreement has been duly and
validly authorized, executed and delivered by Pure Cycle.
This Agreement is the valid and binding obligation of Pure
Cycle, enforceable against Pure Cycle in accordance with its
terms, except as enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, redemption,
reinstatement, and other laws affecting the rights or
remedies of creditors generally or (b) general principles of
equity.
(b) The execution, delivery and performance by Pure
Cycle of this Agreement does not and will not (a) conflict
with, violate, result in a breach of or constitute a default
under any agreement, instrument or obligation to which Pure
Cycle is a party or by which Pure Cycle is bound;
(b) conflict with or violate any order, judgment, decree,
statute, rule or regulation applicable to Pure Cycle; or
(c) except as contemplated pursuant to Section 5, require any
consent, approval or authorization of, or filing with, any
governmental agency.
(c) The PC Shares are duly authorized validly
issued, fully paid and non-assessable.
8. Release.
(a) Inco, on behalf of itself and its officers,
directors, employees, affiliates, and agents, hereby fully
and forever releases and discharges Pure Cycle and its
officers, directors, agents, employees, affiliates,
successors and predecessors from any and all claims, demands,
proceedings, causes of actions, orders, obligations,
contracts, agreements, debts, guarantees, damages, expenses,
costs, attorneys' fees and liabilities whatsoever, whether
known or unknown, suspected or unsuspected, both at law and
in equity, which Inco now has, has ever had or may hereafter
have against Pure Cycle in connection with, related to or
arising out of (i) Inco's interest in the CAA, (ii) the
Notes, (iii) the financing transactions pursuant to which
Inco acquired its interest in the CAA and (iv) the business,
operations, management, financing, or other matters relating
to Pure Cycle, the Rangeview Metropolitan District, the
Export Water, or the property known as the ▇▇▇▇▇ Range,
provided that this release shall not apply with respect to
any claims arising out from or related to this Agreement
(including without limitation the issuance and registration
of the PC Shares),
(b) Pure Cycle, on behalf of itself and its
officers, directors, employees and agents, hereby fully and
forever releases and discharges Inco and its officers,
directors, agents, employees, affiliates, successors and
predecessors from any and all claims, demands, proceedings,
causes of actions, orders, obligations, contracts,
agreements, debts, guarantees, damages, expenses, costs,
attorneys' fees and liabilities whatsoever, whether known or
unknown, suspected or unsuspected, both at law and in equity,
which Pure Cycle now has, has ever had or may hereafter have
against Inco in connection with, related to or arising out of
(i) Inco's interest in the CAA, (ii) the Notes, (iii) the
financing transactions pursuant to which Pure Cycle entered
into the CAA and (iv) the business, operations, management,
financing, or other matters relating to Pure Cycle, the
Rangeview Metropolitan District, the Export Water, or the
property known as the ▇▇▇▇▇ Range.
9. Indemnification and Contribution.
(a) Indemnification. Pure Cycle agrees with
respect to any registration, qualification or compliance
effected pursuant to Section 5 of this Agreement, to
indemnify and hold harmless to the fullest extent permitted
by law Inco, its affiliates, and its and their respective
officers, directors, employees, members, managers,
shareholders, partners, representatives, advisors and agents,
and each person, if any, who controls Inco within the meaning
of Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable
expenses of investigation and reasonable attorneys' fees and
expenses) ("Damages") caused by or relating to (A) any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus
relating to the PC Shares (as amended or supplemented if Pure
Cycle shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, offering circular,
free writing prospectus or other similar document (including
any related registration statement, notification, or the
like) incident to any such registration, qualification or
compliance or caused by or relating to any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading or (B) any violation by Pure Cycle of any
federal, state or common law rule or regulation, including as
promulgated under the Securities Act, Exchange Act or any
state securities laws applicable to Pure Cycle, except
insofar as such Damages are caused by or related to (i) any
such untrue statement or omission or alleged untrue statement
or omission so made based upon information furnished in
writing to Pure Cycle by Inco or on Inco's behalf expressly
for use therein or (ii) any violation made in a prospectus
but eliminated or remedied in an amended or supplemented
prospectus which was furnished to Inco and Inco subsequently
failed to furnish the amended or supplemented prospectus as
required by the Securities Act or any state securities law.
(b) Contribution. If the indemnification provided
for in this Section 9 is unavailable to the indemnified
parties in respect of any Damages, then each such
indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Damages in such
proportion as is appropriate to reflect the relative fault of
Pure Cycle and Inco in connection with such statements or
omissions, as well as any other relevant equitable
considerations. The relative fault of Pure Cycle and Inco
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material
fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or
omission. Pure Cycle and Inco agree that it would not be
just and equitable if contribution pursuant to this Section
9(b) were determined by pro rata allocation or by any other
method of allocation that does not take account of the
equitable considerations referred to in this paragraph.
10. Survival. Each of the covenants, representations
and warranties of Inco and Pure Cycle made herein shall
survive the Closing.
11. Restrictive Legend. The PC Shares issued hereunder
shall bear the following (or substantially equivalent) legend
on the face or reverse side thereof:
"These shares have not been registered under the Securities
Act of 1933, as amended, or applicable state securities laws,
and may not be sold, transferred or otherwise disposed of in
the absence of such registration or an exemption therefrom
under said Act and such laws and the respective rules and
regulations thereunder."
12. Entire Agreement; Amendments; Waivers. This
Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, with
respect thereto. This Agreement may not be modified orally,
but only by an agreement in writing signed by the party
against whom any waiver or amendment may be sought to be
enforced. No action taken pursuant to this Agreement and no
investigation by or on behalf of any party hereto shall be
deemed to constitute a waiver by such party of compliance
with any representation, warranty, covenant or agreement
herein. The waiver by any party hereto of any condition or
of a breach of another provision of this Agreement shall not
be construed as a waiver of any other condition or subsequent
breach. The waiver by any party of any part of any condition
precedent to its obligations under this Agreement shall not
preclude it from seeking redress for breach of this Agreement
other than with respect to the condition waived.
13. Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective heirs, legal representatives, successors and
permitted assigns.
14. Headings and Exhibits. The section, exhibit and
other headings in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of
this Agreement.
15. Counterparts. For the convenience of the parties
hereto, this Agreement may be executed in any number of
original or facsimile counterparts, each of which, when
executed, shall be deemed to be an original and all of such
counterparts together shall be deemed to be one and the same
Agreement.
16. Governing Law. This Agreement shall be construed
and enforced in accordance with the laws of the State of
Colorado, without giving effect to the principles of
conflicts of law of such state.
***
IN WITNESS WHEREOF, the parties hereto have executed
this Purchase and Sale Agreement as of the date set forth
above.
PURE CYCLE CORPORATION
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By: ▇▇▇▇ ▇▇▇▇▇▇▇
President
INCO SECURITIES CORPORATION
/s/ ▇▇▇▇▇ ▇. Fish
By: ▇▇▇▇▇ ▇. Fish
President and Secretary
