EXHIBIT 10
FORM OF SECURITIES PURCHASE AGREEMENT
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SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 28,
2004, by and among Energy & Engine Technology Corporation, a corporation
organized under the laws of the State of Nevada (the "Company"), on the one
hand, and MERCATOR MOMENTUM FUND, LP ("Momentum Fund"), MERCATOR MOMENTUM FUND
III, LP ("Momentum Fund III") , and MONARCH POINTE FUND, LP, ("Monarch")
(collectively, the "Funds") and MERCATOR ADVISORY GROUP, LLC ("Mercator") on
the other hand.
WHEREAS:
A. The Company and the Funds are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Section 4(2) and Regulation D ("Regulation D"), as promulgated
by the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
B. The Company is issuing (i) 7.0% Convertible Debentures in the form
attached hereto as Exhibit A (the "Debentures") in the aggregate principal
amount of $1,700,000, pursuant to which shares of the Company's common stock
("Common Stock") may be issued upon the conversion of the Debentures (the
"Debenture Shares"); and (ii) warrants in the form attached hereto as Exhibit
B (the "Warrants") to acquire shares of Common Stock ("Warrant Shares").
C. The Funds are purchasing, severally and not jointly, subject to the
terms and conditions in this Agreement, the Debentures and the Warrants and
Mercator is purchasing a Warrant.
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Funds hereby agree as follows:
1. CERTAIN DEFINITIONS.
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For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday in the United States or a day on which
banking institutions are authorized or required by law or other government
action to close.
"Investment Amount" shall mean the dollar amount of the Debentures
purchased by Momentum Fund or Momentum Fund III at the Closing pursuant to
this Agreement, as set forth on the Execution Page hereto executed by a
representative of each Fund.
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"Material Adverse Effect" shall mean any material adverse effect on (i)
the Securities, (ii) the ability of the Company to perform its obligations
hereunder (including the issuance of the Debentures and the Warrants), under
the Debentures and Warrants (including the issuance of the Debenture Shares
and Warrant Shares) or under the Registration Rights Agreement or (iii) the
business, operations, properties, prospects or financial condition of the
Company and its subsidiaries taken as a whole.
"Pro Rata Percentage" shall mean, with respect to any Fund, a percentage
computed by dividing such Fund's Investment Amount by the aggregate Investment
Amounts of all Funds.
"Securities" shall mean the Debentures, the Warrants, the Debenture
Shares and the Warrant Shares.
"Shares" means the shares of Common Stock to be issued upon the
conversion of the Debentures or exercise of the Warrants.
2. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
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(a) Generally. Except as otherwise provided in this Section 2 and
subject to the satisfaction (or waiver) of the conditions set forth in Section
6 and Section 7 below, each Fund shall purchase the number of Debentures and
Warrants determined as provided in this Section 2, Mercator shall purchase the
number of Warrants determined as provided in the Section 2, and the Company
shall issue and sell such number of Debentures and Warrants to each Fund for
such Fund's Investment Amount as provided below and shall issue and sell such
number of Warrants to Mercator without receipt of cash consideration from
Mercator.
(b) Purchase of Debentures and Warrants; Form of Payment; Closing Date.
(i) On the Closing Date (as defined below), the Company shall sell
and: (A) the Funds will purchase Debentures in the aggregate principal amount
of $1,700,000 and (B) the Funds and Mercator will purchase Warrants
exercisable in the aggregate for _________ Shares. The allocation of the
Debentures and Warrants is set forth below. On the Closing Date, each Fund
shall pay the Company an amount equal to such Fund's Investment Amount.
Momentum Momentum
Fund Fund III Monarch Mercator Total
------------------------------------------------------------------------
Debentures $530,000 $377,000 $793,000 $ - $1,700,000
Warrants
(ii) On the Closing Date, each Fund shall pay its Investment Amount
to the Company against delivery by the Company of duly executed Debentures and
Warrants being purchased by such Fund, Warrants being purchased by Mercator
and all other items required to be delivered as conditions to the closing
under Section 7 below. Mercator shall not be required to make a payment for
the Warrants it purchases.
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(iii) Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the date and time of the
sale of the Debentures and the Warrants pursuant to this Agreement (the
"Closing") shall be 10:00 a.m. California time on July 30, 2004 or such other
date or time as Mercator and the Company may mutually agree ("Closing Date").
The Closing shall occur at the Los Angeles offices of Mercator, or at such
other place as Mercator and the Company may otherwise mutually agree.
3. THE FUNDS' REPRESENTATIONS AND WARRANTIES.
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Each Fund severally and not jointly represents and warrants to the
Company as follows:
(a) Organization, Good Standing and Qualification. The Fund is a
limited partnership duly organized, validly existing and in good standing
under the laws of the State of California and has all the requisite power and
authority to carry on its business as now conducted and as proposed to be
conducted.
(b) Purchase for Own Account. The Fund is purchasing the Securities for
the Fund's own account and not with a present view towards the distribution
thereof. The Fund understands that the Fund must bear the economic risk of
this investment indefinitely, unless the Securities are registered pursuant to
the Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering any such Securities other than as
contemplated by the Registration Rights Agreement. Notwithstanding anything
in this Section 3(b) to the contrary, by making the foregoing representation,
the Fund does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an exemption
from registration under the Securities Act and any applicable state securities
laws.
(c) Information. The Fund has been furnished all materials relating to
the business, finances and operations of the Company and its subsidiaries and
materials relating to the offer and sale of the Securities, which have been
requested by the Fund. The Fund has been afforded the opportunity to ask
questions of the Company and has received what the Fund believes to be
satisfactory answers to any such inquiries. The Fund understands that its
investment in the Securities involves a high degree of risk. Neither such
inquiries nor any other due diligence investigation conducted by the Fund or
its counsel or any of its representatives shall modify, amend or affect the
Fund's right to rely on the Company's representations and warranties
contained in Section 4 below.
(d) Governmental Review. The Fund understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
(e) Accredited Investor Status. The Fund is an "Accredited Investor"
as that term is defined in Rule 501(a) of Regulation D.
(f) Authorization; Enforcement. The Fund has the requisite power and
authority to enter into and perform its obligations under this Agreement and
to purchase the Debentures and the Warrants in accordance with the terms
hereof. This Agreement has been duly and validly authorized, executed and
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delivered on behalf of the Fund and is a valid and binding agreement of the
Fund enforceable against the Fund in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws affecting creditors' rights and remedies generally
and to general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity).
(g) Restrictions on Transfer. The Funds understand and acknowledge that
neither the Debentures, the Warrants, the Debenture Shares nor the Warrant
Shares have been registered under the Securities Act. Unless and until
otherwise permitted, the Debentures and Warrants and each certificate and
other document evidencing any of the Debenture Shares and Warrant Shares shall
be endorsed with the legend substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A)
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN
COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS BEEN FURNISHED
WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT
THAT NO REGISTRATION IS REQUIRED FOR SUCH TRANSFER."
(h) Covenants of Funds Not to Short Stock. The Funds, on behalf of
themselves and their affiliates, hereby covenant and agree not to, directly or
indirectly, offer to "short sell", contract to "short sell" or otherwise
"short sell" the securities of the Company, including, without limitation,
shares of Common Stock that will be received as a result of the conversion of
the Debentures.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to each Fund as follows and except as
set forth in the Company's public filings with the Securities and Exchange
Commission:
(a) Organization and Qualification. The Company is a corporation duly
organized and existing under the laws of the State of Nevada and has the
requisite corporate power to own its properties and to carry on its business
as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. Schedule 4(a) sets forth the name of each subsidiary of the Company
and its jurisdiction of incorporation. The Company is the sole record and
beneficial owner of all of the outstanding equity securities of each such
subsidiary.
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement;
to issue the Debenture Shares upon conversion of the Debentures in accordance
with the terms of the Debentures; and to issue and sell the Warrant Shares
upon exercise of the Warrants in accordance with the terms of the Warrants,
and receipt of the exercise price. The execution, delivery and performance
of this Agreement, the Debentures, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Debenture Shares and the
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reservation for issuance and issuance of the Warrant Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required. This Agreement has been duly executed and delivered by the Company.
This Agreement constitutes, and, upon execution and delivery by the Company
and the other parties thereto, the Debentures, Registration Rights Agreement
and the Warrants will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws affecting creditors' rights and remedies
generally and to general principles of equity.
(c) Capitalization. The capitalization of the Company and each of its
subsidiaries as of the date hereof is set forth on Schedule 4(c), including
the authorized capital stock, the number of shares issued and outstanding,
the number of shares issuable and reserved for issuance pursuant to the
Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock. All of such outstanding shares
of the capital stock of the Company have been, or upon issuance will be,
validly issued, fully paid and nonassessable. Except as set forth on Schedule
4(c), no shares of capital stock of the Company (including the Debenture
Shares and the Warrant Shares) or any of the subsidiaries are subject to
preemptive rights or any other similar rights of the shareholders of the
Company or any liens or encumbrances. Except for the Securities and as
disclosed in Schedule 4(c), as of the date of this Agreement, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever to which the Company or any of the
subsidiaries is a party relating to the issuance by the Company or any of
its subsidiaries of securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or such subsidiaries. Except for piggyback registration rights
granted pursuant to transactions with prior investors (which includes the Form
SB-2 being filed in connection with the Company's February 2004 private
placement), there are no agreements or arrangements under which the Company or
any of its subsidiaries is obligated to register the sale of any of its or
their securities under the Securities Act (except the Registration Rights
Agreement). Except as set forth on Schedule 4(c), there are no securities or
instruments containing antidilution or similar provisions that may be
triggered by the issuance of the Securities in accordance with the terms of
this Agreement, the Debentures, the Warrants or the Registration Rights
Agreement.
(d) Issuance of Shares. The Debenture Shares are duly authorized and
upon the conversion of the Debentures in accordance with the terms thereof,
will be validly issued, fully paid and non-assessable, and free from all
taxes, liens, claims and encumbrances (other than those imposed through acts
or omissions of the Funds), and will not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not impose
personal liability upon the holder thereof. The Warrant Shares are duly
authorized and reserved for issuance, and, upon exercise of the Warrants in
accordance with the terms thereof and receipts of the exercise price, will be
validly issued, fully paid and non-assessable and free from all taxes and
liens, claims and encumbrances (other than those imposed through acts or
omissions of the Funds thereof), and will not be subject to preemptive rights
or other similar rights of shareholders of the Company and will not impose
personal liability upon the holder thereof.
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(e) No Conflicts. The execution, delivery and performance of this
Agreement, the Debentures, the Registration Rights Agreement and the Warrants
by the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
reservation for issuance and issuance of the Debenture Shares and the Warrant
Shares and the issuance of the Warrants) will not (i) conflict with or result
in a violation of the Articles of Incorporation or By-laws or (ii) conflict
with, or constitute a default (or an event which, with notice or lapse of
time or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment
or decree (including (assuming the accuracy of the representations and
warranties of the Funds) the United States federal and state securities laws
and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is bound
or affected (except, with respect to clause (ii), for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation, By-laws and other organizational
documents and neither the Company nor any of its subsidiaries is in default
(and no event has occurred which, with notice or lapse of time or both, would
put the Company or any of its subsidiaries in default) under, nor has there
occurred any event giving others (with notice or lapse of time or both) any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for actual or possible violations, defaults or
rights as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for actual or possible violations, if any, the sanctions for
which either singly or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, approval, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement including without
limitation the issuance and sale of the Debentures and Warrants as provided
hereby (including without limitation the issuance of the Debenture Shares and
Warrant Shares) or the Registration Rights Agreement.
(f) SEC Documents; Financial Statements. Since January 1, 2001, the
Company has timely filed (subject to extensions permissible under Rule 12b-25
of the Exchange Act) all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the Securities
and Exchange Act of 1934, as amended ("Exchange Act"), and has filed all
registration statements and other documents required to be filed by it with
the SEC pursuant to the 1933 Act (all of the foregoing filed prior to the date
hereof, and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has made
available to each Fund true and complete copies of the SEC Documents, except
for the exhibits and schedules thereto and the documents incorporated therein.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as
the case may be, and the rules and regulations of the SEC promulgated there-
122
under applicable to the SEC Documents, and none of the SEC Documents, at the
time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any statements made
in any such SEC Documents that are or were required to be updated or amended
under applicable law have been so updated or amended. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC applicable with respect
thereto. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects
the consolidated financial position of the Company and its subsidiaries as of
the dates thereof and the results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
and recurring year-end audit adjustments). Except as set forth in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of such SEC Documents and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such SEC
Documents, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, would not have a Material Adverse
Effect.
(g) Absence of Certain Changes. Except as disclosed in the SEC
Documents, since January 1, 2003, there has been no change or development,
which, individually or in the aggregate, has had or could have a Material
Adverse Effect on the Company.
(h) Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency, self-regulatory organization or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company, or any of its subsidiaries, or any of their directors
or officers in their capacities as such which would have a Material Adverse
Effect.
(i) Intellectual Property. The Company and each of its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary knowledge
(collectively, "Intangibles") necessary for the conduct of its business as
now being conducted and as proposed to be conducted. Neither the Company nor
any of its subsidiaries has received written notice that it is infringing upon
or in conflict with any third party Intangibles. Neither the Company nor any
of its subsidiaries has entered into any consent, indemnification, forbearance
to xxx or settlement agreements with respect to the validity of the Company's
or such subsidiary's ownership or right to use its Intangibles. The
Intangibles are valid and enforceable, and no registration relating thereto
has lapsed, expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications therefor
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are pending and in good standing. The Company and its subsidiaries have
complied with their contractual obligations relating to the protection of the
Intangibles used pursuant to licenses. To the knowledge of the Company, no
person is infringing on or violating the Intangibles owned or used by the
Company or any of its subsidiaries.
(j) Environment. Except as disclosed in the SEC Documents (i) there is
no environmental liability, nor factors likely to give rise to any
environmental liability, affecting any of the properties of the Company or
any of its subsidiaries that individually or in the aggregate, would have a
Material Adverse Effect and (ii) neither the Company nor any of the
subsidiaries has violated any environmental law applicable to it now or
previously in effect, other than such violations or infringements that,
individually or in the aggregate, have not had and will not have a Material
Adverse Effect.
(k) Title. The Company and each of its subsidiaries has good title in
fee simple to any and all real property that it owns and good title to all
personal property owned by it which is material to its business, free and
clear of all liens, encumbrances and defects except for such defects in title
that, individually or in the aggregate, would not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company or
any of its subsidiaries are held by the Company or such subsidiary under
valid, subsisting and enforceable leases with such exceptions, which have not
had and will not have a Material Adverse Effect.
(l) Insurance. The Company and its subsidiaries maintain such insurance
relating to their business, operations, assets, key-employees and officers and
directors as is appropriate to their business, assets and operations, in such
amounts and against such risks as are customarily carried and insured against
by owners of comparable businesses, assets and operations, and such insurance
coverages will be continued in full force and effect to and including the
Closing Date other than those insurance coverages in respect of which the
failure to continue in full force and effect could not reasonably be expected
to have a Material Adverse Effect.
(m) Acknowledgment Regarding the Fund's Purchase of the Securities. The
Company acknowledges and agrees that neither Fund is acting as a financial
advisor or is acting as a fiduciary of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, and the relationship between the Company and the Funds is "arms
length" and that any statement made by any Fund or any of its representatives
or agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to such
Fund's purchase of Securities and has not been relied upon by the Company,
its officers or directors in any way. The Company further represents to the
Funds that its decision to enter into this Agreement has been based solely on
an independent evaluation by the Company.
(n) No Brokers. Except as set forth on Schedule 4(n) the Company has
not engaged any person to which or to whom brokerage commissions, finder's
fees, financial advisory fees or similar payments are or will become due in
connection with this Agreement or the transactions contemplated hereby except
for Mercator, whose administrative fee will be paid by the Company.
(o) Tax Status. The Company and each of its subsidiaries has made or
filed all material federal, state and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
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(unless and only to the extent that the Company or the applicable subsidiary
has set aside on its books provisions adequate for the payment of all unpaid
and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provisions adequate for the payment
of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no material unpaid taxes claimed to
be due by the taxing authority of any jurisdiction. The Company has not
executed a waiver with respect to any statute of limitations relating to the
assessment or collection of any federal, state or local tax. None of the tax
returns of the Company have been or is being audited by any taxing authority.
(p) No General Solicitation. Neither the Company nor any person
participating on its behalf in the transactions contemplated hereby has
conducted any "general solicitation" or "general advertising" as such terms
are used in Regulation D, with respect to any of the Securities being offered
hereby.
(q) Securities Laws. Neither the Company nor any of its affiliates, nor
any person acting on their behalf, has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would require registration of the Securities being
offered hereby under the Securities Act or cause this offering of Securities
to be integrated with any prior offering of securities of the Company for
purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, Rule 4350(i) of the National
Association of Securities Dealers ("NASD") or any similar rule. The offer,
sale and delivery of shares of Common Stock upon the conversion of the
Debentures or exercise of the Warrants will be exempt from the registration
requirements of Section 5 of the Securities Act.
(r) SB-2 Eligibility. The Company is currently eligible to register the
resale of its Common Stock on a registration statement on Form SB-2 under the
Securities Act. There exist no facts or circumstances (including without
limitation any required approvals or waivers of any circumstances that may
delay or prevent the obtaining of accountant's consents) that would prohibit
or delay the preparation and filing of a registration statement on Form SB-2
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement).
(s) Disclosure. All information relating to or concerning the Company
and its subsidiaries set forth in this Agreement or otherwise provided to the
Funds in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company and subsidiaries have not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
5. COVENANTS.
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(a) Satisfaction of Conditions. The parties shall use their best
efforts to satisfy in a timely manner each of the conditions set forth in
Section 6 and Section 7 of this Agreement.
(b) Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
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thereof to Mercator promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Funds and
Mercator pursuant to this Agreement under applicable securities or "blue sky"
laws of the applicable states of the United States or obtain exemption there-
from, and shall provide evidence of any such action so taken to Mercator on or
prior to the Closing Date.
(c) Reporting Status. So long as a Fund beneficially owns any
Securities or has the right to acquire any Securities pursuant to this
Agreement, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and shall 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.
(d) Use of Proceeds. The Company shall use the net proceeds from the
sale of the Debentures and the Warrants for the purposes set forth on Schedule
5(d); and no portion of the net proceeds shall be used to repay any promissory
notes due to officers or directors of the Company.
(e) Due Diligence Fee and Expenses. At the Closing, the Company shall
(i) pay to Mercator a due diligence fee of $85,000; and (ii) reimburse
Mercator for $10,000 in legal expenses reasonably incurred by Mercator and
its affiliates and advisors in connection with the negotiation, preparation,
execution and delivery of this Agreement, the Debenture, the Registration
Rights Agreement, the Warrants and the other agreements to be executed in
connection herewith, including, without limitation, in conducting Mercator's
and its affiliates' and advisors' reasonable due diligence and Mercator's and
its affiliates' reasonable attorneys' fees and expenses (the "Expenses").
(f) Reserved.
(g) Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the issuance of the Shares as provided
in Section 2 hereof, and the full conversion of the Debentures and the
issuance of the Warrant Shares in connection therewith and as otherwise
required hereby and by the Warrants in accordance with the Registration
Rights Agreement. The Company shall not reduce the number of shares of Common
Stock reserved for issuance under this Agreement, the Debentures, the Warrants
(except as a result of the issuance of the Warrant Shares upon the exercise of
the Warrants) or the Registration Rights Agreement without the consent of the
Funds and Mercator.
(h) Listing. On the Closing Date, the Company's Common Stock shall
trade on the NASD Over-the-Counter Bulletin Board ("OTC"). The Company shall
use its best efforts to continue trading of its Common Stock on the OTC, or
alternatively, the Nasdaq National Market System, Nasdaq Small Cap Market, the
New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") (each
a "Subsequent Market") and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the OTC
or a Subsequent Market, as applicable.
(i) Additional Equity Capital. The Company agrees that during the
period beginning on the date hereof and ending on the date which is one
hundred eighty (180) days following the Closing Date (the "Lock-Up Period"),
the Company will not, without the prior written consent of the Funds or their
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designees, contract with any party to obtain additional financing in which
any equity or equity-linked securities are issued (including any debt
financing with an equity component) (an "Equity Financing") for an amount in
excess of $250,000 per financing unless it shall have first delivered to the
Fund, at least ten (10) business days prior to the closing of such Equity
Financing, written notice describing the proposed Equity Financing, including
the terms and conditions thereof, and providing the Funds and their affiliates
an option during the ten (10) business day period following delivery of such
notice to purchase all, and not less than all, of the securities being offered
in the Equity Financing on the same terms as contemplated by such Equity
Financing. The amount of a given Equity Financing shall be determined by
aggregating all sums received from a single party and its affiliates during
the Lock-Up Period. Such option shall be exercised by each applicable Fund
giving written notice to the Company within such period of its agreement to
buy a specified amount of the offered securities; provided, that, the Funds
collectively elect to purchase all of the securities being offered in the
Equity Financing. Closing of such sale shall be on the date of the scheduled
closing of the offering with the proposed investors other than the Funds (or
on another date if so agreed by Mercator and the Company), provided that the
Company shall provide written notice to each applicable Fund and to Mercator
at least five (5) business days prior to any such closing. To the extent that
the Funds, in the aggregate, elect to purchase more than all of such
securities, the amount that each Fund shall be entitled to purchase shall be
pro rated based on the Fund's Pro Rata Percentage. To the extent that the
terms of an additional Equity Financing are changed in a manner that is at
least partially favorable to prospective investors, the Company shall notify
the Funds of all changes in such terms and the Funds shall have another ten
(10) business day option to purchase on the revised terms and otherwise in
accordance with the provisions hereof. The limitations referred to in this
Section 5(i) shall not apply to (i) any transaction involving issuances of
securities as consideration in a merger, consolidation or acquisition of
assets, or in connection with any strategic partnership, collaboration or
joint venture (the primary purpose of which is not to raise equity capital),
or as consideration for the acquisition of a business, product or license by
the Company, (ii) the issuance of securities pursuant to a widely distributed
underwritten public offering, (iii) the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof as set forth in Schedule 4(c) or
(iv) the grant of additional options or warrants, or the issuance of
additional securities, under any duly authorized Company stock option, stock
purchase or restricted stock plan for the benefit of the Company's employees,
consultants or directors.
(j) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold hereunder
under the Securities Act under the Registration Statement being filed with
respect to the transaction contemplated hereby or cause this offering of
Securities to be integrated with any other offering of securities by the
Company under the Registration Statement being filed with respect to the
transaction contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell Shares and
Warrants to a Fund at the Closing hereunder is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions thereto;
127
provided, however, that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) The applicable Fund shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(b) The applicable Fund shall have delivered such Fund's Investment
Amount in accordance with Section 2(b) above.
(c) The representations and warranties of the applicable Fund shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be
true and correct as of such date), and the applicable Fund shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Fund at or prior to the Closing
Date.
(d) No statute, rule, regulation, executive order, decree, ruling,
injunction; action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental
authority of competent jurisdiction or any self-regulatory organization, or
the staff of any thereof, having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH FUND'S OBLIGATION TO PURCHASE DEBENTURES AND
---------------------------------------------------------------
WARRANTS.
--------
The obligation of each Fund hereunder to purchase Debentures and
Warrants to be purchased by it hereunder is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided
that these conditions are for such Fund's sole benefit and may be waived by
such Fund at any time in such Fund's sole discretion:
(a) The Company shall have executed the signature pages to this
Agreement, the Debentures, and delivered the same to Mercator on its own
behalf and on behalf of the Funds.
(b) The Company shall have executed the signature pages of the
Warrants and the Registration Rights Agreement, and delivered the same to
Mercator on its own behalf and on behalf of the Funds.
(c) The Shares shall be quoted on the OTC or authorized for quotation or
trading on a Subsequent Exchange and shall not have been suspended or be under
threat of suspension by the SEC or the NASD.
(d) The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct
as of such date) and the Company shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
128
Company at or prior to the Closing Date. Mercator shall have received a
certificate executed on behalf of the Company by its Chief Financial Officer,
dated as of the Closing Date, to the foregoing effect and attaching true and
correct copies of the resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance by the Company of
its obligations under this Agreement, the Debentures, the Warrants and the
Registration Rights Agreement.
(e) No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental
authority of competent jurisdiction or any self-regulatory organization, or
the staff of any thereof, having authority over the matters contemplated
hereby which questions the validity of, or challenges or prohibits the
consummation of, any of the transactions contemplated by this Agreement.
(f) From the date of this Agreement through the Closing Date, there
shall not have occurred any Material Adverse Effect.
8. GOVERNING LAW MISCELLANEOUS.
---------------------------
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of California
applicable to contracts made and to be performed in the State of California.
Each of the parties irrevocably consents to the jurisdiction of the United
States federal courts and the state courts located in the State of California
in any suit or proceeding based on or arising under this Agreement and
irrevocably agrees that all claims in respect of such suit or proceeding may
be determined in such courts. Each of the parties irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or
proceeding. Each of the parties further agrees that service of process upon
such party mailed by first class mail to the address set forth in Section 8(f)
shall be deemed in every respect effective service of process upon such party
in any such suit or proceeding. Nothing herein shall affect the right of a
Fund or Mercator to serve process in any other manner permitted by law. Each
of the parties agrees that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on such judgment or in any other lawful manner.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may
be delivered to the other parties hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement. In the event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause the manually executed
Execution Page(s) hereof to be physically delivered to the other party within
five (5) days of the execution hereof.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
129
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction.
(e) Entire Agreement; Amendments; Waiver. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Funds
make any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the Company and by the Funds. Any
waiver by the Funds, on the one hand, or the Company, on the other hand, of a
breach of any provision of this Agreement shall not operate as or be construed
to be a waiver of any other breach of such provision of or any breach of any
other provision of this Agreement. The failure of the Funds, on the one hand,
or the Company, on the other hand to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company
Energy & Engine Technology Corporation
0000 X. Xxxxx Xxxxxxx
Xxxxx, Xxxxx 00000-0000
Phone (000) 000-0000
Fax (000) 000-0000
Attention: Xxxxxxx X. XxXxxxxx III
With a copy to
Energy & Engine Technology Corporation
0000 X. Xxxxx Xxxxxxx
Xxxxx, Xxxxx 00000-0000
Phone (000) 000-0000
Fax (000) 000-0000
Attention: Jolie Xxxx, General Counsel
If to a Fund or Mercator
Mercator Advisory Group, LLC
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx Xxxxxxxxx
130
With a copy to
Xxxxxxxx Xxxxxx Xxxxxxx & Hampton LLP
000 Xxxxx Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxx
Each party hereto may from time to time change its address or facsimile number
for notices under this Section 8 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number, in the case of the
Funds to the Company, and in the case of the Company to all of the Funds and
Mercator.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Funds.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of nor may any provision hereof be
enforced by any other person.
(i) Survival. The representations and warranties of the Company and the
agreements and covenants of the Company shall survive the Closing notwith-
standing any due diligence investigation conducted by or on behalf of the
Funds and Mercator. Moreover, none of the representations and warranties made
by the Company herein shall act as a waiver of any rights or remedies a Fund
or Mercator may have under applicable federal or state securities laws. The
Company agrees to indemnify and hold harmless each Fund and Mercator and each
of their managers, officers, directors, employees, partners, members, agents
and affiliates for loss or damage relating to the Securities purchased here-
under arising as a result of or related to any breach by the Company or any
of its representations or covenants set forth herein, including advancement
of expenses as they are incurred.
(j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(k) Termination. In the event that the Closing Date shall not have
occurred on or before July 30, 2004, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwith-
standing any termination of this Agreement, any party not in breach of this
Agreement shall preserve all rights and remedies it may have against another
party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
(l) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the
Debentures, the Registration Rights Agreement, and the Warrants. As such, the
language used herein and therein shall be deemed to be the language chosen by
131
the parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this Agreement, the
Debentures, the Registration Rights Agreement, or the Warrants.
(m) Equitable Relief. Each party acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the other parties by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, each party acknowledges that the remedy at law for a breach of
its obligations hereunder will be inadequate and agrees, in the event of a
breach or threatened breach by such party of the provisions of this Agreement,
that the other parties shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
(n) Determinations. Except as otherwise expressly provided herein,
all consents, approvals and other determinations to be made by the Funds
pursuant to this Agreement and all waivers and amendments to or of any
provisions in this Agreement prior to the Closing Date to be binding upon a
Fund shall be made by such Fund and except as otherwise expressly provided
herein, all consents, approvals and other determinations (other than
amendments to the terms and provisions of this Agreement) to be made by the
Funds pursuant to this Agreement and all waivers and amendments to or of any
provisions in this Agreement after the Closing Date shall be made by the
Funds.
(o) Costs and Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the
Registration Rights Agreement or any of the Debentures or Warrants, the
prevailing party or parties shall be entitled to receive from the other
party or parties reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which the prevailing party or
parties may be entitled.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
Company:
Energy & Engine Technology Corporation
--------------------------------------
By:___________________________________
Name:_________________________________
Title:________________________________
The Funds: Mercator:
Mercator Momentum Fund LP Momentum Advisory Group, LLC
Mercator Advisory Group, LLC,
General Partner:
By:__________________________________ By:_______________________________
Name: Xxxxx Xxxxxxxxx Name: Xxxxx Xxxxxxxxx
Title: Managing Member Title: Managing Member
Investment Amount: 530,000.00
Mercator Momentum Fund III Monarch Pointe Fund, Ltd.
Mercator Advisory Group, LLC,
General Partner:
By:________________________________ By: _____________________________
Name: Xxxxx Xxxxxxxxx Name: Xxxxx Xxxxxxxxx
Title: Managing Member Title: President
Investment Amount: $377,000.00 Investment Amount: $793,000.00
133
DISCLOSURE SCHEDULES
4(a): Subsidiaries:
Gas Gathering Enterprises, LLC - LA
Wind Dancer Aviation Services, Inc. - CO
BMZ Generators Technology, Inc. - FL
Top Gun Marketing, Inc. - NC
4(c): Capitalization:
EENT (before giving effect to the instant transaction): 109,054,674 shares of
Common Stock; 12,045,000 warrants
All of the subsidiaries are 100% owned by EENT
4(n): Broker
Cardinal Capital - 5% cash plus 120,000 "144" shares plus 10% warrant coverage
at $.40 per share with a term of two years from date of registration statement
effectiveness
EENT indemnifies MAG and the Investors from any claims by Cardinal and its
successors and assigns arising from fees owed or alleged to be owed by EENT to
Cardinal arising from the instant transaction.
5(d): Use of Proceeds:
General Working Capital
134
