SECURITIES PURCHASE AGREEMENT
EXHIBIT
99.1
This
SECURITIES PURCHASE AGREEMENT
(the
“Agreement”),
dated
as of September 19,
2008,
by and among South Texas Oil Company, a Nevada corporation with its principal
offices located at 000 X. Xxxxxxxx Xxxx., Xxxxx 0000, Xxx Xxxxxxx, Xxxxx 00000
(the “Company”),
Longview Marquis Master Fund, L.P., a British Virgin Islands limited partnership
(“Marquis”),
and
the other investors listed on the Schedule
of Buyers
attached
hereto (including Marquis, each individually, a “Buyer,”
and
collectively, the “Buyers”).
WHEREAS:
A. Pursuant
to the terms of that certain Securities Purchase Agreement, dated as of April
1,
2008 (as amended by that certain June 2008 Amendment Agreement, dated as of
June
18, 2008, among the Company, Marquis and The Longview Fund, L.P., a
California limited partnership (“Longview”
and,
together with Marquis, the “Existing Senior
Buyers”),
and
that certain June 2008 Amendment to Senior Notes and Purchase Agreement, dated
as of June 30, 2008, among the Company and the Existing Senior Buyers, and
as
may otherwise be amended, supplemented, restated or modified and in effect
from
time to time, the “Existing Senior
Purchase Agreement”),
by
and among the Company, the Subsidiaries (as defined below), and the
Existing Senior Buyers, (i) the Company issued to the Existing Senior Buyers,
among other things, senior secured notes in an aggregate original principal
amount of $32,377,350.82 (such notes, together with any promissory notes or
other securities issued in exchange or substitution therefor or replacement
thereof, and as any of the same may be amended, supplemented, restated or
otherwise modified and in effect from time to time, the “Existing Senior
Notes”),
and
(ii) the Warrants (as defined therein) were amended and restated.
B. The
Company issued to Marquis certain subordinated demand notes in the original
aggregate principal amount of $1,571,921.51 (such notes, together with any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended, restated or
modified and in effect from time to time, the “Marquis
Demand Notes”).
C. In
connection with the purchase of certain Existing Senior Notes by the Existing
Senior Buyers, the Company satisfied its obligations in full with respect to,
Marquis Demand Notes in an aggregate principal amount of $934,307, and as of
the
date hereof, Marquis Demand Notes in an aggregate principal amount of
$637,614.51 (such aggregate principal amount, together with accrued but unpaid
interest thereon through the Closing Date, the “Existing
Marquis Demand Notes Amount”)
remain
outstanding (such notes, together with any promissory notes or other securities
issued in exchange or substitution therefor or replacement thereof, and as
any
of the same may be amended, restated or modified and in effect from time to
time, the “Existing
Marquis Demand Notes”).
D. The
Company and each of the Buyers are executing and delivering this Agreement
and
the securities described herein in reliance upon the exemption from securities
registration afforded by Rule 506 of 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 “1933
Act”).
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E. The
Buyers, severally, and not jointly, wish to purchase from the Company and the
Company wishes to sell to the Buyers, for the aggregate purchase price of
$6,750,000 (the “Aggregate
Purchase Price”),
upon
the terms and conditions stated in this Agreement senior secured notes,
substantially in the form attached as Exhibit A,
in an
original aggregate principal amount of $7,000,000 (such notes, together with
any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended, restated or
modified and in effect from time to time, the “Bridge Notes”).
F. The
Company and Marquis desire to exchange the Existing Marquis Demand Notes for
shares of the Company’s common stock, par value $0.001 per share (the
“Common
Stock”)
in
accordance with Section
1(b)
hereof.
G. Contemporaneously
with the Closing (as defined below), the Buyers and the Company and the
Subsidiaries will execute and deliver a Security Agreement, substantially in
the
form attached as Exhibit B
(as the
same may be amended, supplemented, restated or otherwise modified and in effect
from time to time, the “Bridge
Security Agreement”),
pursuant to which the Buyers designate Viking Asset Management, LLC, as agent
for the Buyers (the “Bridge Collateral
Agent”),
and
the Company and the Subsidiaries provide the Bridge Collateral Agent with a
security interest in substantially all of their assets.
H. Contemporaneously
with the Closing, the Buyers and the Company and the Subsidiaries will execute
and deliver to the Bridge Collateral Agent one or more Mortgages, each in the
form attached as Exhibit
C,
pursuant to which the Company and the Subsidiaries grant to the Buyers interests
in all of the Real Property (as defined below) (as any of the same may be
amended, supplemented, restated or otherwise modified and in effect from time
to
time, collectively, the “Bridge Mortgages”).
I. Contemporaneously
with the Closing, the Buyers and the Company and the Subsidiaries will execute
and deliver one or more Deposit Account Control Agreements, each in the form
attached as Exhibit D
(as the
same may be amended, supplemented, restated or otherwise modified and in effect
from time to time, the “Bridge Account
Control Agreements”),
pursuant to which the Company and each of the Subsidiaries that maintain bank,
brokerage or other similar accounts with any banks, brokerage firms and/or
other
financial institutions (collectively, the “Banks”)
agree
to enable the Bridge Collateral Agent to perfect its security interest in all
of
the Company’s and the Subsidiaries’ right, title and interest in accounts at the
Banks (other than any accounts consisting solely of an aggregate of up to
$500,000 in cash collateral (in all such accounts collectively), to the extent
such cash collateral constitutes a Permitted Lien described in clause (xi)
of the definition thereof contained in Section 5(f)) and in all collateral
from time to time credited to such accounts.
J. Contemporaneously
with the Closing, each of the Subsidiaries will execute and deliver a Guaranty,
in the form attached hereto as Exhibit E
(as the
same may be amended, supplemented, restated or otherwise modified and in effect
from time to time, the “Bridge
Guaranty,”
and
the guarantees under the Bridge Guaranty, including any such guarantee added
after the date hereof, the “Bridge Guarantees”),
pursuant to which the Subsidiaries guaranty the Obligations (as defined in
the
Bridge Security Agreement).
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K. Contemporaneously
with the Closing, the Company and each of the Subsidiaries that directly owns
capital stock or other equity interests of any Subsidiary will execute and
deliver a Pledge Agreement, substantially in the form attached as Exhibit
F
(each,
as may be amended, supplemented, restated or otherwise modified and in effect
from time to time, a “Bridge Pledge
Agreement”
and,
collectively with the Bridge Security Agreement, the Bridge Mortgages, the
Bridge Account Control Agreements and the Bridge Guaranty, the “Bridge
Security Documents”),
pursuant to which the Company and each such Subsidiary pledges all of the
capital stock or other equity interests in the Subsidiaries that it directly
owns to the Bridge Collateral Agent as collateral for the Bridge
Notes.
L. Contemporaneously
with the Closing, the Buyers will receive the opinion of Xxxxxxxx
& Xxxxxx LLP, dated as of the date hereof, in the form attached as
Exhibit
G.
M. Contemporaneously
with the Closing, the Company and each of the Subsidiaries will execute and
deliver the Limited Conveyances of Overriding Royalty Interests granting the
Buyers perpetual overriding royalty interests in the hydrocarbon production
of
all of the Company’s and the Subsidiaries’ current and future interest in all of
their then current Real Property (such Real Property, the “Current
Override Properties”),
each
in the form attached as Exhibit
H
(as may
be amended, supplemented, restated or otherwise modified and in effect from
time
to time, the “Conveyances
of Limited Overriding Royalty Interests”).
N. Contemporaneously
with the Closing, each of the Existing Senior Buyers, the Buyers and the Company
will execute and deliver an intercreditor agreement, substantially in the form
attached as Exhibit
I
(as may
be amended, supplemented, restated or otherwise modified and in effect from
time
to time, the “Intercreditor
Agreement”),
subordinating the obligations under the Existing Senior Notes to the obligations
under the Bridge Notes.
O. Contemporaneously
with the Closing, each of the Existing Senior Buyers, Viking Asset Management,
LLC, in its capacity as collateral agent for the Existing Senior Buyers, the
Company and each of the Subsidiaries will execute and deliver an omnibus
amendment to security documents (as may be amended, supplemented, restated
or
otherwise modified and in effect from time to time, the “Omnibus
Amendment”)
pursuant to which the parties thereto shall agree to amend the terms of the
Security Documents (as defined in the Existing Senior Purchase Agreement),
and
other agreements, instruments and documents contemplated by the Existing Senior
Purchase Agreement pursuant to the terms thereof.
P. Contemporaneously
with the Closing, each of the Existing Senior Buyers, the Company and each
of
the Subsidiaries will execute and deliver a September 2008 waiver and amendment
(as may be amended, supplemented, restated or otherwise modified and in effect
from time to time, the “September
2008 Amendment”)
pursuant to which, among other things, the parties thereto shall agree to amend
the terms of the Existing Senior Notes as set forth in the September 2008
Amendment.
NOW
THEREFORE,
in
consideration of the premises and the agreements, provisions and covenants
herein contained, the Buyers and the Company hereby agree as
follows:
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1. PURCHASE
AND SALE OF BRIDGE NOTES; EXCHANGE OF EXISTING MARQUIS DEMAND
NOTES.
a. Purchase
of Bridge Notes.
Subject
to the satisfaction (or waiver) of the conditions set forth in Sections
8
and
9
below,
the Company shall issue and sell to each Buyer, and each Buyer severally agrees
to purchase from the Company, a Bridge Note in the principal amount set forth
opposite such Buyer’s name on the Schedule
of Buyers
(the
“Closing”).
The
aggregate purchase price for the Bridge Note purchased by each Buyer at the
Closing (the “Purchase
Price”)
shall
be the product of
(i) the
Aggregate Purchase Price, multiplied by
(ii) the
quotient of (A) the principal amount of the Bridge Notes purchased by such
Buyer
as set forth opposite such Buyer’s name on the Schedule
of Buyers divided by
(B)
$7,000,000 (such quotient, such Buyer’s “Allocation
Percentage”).
b. Exchange
of Existing Marquis Demand Notes.
Subject
to the satisfaction (or waiver) of the conditions set forth in Sections
8
and
9
below,
at the Closing, the Company shall issue to Marquis a number of shares equal
to
the
quotient of (i) the Existing
Marquis Demand Notes Amount,
divided
by (ii) the lowest of (A) $2.00, (B) eighty percent (80%) of the
arithmetic average of the Weighted Average Price (as defined in the Bridge
Notes) of the Common Stock on the Principal Market (as defined below) on each
of
the five (5) trading days immediately preceding the Closing Date (as defined
below), and (C) eighty percent (80%) of the closing (last sale) price of the
Common Stock at the regular close of trading on the Principal Market on the
Trading Day (as defined below) immediately preceding the Closing Date (the
“Demand
Note Exchange
Shares”),
by
executing and delivering, within three (3) Business Days (as defined below)
of the Closing Date, a certificate or certificates (the “Demand
Note Exchange
Share Certificates”)
duly
executed by the Company and countersigned by its transfer agent and registered
in the name of Marquis or its designee. Upon
the
issuance by the Company to Marquis of the Demand Note Exchange Shares, each
of
the Existing Marquis Demand Notes will be void and of no further force and
effect, and Marquis shall promptly return the Existing Demand Notes to the
Company for cancellation.
c. The
Closing Date.
The
date and time of the Closing (the “Closing
Date”)
shall
be 10:00 a.m., New York City time, on the first day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed (a “Business
Day”)
following the date of this Agreement, subject
to the satisfaction (or waiver) of all of the conditions to the Closing set
forth in Sections 8
and
9
(or such
later or earlier date as is mutually agreed to by the Company and the Buyers).
The Closing shall occur on the Closing Date at the offices of Xxxxxx Xxxxxx
Xxxxxxxx LLP, 000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000,
or at such other time, date and place as the Company and the Buyers may
collectively designate in writing.
d. Form
of Payment.
On the
Closing Date, (i) each Buyer shall pay the applicable Purchase Price to the
Company for the Bridge Note to be issued and sold to such Buyer on the Closing
Date, by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions (less any amount deducted and paid in
accordance with Section
5(h)(i)),
and
(ii) the Company shall deliver to each Buyer the Bridge Note that such
Buyer is purchasing hereunder, duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.
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2. CONVEYANCES
OF LIMITED OVERRIDING ROYALTY INTERESTS.
a. Conveyances
of Limited Overriding Royalty Interests.
On the
Closing Date, the Company shall, and shall cause each of the Subsidiaries to,
deliver to each of the Buyers Conveyances of Limited Overriding Royalty
Interests, each duly and validly executed by the Company and each of the
Subsidiaries (as applicable), providing such Buyer with perpetual overriding
royalty interests, effective from the Closing Date, in the hydrocarbon
production of all of the Company’s and the Subsidiaries’ current and future
interest in all of their then current Real Property equal to one percent (1%),
multiplied by such Buyer’s Allocation Percentage.
b. ORRI
Payment.
Each
Buyer hereby covenants, acknowledges and agrees that in the event that the
aggregate amount of overriding royalties received by such Buyer in any calendar
year pursuant to the Conveyances of Limited Overriding Royalty Interests exceeds
the result of (i) $400,000 multiplied by (ii) such Buyer’s Allocation Percentage
(any such excess amount, the “Override
Excess Amount”),
promptly following the end of such calendar year, such Buyer shall deliver
promptly to the Company, by wire transfer of immediately available funds, the
Override Excess Amount (without interest thereon).
c. Exchange
Right.
During
the period commencing on (and including) the one-year anniversary of the Closing
Date and terminating on (and excluding) the two-year anniversary of the Closing
Date, the Company shall have the right to purchase all (but not less than all)
of the Conveyances of Limited Overriding Royalty Interests from the Buyers
(the
“Override
Exchange”),
by
delivery of a written notice of election (the date of delivery of the written
notice, the “Override
Exchange Election
Date,”
and
each such written notice, an “Override
Exchange Notice”)
to
each of the Buyers; provided that the Conditions to Override Exchange (as set
forth in Section
2(d))
are
satisfied (or waived in writing by each of the Buyers). An Override Exchange
Notice shall be irrevocable by the Company. The Company shall not be entitled
or
permitted to effect the Override Exchange, or deliver any Override Exchange
Notice, unless the Company takes the same action, at the same time, with respect
to all of the Conveyances of Limited Overriding Royalty Interests held by each
of the Buyers. No later than ten (10) Business Days following the Override
Exchange Election Date, each of the Company and Marquis shall select an oil
and
gas industry recognized appraiser, independent of the Company, the Subsidiaries
and each of the Buyers (each, an “Appraiser”
and
together, the “Appraisers”),
to
determine the Adjusted Fair
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Market
Value of the Conveyances of Limited Overriding Royalty Interests. The
designation of an Appraiser by the Company and Marquis, respectively, shall
not
be made without the prior consent of the other, which consent shall not be
unreasonably withheld. Each Appraiser shall be directed to deliver a written
report (each, a “Valuation
Report”)
to the
Company and each of the Buyers as to such Appraiser’s valuation of the
Conveyances of Limited Overriding Royalty Interests as promptly as practicable,
and in no event later than forty-five (45) days after
the
Override Exchange Election Date (the “Valuation
Deadline”).
The
valuation set forth in each of the respective Valuation Reports shall be
determined as if Section
2(b)
hereof
did not exist. If the Company has delivered a Override Exchange Notice in
accordance with this Section
2(c)
and each
of the Conditions to Override Exchange (as set forth in Section
2(d))
are
satisfied (or waived in writing by the Buyers), then, on the Override Exchange
Date, the Company shall deliver to each of the Buyers a number of shares of
Common Stock equal to the product of (x) such Buyer’s Allocation Percentage and
(y) that number of shares of Common Stock (the “Override
Exchange Shares”)
equal
to (i) the Adjusted Fair Market Value of the Conveyances of Limited Overriding
Royalty Interests divided by (ii) the arithmetic average of the closing price
per share of the Common Stock on the Principal Market on each of the twenty
(20)
consecutive Trading Days immediately preceding the Override Exchange Date (the
“Applicable
Average Share Price”).
The
failure of the Company to deliver the Override Exchange Shares in full on the
Override Exchange Date shall constitute an Event of Default (as defined in
the
Bridge Notes). For purposes hereof, the “Adjusted
Fair Market Value”
shall
mean the lesser of (X) $3,000,000 and (Y) (I) if both Valuation Reports have
been delivered on or prior to the Valuation Deadline, the arithmetic average
of
the valuations of the Conveyances of Limited Overriding Royalty Interests set
forth in the Valuation Reports, (II) if only one Valuation Report is delivered
on or prior to the Valuation Deadline, the valuation set forth in such Valuation
Report, and (III) if neither Valuation Report has been delivered by the
Valuation Deadline, the valuation set forth in the first Valuation Report
delivered after the Valuation Deadline (the date that is two (2) Business Days
after the Valuation Deadline; or, if neither Valuation Report has been delivered
by the Valuation Deadline, the date that is two (2) Business Days after delivery
of the first Valuation Report, being referred to herein as the “Valuation
Determination Date”);
“Override
Exchange Date”
shall
mean the twenty-first (21st)
Trading
Day after the Valuation Determination Date; and “Trading
Day”
means
any day on which the Common Stock is traded on its Principal Market; provided
that “Trading Day” shall not include any day on which the Principal Market is
open for trading for less than 4.5 hours.
d. Conditions
to Override Exchange.
For
purposes of this Section
2,
“Conditions
to Override Exchange”
means
the following conditions: on each day during the period beginning on and
including the Override Exchange Election Date and ending on and including the
Override Exchange Date, (i) the Common Stock is listed on a national securities
exchange and the Common Stock has not been suspended from trading on any such
exchange nor shall delisting or suspension by any such market or exchange have
been threatened either (A) in writing by such exchange or (B) by falling below
the minimum listing maintenance requirements of such exchange, and the Company
otherwise satisfies all of the requirements for continued listing of the Common
Stock on such exchange, (ii) the Company and each of the Subsidiaries is (A)
incorporated or organized and validly existing under the laws of the
jurisdiction of its incorporation or organization and (B)in good standing under
the requirements of any applicable regulatory
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authority,
(iii) the Company has filed all reports and other materials required to be
filed
under the Securities Exchange Act of 1934 (the “1934
Act”),
(iv)
there does not exist any Event of Default, (v) the arithmetic average of the
trading volume of the Common Stock on the Principal Market on each of the twenty
(20) consecutive Trading Days immediately preceding the Override Exchange Date
is at least 125,000 shares of Common Stock, (vi) the Applicable Average Share
Price is at least $3.00, and (vii) the Override Exchange Shares have been
registered for public resale by the Buyers pursuant to an effective registration
statement under the 1933 Act, in accordance with a registration rights agreement
in form and substance acceptable to each of the Buyers. In the event that any
of
the Conditions to Override Exchange shall not be satisfied (and such failure
is
not waived in writing by all of the Buyers), the Override Exchange Notice shall
be void and the Override Exchange contemplated thereby shall not be given any
force or effect.
e. Transferability
of Limited Overriding Royalty Interests.
No
Buyer may transfer any Conveyance of Limited Overriding Royalty Interests,
unless (i) all Conveyances of Limited Overriding Royalty Interests held by
such
Buyer are transferred to the same transferee and (ii) such transferee agrees
in
writing with the Company to be bound by the terms of this Section
2
as
applicable to such transferor, including the Company’s right to the Override
Exchange and the Company’s right to repayment pursuant to Section
2(b)
hereof.
3. BUYERS’
REPRESENTATIONS AND WARRANTIES.
Each
Buyer represents and warrants, as of the date hereof and the Closing Date,
with
respect to only itself, that:
a. Investment
Purpose.
Such
Buyer (i) is acquiring (or has acquired) the Bridge Notes,
the related Bridge Guarantees and the Demand
Note Exchange Shares,
and
will acquire shares of Common Stock, upon exercise of the Investor Share Option
(as defined in each of the Bridge Notes) (the “Option
Shares”),
and
will acquire the Override Exchange Shares upon exercise by the Company of the
right to the Override Exchange (the Override Exchange Shares, the
Bridge Notes,
the Bridge Guarantees, the Demand
Note Exchange Shares and
the
Option Shares, collectively referred to as the “Securities”),
for
its own account and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered
under, or exempted from the registration requirements of, the 1933 Act;
provided,
however,
that by
making the representations herein, such Buyer does not agree to hold any of
the
Securities for any minimum period or other specific term and such Buyer reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to an effective registration statement or an exemption from
registration under the 1933 Act.
b. Accredited
Investor Status.
Such
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.
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c. Reliance
on Exemptions.
Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of the
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein
in
order to determine the availability of such exemptions and the eligibility
of
such Buyer to acquire the Securities. For purposes hereof, “securities
laws”
means
the securities laws, legislation and regulations of, and the instruments,
policies, rules, orders, codes, notices and interpretation notes of, the
securities regulatory authorities (including the SEC) of the United States
and
any applicable states and other jurisdictions.
d. Information.
Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and the Subsidiaries
and
materials relating to the offer and sale of the Securities that have been
requested by such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor
any
other due diligence investigations conducted by such Buyer or its advisors,
if
any, or its representatives shall modify, amend or affect such Buyer’s right to
rely on the Company’s representations and warranties contained in Section
4
below or
contained in any of the other Transaction Documents (as defined below). Such
Buyer understands that its investment in the Securities involves a high degree
of risk. Such Buyer has sought such accounting, legal and tax advice as it
has
considered necessary to make an informed investment decision with respect to
its
acquisition of the Securities. For purposes hereof, (i) “Subsidiaries”
means
STO Operating Company, STO Drilling Company, STO Properties LLC, Southern Texas
Oil Company and all other entities
in which the Company, STO Operating Company or Southern Texas Oil Company,
directly or indirectly, owns Capital Stock or holds equity or similar interests
at the time of this Agreement or at any time hereafter; (ii) “Capital
Stock”
means
any and all shares, interests, participations or other equivalents (however
designated) of capital stock of a corporation, any and all equivalent ownership
interests in a Person (other than a corporation) and any and all warrants,
rights or options to purchase any of the foregoing; and (iii) “Person”
means
an individual, a limited liability company, a partnership, a joint venture,
a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof or any other legal entity.
e. No
Governmental Review.
Such
Buyer understands that no Governmental Entity has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of an investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities. As used in this
Agreement, “Governmental
Entity”
means
the government of the United States or any other nation, or any political
subdivision thereof, whether state, provincial or local, or any agency
(including any self-regulatory agency or organization), authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administration powers
or
functions of or
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pertaining
to government over the Company or any of the Subsidiaries, or any of their
respective properties, assets or undertakings.
f. Transfer
or Resale.
Such
Buyer understands that, (i) the Securities have not been and are not being
registered under the 1933 Act or any other securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can
be, have been or are being sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act, as amended (or a successor rule thereto)
(“Rule
144”);
(ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144, and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 0000 Xxx) may require compliance with some
other
exemption under the 1933 Act or any other securities laws; (iii) neither the
Company nor any other Person is under any obligation to register the Securities
under the 1933 Act or any other securities laws. Notwithstanding
the foregoing, the Securities may be pledged in connection with a bona fide
margin account or other loan or financing arrangement secured by the Securities.
g. Legends.
Such
Buyer understands that the certificates or other instruments representing the
Securities, except as set forth below, shall bear a restrictive legend in the
following form (the “1933
Act Legend”)
(and a
stop-transfer order may be placed against transfer of such
certificates):
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
Upon
the
written request to the Company of a holder of a certificate or other instrument
representing Bridge Notes,
the Demand
Note Exchange Shares,
Option
Shares or Override Exchange Shares, the 1933 Act Legend shall be removed and
the
Company shall issue a
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certificate
without the 1933 Act Legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the
1933 Act, (ii) in connection with a sale transaction, such holder
provides the Company with an opinion of counsel, in a generally acceptable
form,
to the effect that a public sale, assignment or transfer of the Securities
may
be made without registration under the 1933 Act, (iii) such holder provides
the Company with reasonable assurances that the Securities can be sold pursuant
to Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
without compliance with Rule 144(e) or Rule 144(f) (or successors thereto),
(iv) such holder provides the Company reasonable assurances that the
Securities have been or are being sold pursuant to Rule 144, or (v) such
holder certifies, on or after the date that is twelve (12) months after the
date
on which the Securities are issued, that such holder is not an “affiliate” of
the Company (as defined in Rule 144). Any Option Shares issued pursuant to
the
Investor Share Option on or after the date that is twelve (12) months after
the
Closing Date to any Buyer that certifies that such Buyer is not an affiliate
of
the Company, as defined in Rule 144, shall be issued without the 1933 Act
Legend. The Company acknowledges and agrees that, for purposes of Rule 144(d),
(A) each of the Demand
Note Exchange Shares will
be
deemed to have been acquired by Marquis on the date on which Marquis acquired
the Existing Marquis Demand Note in exchange for which such Demand
Note Exchange Shares was
acquired, and (B) each of the Option Shares acquired pursuant to the Investor
Share Option will be deemed to have been acquired on the Closing Date. The
Company shall be responsible for the fees of its transfer agent and all of
The
Depository Trust Company (the “DTC”) fees
associated with such issuance. The Company acknowledges that a breach by it
of
its obligations hereunder will cause irreparable harm to the holders of the
Securities. Accordingly, the Company acknowledges that the remedy at law for
a
breach of its obligations under this Section
3(g)
will be
inadequate and agrees that, in the event of a breach or threatened breach of
this Section
3(g),
such
holder shall be entitled, in addition to all other available remedies, to an
injunctive order and/or 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.
h. Authorization;
Enforcement; Validity.
Such
Buyer is a validly existing partnership or limited liability company, as
applicable, and has the requisite partnership or limited liability company,
as
applicable, power and authority to purchase the Securities pursuant to this
Agreement. Each of this Agreement, the Bridge Security Agreement, the Bridge
Mortgages, the Bridge Account Control Agreements, the Bridge Guaranty, the
Bridge Pledge Agreement and the Intercreditor Agreement (and in the case of
Marquis, the Omnibus Amendment and the September 2008 Amendment) have been
duly
and validly authorized, executed and delivered on behalf of such Buyer, and
each
is a valid and binding agreement of such Buyer, enforceable against such Buyer
in accordance with its terms. Each of the other agreements and other documents
entered into and executed by such Buyer in connection with the transactions
contemplated hereby as of the date hereof will have been duly and validly
authorized, executed and delivered on behalf of such Buyer as of the date hereof
and will constitute valid and binding agreements of such Buyer, enforceable
against such Buyer in accordance with their respective terms.
i. Residency
and Offices.
Such
Buyer is a resident of the jurisdiction specified below its address on the
Schedule
of Buyers.
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10 -
4. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants, as of the date hereof and the Closing Date,
to
each of the Buyers, that:
a. Due
Incorporation.
Each of
the Company and the Subsidiaries is a corporation, limited liability company
or
other entity duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has the requisite corporate, limited liability company or other
organizational power and authority to own its properties and to carry on its
business as presently conducted. Schedule
4(a)
sets
forth a true and correct list of the Subsidiaries and the jurisdiction in which
each is organized or incorporated and sets forth the percentage of the
outstanding Capital Stock or other equity interests of each entity that is
held
by the Company. Other than with respect to the entities listed on Schedule
4(a),
the
Company does not directly or indirectly own any security or beneficial interest
in any other Person (including through joint venture or partnership agreements)
or have any interest in any other Person.
The
Company and each Subsidiary is duly qualified as a foreign corporation, or
other
entity, as applicable, to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by
it
makes such qualification necessary, other than those jurisdictions in which
the
failure to so qualify would not have a Material Adverse Effect. For purposes
hereof, “Material
Adverse Effect”
means
any material adverse effect on (a) the condition, operations, assets, business
or prospects of the Company, (b) the Company’s ability to pay the Obligations in
accordance with the terms hereof or any of the Bridge Security Documents, (c)
the Buyers’ lien on the accounts subject to the Bridge Account Control
Agreements or the priority of any such lien, or (d) the practical realization
of
the benefits of the Buyers’ rights and remedies under this Agreement and the
Transaction Documents.
b. Outstanding
Stock.
All
issued and outstanding shares of Capital Stock of the Company and each
Subsidiary have been duly authorized and validly issued and are fully paid
and
nonassessable.
c. Authorization;
Enforcement; Validity.
Each of
the Company and the applicable Subsidiaries has the requisite corporate power
and authority to enter into and perform its obligations under each of this
Agreement, the Bridge Notes,
each of the Bridge Security Documents, the Conveyances of Limited Overriding
Royalty Interests, the Intercreditor Agreement, the Omnibus Amendment, the
September 2008 Amendment and each of the other agreements to which it is a
party
or by which it is bound and which is entered into by the parties hereto in
connection with the transactions contemplated hereby and thereby (collectively,
the “Transaction
Documents”),
and
to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and, to
the
extent applicable, the Subsidiaries and the consummation by the Company and
the
Subsidiaries of the transactions contemplated hereby and
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11 -
thereby,
including the issuance of the Bridge Notes and the Demand
Note Exchange Shares,
and the
reservation for issuance and the issuance of any Option Shares issuable upon
exercise of the Investor Share Option and the Override Exchange Shares issuable
upon an Override Exchange, have been duly authorized by the Company’s and each
of the Subsidiaries’ respective boards of directors and no further consent or
authorization is required by the Company or any of the Subsidiaries, or any
of
their respective boards of directors or shareholders. This Agreement, the
Bridge Notes,
each of the Bridge Security Documents, the Conveyances of Limited Overriding
Royalty Interests, the Intercreditor Agreement and the other Transaction
Documents dated prior to the date hereof or of even date herewith have been
duly
executed and delivered by the Company and, to the extent applicable, by the
Subsidiaries, constitute the valid and binding obligations of each of the
Company and the Subsidiaries that is a party thereto, and are enforceable
against such parties in accordance with their terms. Any Transaction Documents
dated after the date hereof, when delivered, shall have been duly executed
and
delivered by the Company and, to the extent applicable, by the Subsidiaries,
shall constitute the valid and binding obligations of each of the Company and
the Subsidiaries that is a party thereto, and shall be enforceable against
such
parties in accordance with their terms.
d. Additional
Issuances.
There
are no outstanding agreements or preemptive or similar rights affecting the
Common Stock or equity and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements
or
understandings with respect to the sale or issuance of, any shares of common
stock or equity of the Company, except as set forth on Schedule
4(d)
or as
described in the Periodic Reports filed prior to the date hereof. For purposes
hereof, “Periodic
Report”
shall
mean a current report on Form 8-K, a quarterly report on Form 10-QSB or 10-Q
or
annual report on Form 10-KSB or 10-K.
e. Consents.
Except
as set forth in the Omnibus Amendment, no consent, approval, authorization
or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company or any of the Subsidiaries, or any of their
respective Affiliates, the Principal Market, the Company’s shareholders or any
of the Subsidiaries’ shareholders, is required for the execution by the Company
or any Subsidiary of the Transaction Documents or for compliance and performance
by the Company or any of the Subsidiaries of its obligations under the
Transaction Documents. As used in this Agreement, “Affiliate”
means,
with respect to any Person, a second Person (A) in which the first Person owns
a
5% equity interest, or (B) that, directly or indirectly, (i) has a 5%
equity interest in such first Person, (ii) has a common ownership with such
first Person, (iii) controls such first Person, (iv) is controlled by such
first Person or (v) shares or is under common control with such first Person;
and “Control” or “controls” means that a Person has the power, direct or
indirect, to conduct or govern the policies of another Person.
f. No
Violation or Conflict.
The
performance of the obligations of the Company and any of the Subsidiaries under
the Transaction Documents do not and will not:
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12 -
(i) violate,
conflict with, result in a breach of, or constitute a default (or an event
which, with the giving of notice or the lapse of time or both, would be
reasonably likely to constitute a default) under (a) the Articles of
Incorporation of the Company (the “Articles
of Incorporation”),
the
bylaws of the Company (the “Bylaws”),
or
the organizational documents of any Subsidiary, (b) to the Company’s knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company or any of the Subsidiaries of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of
the
Subsidiaries or over the properties or assets of the Company, any of the
Subsidiaries or any of their respective Affiliates, including environmental
and
safety laws, (c) the terms of any bond, debenture, note or any other evidence
of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company, any
of
the Subsidiaries or any of their respective Affiliates is a party, by which
the
Company, any of the Subsidiaries or any of their respective Affiliates is bound,
or to which any of the properties of the Company, any of the Subsidiaries or
any
of their respective Affiliates is subject (except for any breach or violation
of
the Existing Senior Purchase Agreement, the Existing Senior Notes or any other
document contemplated by the Existing Senior Purchase Agreement that has been
waived pursuant to the Omnibus Amendment), or (d) the terms of any “lock-up” or
similar provision of any underwriting or similar agreement to which the Company,
any of the Subsidiaries or any of their respective Affiliates is a party;
or
(ii) except
as
contemplated hereby, result in the creation or imposition of any lien, charge
or
encumbrance upon any of the assets of the Company, any of the Subsidiaries
or
any of their respective Affiliates; or
(iii) result
in
the activation of any anti-dilution rights or a reset or repricing of any debt
or security instrument of any creditor or equity holder of the Company or any
of
the Subsidiaries; or
(iv) result
in
the acceleration of the due date of any obligation of the Company or any of
the
Subsidiaries.
Neither
the Company nor any of the Subsidiaries is in violation of any term of its
certificate or articles of incorporation, certificate or articles of
organization, bylaws, operating agreement, partnership agreement or any other
governing document, as applicable. Neither the Company nor any of the
Subsidiaries is or has been in violation of any term of or in default under
(or
with the giving of notice or passage of time or both would be in violation
of or
default under) any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any Law applicable to the Company
or
its Subsidiaries, except where such violation or default could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
or
to result in the acceleration of any Indebtedness (as defined below) or other
obligation. The business of the Company and the Subsidiaries has not been and
is
not being conducted, in violation of any Law of any Governmental Entity except
as could not, individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect. The Company and each of the Subsidiaries is, and has
at
all times been, in compliance in all material respects with all Laws relating
to
employee benefits and employee benefit plans (as such terms are defined in
the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”)).
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13 -
g. The
Securities.
The
Securities, upon issuance:
(i) are
and
will be, free and clear of any security interests, liens, claims or other
encumbrances;
(ii) have
been, or will be, duly and validly authorized;
(iii) will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities or debt of the Company; and
(iv) will
not
subject the holders thereof to personal liability by reason of being such
holders.
h. Litigation.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or any of the Subsidiaries of, or
the
performance by the Company, or any of the Subsidiaries of their respective
obligations under, the Transaction Documents. Except as set forth on
Schedule
4(h)
or as
disclosed in the Periodic Reports filed prior to the date hereof, there is
no
pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect.
i. Reporting
Company.
The
Company is a publicly-held company, subject to the reporting obligation pursuant
to Section 13 and/or 15(d) of the 1934 Act, and has a class of common shares
reported pursuant to Section 12(b) of the 1934 Act. Pursuant to the provisions
of the 1934 Act, except as set forth on Schedule
4(i),
the
Company has timely filed all reports and other materials required to be filed
thereunder with the SEC during the preceding twelve (12) months.
j. Information
Concerning Company.
As of
their respective dates, Periodic Reports filed by the Company prior to the
date
this representation is made contained all material information relating to
the
Company and its operations and financial condition that was required to be
disclosed therein. As of their respective dates, the Periodic Reports and other
reports, schedules, forms, registration statements and other documents filed
by
the Company with the SEC prior to the date this representation is made,
including the financial statements contained therein, did not contain any 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
light of the circumstances when made. As of their respective dates, the
consolidated financial statements of the Company and the Subsidiaries included
in the Periodic Reports filed by the Company prior to the date this
representation is
-
14 -
made
complied as to form in all material respects with applicable accounting
requirements and the securities laws with respect thereto, such consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles (“GAAP”),
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 have
excluded footnotes or may have been condensed or summary statements) and fairly
presented in all material respects the financial position of the Company and
the
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 year-end audit adjustments that were not material
individually or in the aggregate). Since the date of the most recent balance
sheet included in the Periodic Reports filed prior to the date hereof (the
“Latest
Financial Date”),
there
has been no Material Adverse Effect relating to the Company’s business,
financial condition or affairs not disclosed in the Periodic Reports filed
prior
to the date hereof. The Schedules hereto, individually and in the aggregate,
do
not contain any material, non-public information with respect to the Company
and
the Subsidiaries.
k. Defaults.
The
Company is not in violation of the Articles of Incorporation or Bylaws and
no
Subsidiary is in violation of the organizational documents of such Subsidiary.
The Company, and each Subsidiary, is (a) not in default under or in violation
of
any other material agreement or instrument to which it is a party or by which
it
or any of its properties are bound or affected, which default or violation
would
have a Material Adverse Effect, (b) not in default with respect to any order
of
any court, arbitrator or governmental body or subject to or party to any order
of any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, and (c) to the
Company’s knowledge, not in violation of any statute, rule or regulation of any
governmental authority, which violation would have a Material Adverse
Effect.
l. Listing.
The
Common Stock is currently listed on the NASDAQ Global Market (the “Principal
Market”;
however, if the Common Stock becomes listed on another national securities
exchange after the date hereof, the “Principal
Market”
shall
mean such exchange) under the symbol “STXX.” The Company has not received any
oral or written notice that the Common Stock is not eligible, nor that it will
become ineligible, for listing on the Principal Market nor that the Common
Stock
does not meet all requirements for the continuation of such listing. The Company
satisfies all the requirements for the continued listing of the Common Stock
on
the Principal Market.
m. No
Undisclosed Liabilities.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, (i) that are not disclosed in the Periodic Reports filed prior
to
the date hereof, other than those incurred in the ordinary course of the
Company’s businesses since the Latest Financial Date, or (ii) that, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect.
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15 -
n. No
Undisclosed Events or Circumstances.
Since
the Latest Financial Date, no event or circumstance has occurred or exists
with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date this representation is made by
the
Company, but which has not been so publicly announced or disclosed in the
Periodic Reports filed prior to the date hereof.
o. Capitalization.
The
authorized and outstanding Capital Stock of the Company as of the date this
representation is made is set forth in the Periodic Reports filed prior to
the
date hereof. Except as set forth on Schedule
4(o)
or in
the Periodic Reports filed prior to the date hereof, there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of Capital Stock of the Company or any of the Subsidiaries. All of the
outstanding shares of Common Stock have been duly and validly authorized and
issued and are fully paid and nonassessable.
p. No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers, nor
have there been any such disagreements during the two years prior to the date
this representation is made.
q. DTC
Status.
The
Company’s transfer agent is a participant in, and the Common Stock is eligible
for transfer pursuant to, the DTC’s Fast Automated Securities Transfer
Program.
r. Investment
Company.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
s. No
General Solicitation.
Neither
the Company, nor any of its Affiliates, nor any Person acting on the behalf
of
any of the foregoing, has engaged or will engage in any form of general
solicitation or general advertising (within the meaning of Regulation D
under the 1933 Act), including advertisements, articles, notices, or other
communications published in any newspaper, magazine or similar media or
broadcast over radio, television or internet or any seminar or meeting whose
attendees have been invited by general solicitation or general advertising,
in
connection with the offer or sale of the Securities.
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16 -
t. No
Integrated Offering.
None of
the Company, any Subsidiary, any Affiliates of the foregoing or any Person
acting on the behalf of any of the foregoing, has, directly or indirectly,
made
any offers or sales of any security, or solicited any offers to purchase any
security, under circumstances that would require registration of any of the
Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or
any applicable stockholder approval requirements of the Principal Market or
of
any other authority, nor will the Company, any Subsidiary or any Person acting
on behalf of any of the foregoing, take any action or steps that would require
registration of the issuance of any of the Securities under the 1933 Act or
cause the offering of the Securities to be integrated with other offerings
for
purposes of the 1933 Act or any applicable stockholder approval requirements
of
the Principal Market or of any other authority. The issuance by the Company
and
the Subsidiaries of the Securities is exempt from registration under the 1933
Act and applicable state securities laws.
u. Tax
Status.
Except
as set forth on Schedule
4(u),
the
Company and each of the Subsidiaries (i) has made or filed all material federal,
state and foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all material
taxes and other governmental assessments and charges shown or determined to
be
due on such returns, reports and declarations, except those being contested
in
good faith and for which the Company has made appropriate reserves on its books,
and (iii) has set aside on its books provisions reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which
such returns, reports or declarations (referred to in clause (i) above) apply.
There are no material unpaid taxes claimed in writing to be due from the Company
or any of its Subsidiaries by the taxing authority of any jurisdiction. Neither
the Company nor any of the Subsidiaries is, or after giving effect to the
purchases and the other transactions contemplated by this Agreement and the
other Transaction Documents will be, a “United States real property holding
corporation” (“USRPHC”)
as
that term is defined in Section 897(c)(2) of the Internal Revenue Code of 1986,
as amended, and the Treasury Regulations promulgated thereunder.
v. Outstanding
Indebtedness; Liens.
Payments of principal and other payments due under the outstanding
Bridge Notes
will rank senior to all Indebtedness of the Company (other than the obligations
evidenced by the Diversity Note, which will rank senior to the Bridge Notes,
and
the obligations evidenced by the Existing Senior Notes issued to Marquis, which
will rank pari
passu
with the
Bridge Notes) and, by virtue of their secured position and to the extent of
the
Collateral (as defined in the Bridge Security Agreement), to all trade account
payables of the Company, and the obligations of the Subsidiaries under the
Bridge Guaranty will at all times rank senior to all other Indebtedness of
the
Subsidiaries (other than the obligations of the Subsidiaries under the
Subsidiary Guaranty (as defined in the Existing Purchase Agreement) with respect
to Indebtedness under the Existing Senior Notes issued to Marquis, which will
rank pari
passu
with the
obligations of the Subsidiaries under the Bridge Guaranty) and, by virtue of
the
secured position of the Bridge Guarantees and to the extent of the Collateral,
to all trade account payables of any of the Subsidiaries. Except as set forth
on
Schedule
4(v),
neither
the Company nor any of the Subsidiaries has any, and upon consummation of the
transactions contemplated hereby and by
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17 -
the
other
Transaction Documents will not have any, outstanding Indebtedness, except for
the obligations evidenced by the Bridge Notes,
the Existing Senior Notes, and by the Diversity Note, for the Leexus Additional
Consideration Obligation and the Leexus Settlement Obligation, and for any
other
Permitted Indebtedness (as defined in Section
6(f)
hereof).
There are no, and upon consummation of the transactions contemplated hereby
and
by the other Transaction Documents there will not be any, Liens on any of the
assets of the Company or the Subsidiaries, except for Permitted Liens. There
are
no, and upon consummation of the transactions contemplated hereby and by the
other Transaction Documents there will not be any, financing statements securing
obligations of any amounts filed against the Company or any of the Subsidiaries
or any of their respective assets, other than pursuant to the Bridge Security
Agreement and the Amended and Restated Security Agreement. For purposes hereof,
“Indebtedness”
of
any
Person means, without duplication: (i) all indebtedness for borrowed money;
(ii)
all obligations issued, undertaken or assumed as the deferred purchase price
of
property or services (other than unsecured account trade payables that are
(A)
entered into or incurred in the ordinary course of the Company’s and the
Subsidiaries’ business, including those that arise under standard industry joint
operating agreements, (B) on terms that require full payment within ninety
(90)
days from the date entered into or incurred and (C) not unpaid in excess of
ninety (90) days
from
the date entered into or incurred, or are being contested in good faith and
as
to which such reserve as is required by GAAP has been made); (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments; (iv) all obligations evidenced by notes,
bonds, debentures, redeemable capital stock or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller, bank or other financing source under such agreement in the event of
default are limited to repossession or sale of such property); (vi) all Capital
Lease Obligations; (vii) all indebtedness referred to in clauses (i) through
(vi) above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by any Person, even
though the Person that owns such assets or property has not assumed or become
liable for the payment of such indebtedness; and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above; “Capital
Lease Obligation”
means,
as to any Person, any obligation that is required to be classified and accounted
for as a capital lease on a balance sheet of such Person prepared in accordance
with GAAP; “Contingent
Obligation”
means,
as to any Person, any direct or indirect liability, contingent or otherwise,
of
such Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if a primary purpose or intent of the Person
incurring such liability, or a primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; “Diversity
Note”
means
that certain Promissory Note, dated September 24, 2007, in the principal amount
of $1,500,000 (as in effect on the date of its original issuance, without any
waiver, amendment, supplement, restatement or other modification thereof after
such date), issued by the Company to Diversity Petroleum, L.P. (“Diversity”),
pursuant to
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18 -
that
certain Purchase and Sale Agreement, dated as of September 25, 2007, among
STO
Properties LLC (“STO”),
a
Texas limited liability company and wholly-owned subsidiary of the Company,
Diversity and the other parties thereto (collectively with Diversity, the
“Sellers”),
whereby STO purchased certain assets of the Sellers; “Diversity
Security Interest”
means
the first priority security interest granted by STO in favor of the Sellers,
pursuant to that certain Deed of Trust, Security Agreement and UCC Financing
Statement for Fixture Filing, dated September 25, 2007, between STO and Xxxxxxx
X. Xxxxx, as Trustee for the benefit of the Sellers, in STO’s right title,
interest, privileges and options in the real property subject to the leases
set
forth on Exhibit
B
to the
Deed of Trust, as security for the performance by STO of its obligations under
the Diversity Note (as such security interest was in effect on the date of
its
grant, without any waiver, amendment, supplement, restatement or other
modification thereof after such date); “Leexus
Additional Consideration Obligation” means
the
Company’s obligation under that certain Agreement and Plan of Merger, dated as
of March 7, 2007 (the “Leexus
Merger Agreement”),
by
and among the Company, Leexus Operating Company, Leexus Properties Corp.
(“Leexus”)
and
the shareholders of Leexus (the “Leexus
Shareholders”)
(as
such agreement was in effect on the original date thereof, without any waiver,
amendment, supplement, restatement or other modification after such date other
than as set forth in the Leexus Settlement Agreement (as defined below)), to
pay
Additional Consideration (as defined in the Leexus Merger Agreement) to Xxxxxxx
Xxxxxxxxxx an aggregate of $1,333,334 and deliver up to 666,667 shares of Common
Stock pursuant to, and subject to the terms and conditions set forth in, Section
IV of the Leexus Merger Agreement; “Leexus
Settlement Obligation”
means
the Company’s obligation under that certain Settlement Agreement, dated as of
May 15, 2008 (the “Leexus
Settlement Agreement”),
by
and among the Company, STO Operating, Xxxxxx Xxxxxxxx, Leexus Oil & Gas,
LLP, and certain of the Leexus Shareholders (the “Leexus
Settlement Shareholders”)
(as
such agreement was in effect on the original date thereof, without any waiver,
amendment, supplement, restatement or other modification after such date),
to
pay up to an aggregate amount of $2,000,000 to the Leexus Settlement
Shareholders pursuant to, and subject to the terms and conditions set forth
in,
Section 6 of the Leexus Settlement Agreement; and “Lien”
means,
with respect to any asset or property, any mortgage, lien, pledge,
hypothecation, charge, security interest, encumbrance or adverse claim of
any kind and any restrictive covenant, condition, restriction or exception
of
any kind that has the practical effect of creating a mortgage, lien, pledge,
hypothecation, charge, security interest, encumbrance or adverse claim of
any kind (including (i) any of the foregoing created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor with respect to a Capital Lease Obligation, or any
financing lease having substantially the same economic effect as any of the
foregoing, and (ii) any restriction on the use, voting, transfer, receipt
of income or other exercise of any attributes of free and clear ownership by
a
current holder).
w. Shell
Company Status.
The
Company is not on the date this representation is made, and at no time since
its
incorporation in the State of Nevada has been, a “shell company” (as defined in
Rule 12b-2 under the 1934 Act).
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19 -
x. Environmental
Laws.
The
Company (i) is in material compliance with any and all Environmental Laws (as
defined below), (ii) has received all material permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business and (iii) is in compliance with all material terms and conditions
of any such permit, license or approval. The term “Environmental
Laws”
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including ambient air, surface water,
groundwater, land surface or subsurface strata), including laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes into the environment,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of hazardous materials,
as
well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
y. Title
to Personal Property.
The
Company has good and valid title to all personal property owned by it that
is
material to the business of the Company, in each case free and clear of all
Liens. Except as set forth on Schedule
4(z),
the
Company does not own (rather than lease) any interest in any real
property.
z. Real
Property.
Schedule
4(z)
contains
a complete and correct list of all the real property; leasehold interests;
fee
interests; oil, gas and other mineral drilling, exploration and development
rights; royalty, overriding royalty, and other payments out of or pursuant
to
production; other rights in and to oil, gas and other minerals, including
contractual rights to production, concessions, net profits interests, working
interests and participation interests (including all Hydrocarbon Property (as
defined in the Bridge Mortgages)); any other contractual rights for the
acquisition or earning of any of such interests in the real property;
facilities; fixtures; equipment that (i) are leased or otherwise owned or
possessed by the Company or any of the Subsidiaries, (ii) in connection with
which the Company or any of the Subsidiaries has entered into an option
agreement, participation agreement or acquisition and drilling agreement or
(iii) the Company or any of the Subsidiaries has agreed to lease or otherwise
acquire or may be obligated to lease or otherwise acquire in connection with
the
conduct of its business (collectively, including any of the foregoing acquired
after the date of this Agreement, the “Real
Property”),
which
list identifies all of the Real Property and specifies which of the Company
or
the Subsidiaries leases, owns or possesses each of the Real Properties or will
do so upon consummation of the Purchases. Schedule
4(z)
also
contains a complete and correct list of all leases and other agreements with
respect to which the Company or any of the Subsidiaries is a party or otherwise
bound or affected with respect to the Real Property, except easements, rights
of
way, access agreements, surface damage agreements, surface use agreements or
similar agreements that pertain to Real Property that is contained wholly within
the boundaries of any owned or leased Real Property otherwise described on
Schedule
4(z)
(the
“Real
Property Leases”).
Except as set forth in Schedule
4(z),
the
Company or one of the Subsidiaries is the legal and equitable owner of a
leasehold interest in all of the Real Property, and possesses good, marketable
and defensible title thereto, free and clear of all Liens (other than Permitted
Liens) and other matters
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20 -
affecting
title to such leasehold that could impair the ability of the Company or the
Subsidiaries to realize the benefits of the rights provided to any of them
under
the Real Property Leases. Except as set forth in Schedule
4(z),
all of
the Real Property Leases are valid and in full force and effect and are
enforceable against all parties thereto. Except as set forth in Schedule
4(z),
neither
the Company nor any of the Subsidiaries nor, to the Company’s knowledge, any
other party thereto is in default in any material respect under any of such
Real
Property Leases and no event has occurred which with the giving of notice or
the
passage of time or both could constitute a default under, or otherwise give
any
party the right to terminate, any of such Real Property Leases, or could
adversely affect the Company’s or any of the Subsidiaries’ interest in and title
to the Real Property subject to any of such Real Property Leases. No Real
Property Lease is subject to termination, modification or acceleration as a
result of the transactions contemplated hereby or by the other Transaction
Agreements. Except as set forth in Schedule
4(z),
all of
the Real Property Leases will remain in full force and effect upon, and permit,
the consummation of the transactions contemplated hereby (including the granting
of leasehold mortgages). The Real Property is permitted for its present uses
under applicable zoning laws, are permitted conforming structures and complies
with all applicable building codes, ordinances and other similar Laws. Except
as
set forth on Schedule
4(z),
there
are no pending or threatened condemnation, eminent domain or similar
proceedings, or litigation or other proceedings affecting the Real Property,
or
any portion or portions thereof. Except as set forth on Schedule
4(z),
there
are no pending or threatened requests, applications or proceedings to alter
or
restrict any zoning or other use restrictions applicable to the Real Property
that would interfere with the conduct of the Company’s or any of the
Subsidiaries’ businesses as conducted or proposed to be conducted proposed to be
conducted at the time this representation is made. Except as set forth on
Schedule
4(z),
there
are no restrictions applicable to the Real Property that would interfere with
the Company’s or any Subsidiary’s making an assignment or granting of a
leasehold or other mortgage to Buyer as contemplated by the Bridge Security
Documents, including any requirement under any Real Property Leases requiring
the consent of, or notice to, any lessor of any such Real Property.
aa. Insurance.
The
Company is insured against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged.
bb. Transactions
With Affiliates.
Except
as set forth in Schedule 4(bb),
no
Related Party, nor any of their respective Affiliates, is presently a party
to
any transaction, contract, agreement, instrument, commitment, understanding
or
other arrangement or relationship with the Company (other than directly for
services as an employee, officer and/or director), whether for the furnishing
of
services to or by, providing for rental of real or personal property to or
from,
or otherwise requiring payments or consideration to or from any such Related
Party. Except as set forth on Schedule
4(bb),
no
Related Party of the Company or any of its Affiliates, has any direct or
indirect ownership interest in any Person (other than ownership of less than
one
percent (1%) of the outstanding common stock of a publicly traded corporation)
in which the Company has any direct or indirect ownership interest or with
which
the Company competes or has a business relationship. For
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21 -
purposes
hereof, “Related
Party”
means
the Company’s or any Subsidiary’s officers, directors, Persons who were officers
or directors at any time during the previous two (2) years, stockholders, or
Affiliates of the Company or any of the Subsidiaries, or with any individual
related by blood, marriage or adoption to any such individual or with any entity
in which any such entity or individual owns a beneficial interest.
cc. Conveyances
of Limited Overriding Royalty Interests.
The
Conveyances of Limited Overriding Royalty Interests, upon execution and delivery
by the parties thereto, (i) will legally and effectively convey perpetual
overriding royalty interests in the hydrocarbon production of all of the
Company’s and the Subsidiaries’ current and future interest in all of their then
current Real Property, in the percentages and as otherwise described in such
conveyances, in each of the respective jurisdictions in which such Real Property
is located, and (ii) will provide legal descriptions of the Subject Lands (as
defined in each of the Conveyances of Limited Overriding Royalty Interests)
sufficient to satisfy all requirements relating to such descriptions in each
of
such jurisdictions.
5. AFFIRMATIVE
COVENANTS.
a. Reasonable
Best Efforts.
Each
party shall use its reasonable best efforts to timely satisfy each of the
conditions to be satisfied by it as provided in Sections
8
and
9
of this
Agreement.
b. Form
D
and Blue Sky.
The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof to the Buyers
promptly after such filing. The Company shall, on or before the Closing Date,
take such action as the Company shall reasonably determine is necessary in
order
to obtain an exemption for, or to qualify the Securities for, sale to the Buyers
at the Closing pursuant to this Agreement under applicable securities or “Blue
Sky” laws of the states of the United States, and shall provide evidence of any
such action so taken to the Buyers on or prior to the Closing Date. The Company
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or “Blue Sky” laws of the states
of the United States following the Closing Date.
c. Reporting
Status.
Until
the latest of (i) the first date on which no Bridge Notes
remain outstanding, (ii) the date on which the Bridge Security Agreement has
terminated, and (iii) the date on which the Buyers no longer own any Securities
(the period ending on such latest date, the “Reporting
Period”),
the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act, even if the securities laws would
otherwise permit such termination.
d. Use
of
Proceeds.
The
Company will use the proceeds from the sale of the Bridge Notes
for
general working capital needs.
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22 -
e. Financial
Information of the
Company.
The
Company agrees to send the following to each Buyer during the Reporting Period
(i) unless the following are filed with the SEC through the SEC’s XXXXX system,
or successor thereto (“XXXXX”),
and
are immediately available to the public through XXXXX, within one (1) Business
Day after the filing thereof with the SEC, a copy of each of its Periodic
Reports, Current Reports on Form 8-K, registration statements (other than on
Form S-8) and amendments and supplements to each of the foregoing, (ii) unless
immediately available through Bloomberg Financial Markets (or any successor
thereto), facsimile copies of all press releases issued by the Company or any
of
the Subsidiaries, contemporaneously with the issuance thereof, and (iii) copies
of any notices and other information made available or given to the shareholders
of the Company generally, contemporaneously with making available or giving
same
to the shareholders.
f. Internal
Accounting Controls.
During
the Reporting Period, the Company shall, and shall cause each of the
Subsidiaries to (i) at all times keep books, records and accounts with respect
to all of such Person’s business activities, in accordance with sound accounting
practices and GAAP consistently applied, (ii) maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (A)
transactions are executed in accordance with management’s general or specific
authorizations, (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset and
liability accountability, (C) access to assets or incurrence of liability is
permitted only in accordance with management’s general or specific authorization
and (D) the recorded accountability for assets and liabilities is compared
with
the existing assets and liabilities at reasonable intervals and appropriate
action is taken with respect to any differences, (iii) timely file and make
publicly available on XXXXX, all certifications and statements required by
(M)
Rule 13a-14 or Rule 15d-14 under the 1934 Act and (N) Section 906 of Sarbanes
Oxley, (iv) maintain disclosure controls and procedures, as required by Rule
13a-15 or Rule 15d-15 under the 1934 Act, designed to provide reasonable
assurance that the information required to be disclosed by the Company in the
reports that it files with or submits to the SEC (X) is recorded, processed,
summarized and reported accurately within the time periods specified in the
SEC’s rules and forms and (Y) is accumulated and communicated to the Company’s
management, including its principal executive officer and its principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure, and (v) maintain internal control over financial reporting, as
required by Rule 13a-14 or Rule 15d-14 under the 1934 Act.
g. Listing.
The
Company shall take all actions necessary to cause the Common Stock to remain
listed on the Principal Market at all times hereafter. The Company shall not,
and shall cause each of the Subsidiaries not to, take any action that would
be
reasonably expected to result in the delisting or suspension or termination
of
trading of the Common Stock on the Principal Market.
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23 -
The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section
5(g).
h. Expenses.
(i) At
the
Closing, the Company shall pay each Buyer a reimbursement amount equal to the
result of (A) all of such Buyer’s legal, due diligence and other expenses
incurred in connection with this Agreement and the transaction contemplated
hereby, including fees and expenses of attorneys, investigative and other
consultants and travel costs and all other expenses relating to negotiating
and
preparing the Transaction Documents and consummating the transactions
contemplated thereby, minus
(B) any
amount previously paid by the Company to such Buyer therefor. The aggregate
amount payable to each Buyer pursuant to the preceding sentence at the Closing
shall be withheld as an off-set by such Buyer from its Purchase Price to be
paid
by it at such Closing. Additionally, the Company shall pay all of its own legal,
due diligence and other expenses, including fees and expenses of attorneys,
investigative and other consultants and travel costs and all other expenses,
relating to negotiating and preparing the Transaction Documents and consummating
the transactions contemplated thereby.
(ii) In
addition to the fee and reimbursement obligations of the Company set forth
above
in this Section
5(h),
and not
in limitation thereof, following the Closing Date, the Company shall promptly
reimburse each Buyer, each holder of Bridge Notes,
and the Bridge Collateral Agent for all of the respective out-of-pocket fees,
costs and expenses incurred thereby in connection with any amendment,
modification, administration or waiver of any of the terms of this Agreement
or
the Transaction Documents, the enforcement of such Person’s rights and remedies
under this Agreement or any of the other Transaction Documents, including all
efforts made to enforce payment of any of the Obligations, and/or any
institution, maintenance, preservation, enforcement, foreclosure, release,
termination, amendment or modification of any mortgage, Lien or other security
interest of such Buyer or holder or the Bridge Collateral Agent in any of the
Collateral, whether through judicial proceedings or otherwise.
i. Disclosure
of Transactions and Other Material Information.
(i) Not
later
than 5:30 p.m. (New York City time) on the fourth (4th)
Business Day following the execution and delivery of this Agreement, the Company
shall file the Announcing Form 8-K with the SEC. The “Announcing
Form 8-K”
(A)
shall describe the terms of this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby, (B) shall include, as
exhibits to such Form 8-K, this Agreement (excluding the
schedules hereto), the Bridge Security Agreement, the Bridge Mortgages, the
Bridge Account Control Agreements, the Bridge Guaranty, the Bridge Pledge
Agreement, the form of Conveyances of Limited Overriding Royalty Interests,
the
Intercreditor Agreement, the Omnibus Amendment, the September 2008
Amendment and
the
form of Bridge Note,
and
(C) shall include any other information required to be disclosed therein
pursuant to any securities Laws or other Laws. As used in this Agreement,
“Laws”
means
all present or future federal, state local
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24 -
or
foreign laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative or judicial orders, consent agreements,
directed duties, requests, licenses, authorizations and permits of, and
agreements with, any Governmental Entity.
(ii) Subject
to the agreements and covenants set forth in this Section
5(i),
the
Company shall not issue any press releases or any other public statements with
respect to the transactions contemplated hereby or disclosing the name of any
Buyer; provided,
however,
that
the Company shall be entitled, without the prior approval of any such Buyer,
to
make any press release or other public disclosure with respect to such
transactions (A) in substantial conformity with the Announcing Form 8-K and
contemporaneously therewith and (B) as is required by applicable Law, including
as is required by Form 8-K or any successor form thereto (provided that any
such
Buyer shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof upon request).
(iii) The
Company represents, warrants and covenants to the Buyers that, from and after
the filing of the Announcing Form 8-K with the SEC (subject to Section
5(m)),
no
Buyer shall be in possession of any material nonpublic information received
from
the Company, any of the Subsidiaries or any of their respective officers,
directors, employees or agents. Notwithstanding any provision herein to the
contrary, the Company shall not, and shall cause each of the Subsidiaries and
its and each of their respective officers, directors, employees and agents
not
to, provide any Buyer with any material nonpublic information regarding the
Company or any of the Subsidiaries from and after the filing of the Announcing
Form 8-K with the SEC, without the express prior written consent of the Buyers.
In the event of a breach of the foregoing covenant by the Company, any of the
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, the Buyers shall have the right to make a public
disclosure in the form of a press release, public advertisement or otherwise,
of
such material nonpublic information without the prior approval by the Company,
the Subsidiaries, or any of its or their respective officers, directors,
employees or agents. The Buyers shall not have any liability to the Company,
any
of the Subsidiaries or any of its or their respective officers, directors,
employees, shareholders or agents for any such disclosure. Notwithstanding
anything to the contrary herein, in the event that the Company believes that
a
notice or communication to any Buyer contains material, nonpublic information
relating to the Company or any of the Subsidiaries, the Company shall so
indicate to the Buyers contemporaneously with delivery of such notice or
communication, and such indication shall provide the Buyers the means to refuse
to receive such notice or communication; and in the absence of any such
indication, the holders of the Securities shall be allowed to presume that
all
matters relating to such notice or communication do not constitute material,
nonpublic information relating to the Company or any of the Subsidiaries. Upon
receipt or delivery by the Company or any of the Subsidiaries of any notice
in
accordance with the terms of the Transaction Documents, unless the Company
has
in good faith determined that the matters relating to such notice do not
constitute material, nonpublic information relating to the Company or the
Subsidiaries, the Company shall within one Business Day after any such receipt
or delivery publicly disclose such material, nonpublic information.
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25 -
j. Pledge
of Securities.
The
Company acknowledges and agrees that the Securities of the Buyers may be pledged
by any Buyer or its transferees (each, including each of the Buyers, an
“Investor”)
in
connection with a bona fide margin agreement or other loan secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer,
sale
or assignment of the Securities hereunder, and no Investor effecting any such
pledge of Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement
or any other Transaction Document, including Section
3(f)
of this
Agreement. The Company hereby agrees to execute and deliver such documentation
as a pledgee of the Securities may reasonably request in connection with a
pledge of the Securities to such pledgee by an Investor.
k. Notices.
From
the
date of this Agreement until the later of (X) the first date on which no
Bridge Notes
remain outstanding, and (Y) the date on which the Bridge Security Agreement
has
terminated (the period ending on such latest date, the “Security
Period”):
(i) Locations.
Promptly (but in no event less than ten (10) days prior to the occurrence
thereof) notify the Buyers of the proposed opening of any new place of business
or new location of Collateral, the closing of any existing place of business
or
location of Collateral, any change in the location of such Person’s books,
records and accounts (or copies thereof), the opening or closing of any post
office box, the opening or closing of any bank account or, if any of the
Collateral consists of Goods (as defined in the Bridge Security Agreement)
of a
type normally used in more than one state, the use of any such Goods in any
state other than a state in which such Person has previously advised the Buyers
that such Goods will be used.
(ii) Names
and Trade Names.
Notify
the Buyers in writing (i) at least thirty (30) days in advance of any change
in
such Person’s legal name and (ii) within ten (10) days of the change of the use
of any trade name, assumed name, fictitious name or division name not previously
disclosed to the Buyers in writing.
(iii) ERISA
Matters.
Promptly notify the Buyers of (x) the occurrence of any “reportable event” (as
defined in ERISA), which might result in the termination by the Pension Benefit
Guaranty Corporation (the “PBGC”)
of any
employee benefit plan (“Plan”)
covering any officers or employees of such Person, any benefits of which are,
or
are required to be, guaranteed by the PBGC, (y) receipt of any notice from
the
PBGC of its intention to seek termination of any Plan or appointment of a
trustee therefor or (z) its intention to terminate or withdraw from any
Plan.
(iv) Environmental
Matters.
Immediately notify the Buyers upon becoming aware of any investigation,
proceeding, complaint, order, directive, claim, citation or notice with respect
to any non-compliance with or violation of the requirements of any Environmental
Law by such Person or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials in
violation of the requirements of any Environmental Law or any other
environmental, health or safety matter which affects such Person or its business
operations or assets or any properties at which such Person has
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26 -
transported,
stored or disposed of any Hazardous Materials, unless the foregoing could not
reasonably be expected to have a Material Adverse Effect.
(v) Default;
Material Adverse Effect.
Promptly advise the Buyers of any material adverse change in the business,
property, assets, operations or financial condition of such Person, any other
Material Adverse Effect, or the occurrence of any Event of Default or the
occurrence of any event which, if uncured, will become an Event of Default
after
notice or lapse of time (or both).
All
of
the foregoing notices shall be provided by the Company or the applicable
Subsidiary to the Buyers in writing.
l. Compliance
with Laws and Maintenance of Permits.
During
the Reporting Period, the Company shall, and shall cause each of the
Subsidiaries to, maintain all governmental consents, franchises, certificates,
licenses, authorizations, approvals and permits, the lack of which would
reasonably be expected to have a Material Adverse Effect and to remain in
compliance with all Laws (including Environmental Laws and Laws relating to
taxes, employer and employee contributions and similar items, securities, ERISA
or employee health and safety) the failure with which to comply would have
a
Material Adverse Effect.
m. Inspection
and Audits.
During
the Reporting Period and subject to each Buyer’s execution of a confidentiality
agreement reasonably acceptable to the Company with respect to the information
provided pursuant to Sections
5(m)(i)
and
5(m)(ii)
hereto,
which execution shall constitute a waiver, with respect to any material
non-public information regarding the Company and the Subsidiaries provided
to
such Buyer directly in response to such Buyer’s request hereunder, of the
restriction herein on the Company’s disclosure to such Buyer of material
nonpublic information:
(i) The
Company shall, and shall cause each of the Subsidiaries to, permit each Buyer
(and each Buyer’s designees), at such Buyer’s own expense, to call at the places
of business of the Company and of each of the Subsidiaries at any reasonable
times, and, upon reasonable advance notice, to inspect, examine and audit the
Collateral and to inspect, audit, check and make extracts from such Person’s
books, records, journals, orders, receipts and any correspondence and other
data
relating to the Collateral or any transactions between the parties hereto,
and
each Buyer (and each Buyer’s designees) shall have the right to make such
verification concerning the Pledged Collateral (as defined in the Bridge Pledge
Agreement) or the Collateral subject to the Bridge Account Control Agreements
as
such Buyer may consider reasonable under the circumstances; and
(ii) Notwithstanding
anything to the contrary herein, upon written request to the Company by any
Buyer, the Company shall promptly provide such Buyer (or its designee) with
any
financial, operating or other type of information requested by such Buyer to
the
extent that it is reasonably available or can be developed without significant
effort or expense to the Company.
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27 -
n. Insurance.
During
the Security Period, the Company shall, and the Company shall cause each of
the
Subsidiaries to:
(i) Keep
the
Collateral properly housed (to the extent possible) and insured for the full
insurable value thereof against loss or damage by fire, theft, explosion,
sprinklers, collision (in the case of motor vehicles) and such other risks
with
companies that regularly insure Persons engaged in businesses similar to that
of
such Person, such coverage and the premiums payable in respect thereof to be
acceptable in scope and amount to the Bridge Collateral Agent. Original (or
certified) copies of such policies of insurance shall be, no later than ten
(10)
Business Days after the date hereof, delivered to the Buyers, together with
evidence of payment of all premiums therefor, and shall contain an endorsement,
in form and substance reasonably acceptable to the Bridge Collateral Agent,
showing loss under such insurance policies payable to the Bridge Collateral
Agent. Such endorsement, or an independent instrument furnished to the Bridge
Collateral Agent, shall provide that the insurance company shall give the Bridge
Collateral Agent at least thirty (30) days’ prior written notice before any such
policy of insurance is altered or canceled and that no act, whether willful
or
negligent, or default of the Company or the applicable Subsidiary or any other
Person shall affect the right of the Bridge Collateral Agent to recover under
such policy of insurance in case of loss or damage. In addition, the Company
or
the applicable Subsidiary shall cause to be executed and delivered to the Bridge
Collateral Agent an assignment of proceeds of its business interruption
insurance policies (if any).
(ii) Maintain,
at its expense, such public liability and third party property damage insurance
with companies that regularly insure Persons engaged in businesses similar
to
that of such Person, such coverage and the premiums payable in respect thereof
to be acceptable in scope and amount to the Bridge Collateral Agent. Original
(or certified) copies of such policies have been or shall be, no later than
ten
(10) Business Days after the date hereof, delivered to the Buyers, together
with
evidence of payment of all premiums therefor; each such policy shall contain
an
endorsement showing the Bridge Collateral Agent as an additional insured
thereunder and providing that the insurance company shall give the Bridge
Collateral Agent at least thirty (30) days written notice before any such policy
shall be altered or canceled.
(iii) If
the
Company or any of the Subsidiaries at any time or times hereafter shall fail
to
obtain or maintain any of the policies of insurance required above or to pay
any
premium relating thereto, the Buyers, without waiving or releasing any
obligation or default by the Company hereunder, may (but shall be under no
obligation to) obtain and maintain such policies of insurance and pay such
premiums and take such other actions with respect thereto as the Buyers deems
advisable. Such insurance, if obtained by the Buyers, may, but need not, protect
the interests of the Company and the Subsidiaries or pay any claim made by
or
against the Company and the Subsidiaries with respect to the Collateral. Such
insurance may be more expensive than the cost of insurance the Company and
the
Subsidiaries may be able to obtain on their own and may be cancelled only upon
the Company and the Subsidiaries’ providing evidence that they have obtained the
insurance as required above. All sums disbursed by the Buyers in connection
with
any such actions, including court costs, expenses, other charges relating
thereto and reasonable attorneys’ fees, shall constitute Indebtedness under the
Bridge
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28 -
Notes,
shall be payable on demand by the Company to the Buyers and, until paid, shall
bear interest at the highest rate then applicable to principal under the
Bridge Notes.
o. Collateral.
During
the Security Period, the Company shall, and shall cause the Subsidiaries to,
maintain the Collateral in good condition, repair and order and shall make
all
necessary repairs to the Equipment (as defined in the Bridge Security Agreement)
and replacements thereof so that the operating efficiency and the value thereof
shall at all times be preserved and maintained, subject to normal wear and
tear
after the date hereof.
p. Taxes.
During
the Security Period, the Company shall, and the Company shall cause each of
the
Subsidiaries to, file all required tax returns and pay all of its taxes
(including taxes imposed by federal, state or municipal agencies) when due,
subject to any extensions granted by the applicable taxing authority, and shall
cause any Liens for taxes to be promptly released; provided, however, that
a
Person shall have the right to contest the payment of any such taxes in good
faith by appropriate proceedings so long as (i) the amount so contested is
shown on such Person’s financial statements; (ii) the contesting of any
such payment does not give rise to a Lien for taxes, other than Permitted Liens
set forth in clause (ii) of the definition thereof set forth in Section
5(t);
(iii) such Person keeps on deposit with the Bridge Collateral Agent (such
deposit to be held without interest) an amount of money which, in the sole
judgment of the Bridge Collateral Agent, is sufficient to pay such taxes and
any
interest or penalties that may accrue thereon; and (iv) if such Person
fails to prosecute such contest with reasonable diligence, the Bridge Collateral
Agent may apply the money so deposited in payment of such taxes. If the Company
or a Subsidiary fails to pay any such taxes (other than taxes not yet due,
subject to an extension or subject to a contest) and in the absence of any
such
contest by such Person, the Buyers may (but shall be under no obligation to)
advance and pay any sums required to pay any such taxes and/or to secure the
release of any Lien therefor, and any sums so advanced by the Buyers shall
constitute Indebtedness under the Bridge Notes,
shall be payable by the Company to the Buyers on demand, and, until paid, shall
bear interest at the highest rate then applicable to principal under the
Bridge Notes.
q. Intellectual
Property.
During
the Reporting Period, the Company shall, and shall cause each of the
Subsidiaries to, maintain adequate licenses, patents, patent applications,
copyrights, service marks and trademarks to continue its business as presently
proposed to be conducted by it (including as described to the Buyers prior
to
the date hereof) or as hereafter conducted by it, unless the failure to maintain
any of the foregoing would not reasonably be expected to have a Material Adverse
Effect.
r. Patriot
Act, Investor Secrecy Act and Office of Foreign Assets Control.
As
required by federal law and the Buyers’ policies and practices, the Buyers may
need to obtain, verify and record certain customer identification information
and documentation in connection with opening or maintaining accounts, or
establishing or continuing to provide
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29 -
services,
and, from the date of this Agreement until the end of the Reporting Period,
the
Company agrees to, and shall cause each of the Subsidiaries to, provide such
information.
s. Drilling
Title Opinions.
During
the Security Period, prior to the commencement by the Company or any of the
Subsidiaries of any drilling operations, or deepening,
sidetracking or other Subsequent Operations (as such term is commonly used
in
the industry in joint operating agreements) conducted by such entity as the
Operator (as such term is commonly used in the industry in joint operating
agreements), on
any of
the Real
Property,
the
Company or such Subsidiary will obtain a customary drilling title opinion with
respect to such Real Property. Upon written request to the Company by the
Buyers, the Company shall promptly provide the Buyers with a copy of such
drilling title opinion, subject to the Buyers’ execution of a confidentiality
agreement reasonably acceptable to the Company with respect thereto;
provided,
however,
that
any such request shall constitute a waiver, with respect to any material
non-public information regarding the Company and the Subsidiaries contained
in
such drilling title opinion, of the restriction herein on the Company’s
disclosure to the Buyers of material non-public information.
t. Security
Covenants.
During
the Security Period, the Company shall, and the Company shall cause each of
the
Subsidiaries to, at its own respective cost and expense, cause to be promptly
and duly taken, executed, acknowledged and delivered all such further acts,
documents and assurances as may from time to time be necessary or as any Buyer
or the Bridge Collateral Agent may from time to time request in order to carry
out the intent and purposes of this Agreement, the Bridge Security Documents
and
the other Transaction Documents and the transactions contemplated hereby and
thereby, including all such actions to establish, create, preserve, protect
and
perfect a first priority Lien (subject only to Permitted Liens) in favor of
the
Bridge Collateral Agent for the benefit of the Buyers on the Collateral
(including Collateral acquired after the date hereof), including on any and
all
assets of the Company and each of the Subsidiaries, whether now owned or
hereafter acquired. For purposes hereof, “Permitted
Lien”
means:
(i) Liens created by the Bridge Security Documents; (ii) Liens for taxes or
other governmental charges not at the time due and payable, or which are being
contested in good faith by appropriate proceedings diligently prosecuted, so
long as foreclosure, distraint, sale or other similar proceedings have not
been
initiated, and in each case for which the Company and the Subsidiaries maintain
adequate reserves in accordance with GAAP in respect of such taxes and charges;
(iii) Liens arising in the ordinary course of business in favor of carriers,
warehousemen, mechanics and materialmen, or other similar Liens imposed by
law,
which remain payable without penalty or which are being contested in good faith
by appropriate proceedings diligently prosecuted, which proceedings have the
effect of preventing the forfeiture or sale of the property subject thereto,
and
in each case for which adequate reserves in accordance with GAAP are being
maintained; (iv) Liens arising in the ordinary course of business in connection
with worker’s compensation, unemployment compensation and other types of social
security (excluding Liens arising under ERISA); (v) attachments, appeal bonds
(and cash collateral securing such bonds), judgments and other similar Liens,
for sums not exceeding $250,000 in the aggregate for the Company and the
Subsidiaries, arising in connection with court proceedings, provided
that the
execution or other enforcement of such Liens is effectively stayed; (vi)
easements, rights of way, restrictions, minor
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30 -
defects
or irregularities in title and other similar Liens arising in the ordinary
course of business and not materially detracting from the value of the property
subject thereto and not interfering in any material respect with the ordinary
conduct of the business of the Company or any of the Subsidiaries; (vii) Liens
arising solely by virtue of any statutory or common law provision relating
to
banker’s liens, rights of set-off or similar rights and remedies and burdening
only deposit accounts or other funds maintained with a creditor depository
institution, provided
that no
such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board of Governors of the U.S. Federal Reserve
System and that no such deposit account is intended by the Company or any of
the
Subsidiaries to provide collateral to the depository institution; (viii) Liens
securing Capital Lease Obligations permitted under Section
6(f)(ii),
provided that such Liens attach only to the fixed assets financed by such
Capital Lease Obligations and that such Liens attach concurrently with, or
within ninety (90) days, after the acquisition thereof; (ix) Liens granted
in favor of the “secured party” for the benefit of the Existing Senior Buyers
pursuant to the Existing Senior Purchase Agreement and the transactions related
thereto; (x) the Diversity Security Interest (but only for so long as the
Diversity Note remains outstanding); and (xi) Liens consisting of cash
collateral securing the Company’s and the Subsidiaries’ reimbursement
obligations, under letters of credit permitted under Section 6(f)(vii),
provided that the aggregate amount of cash collateral securing such Indebtedness
does not exceed the undrawn face amount outstanding at any one time.
(i) Without
limiting the generality of the foregoing, in the event that the Company or
any
of the Subsidiaries shall, at any time during the Security Period, acquire
or
form any new Subsidiary, the Company shall, or shall cause the respective
Subsidiary to cause such new Subsidiary, upon such acquisition or concurrently
with such formation, as applicable, (A) to execute, and thereafter perform
its
obligations under, the Bridge Security Agreement and the Bridge Guaranty and
to
take such other action (including authorizing the filing of such UCC financing
statements and delivering certificates in respect of the equity securities
of
such Subsidiary), as shall be necessary or appropriate to establish, create,
preserve, protect and perfect a first priority Lien (subject only to Permitted
Liens) in favor of the Bridge Collateral Agent for the benefit of the Bridge
Collateral Agent and the
Buyers on all assets, both real and personal, in which such new Subsidiary
has
or may thereafter acquire any interest, (B) to execute such other Bridge
Security Documents, in form and content acceptable to the Bridge Collateral
Agent, as may be required or requested by the Bridge Collateral Agent in
connection with the actions contemplated by the preceding clause (A), and (C)
to
deliver such proof of corporate (or comparable) action, incumbency of officers,
opinions of counsel and other documents as the Bridge Collateral Agent shall
have reasonably required or requested.
(ii) During
the Security Period, (A) the Company shall, and the Company shall cause each
of
the Subsidiaries to, take such action from time to time as shall be necessary
to
ensure that each of the Subsidiaries is a wholly-owned Subsidiary, and that
the
Bridge Collateral Agent shall have, for the benefit of the Bridge Collateral
Agent and the Buyers, a first priority Lien on all Capital Stock or other equity
securities of each of the Subsidiaries concurrently with acquisition or
formation of such Subsidiary; and (B) the Company shall, or shall cause each
of
the Subsidiaries to deliver promptly to the Bridge Collateral Agent, to the
extent required by the applicable Bridge Security Documents, the certificates
evidencing such securities, accompanied by undated powers executed in blank
and
to take such other action as the Bridge Collateral Agent
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31 -
shall
request to perfect the security interest created therein pursuant to such Bridge
Security Documents.
(iii) Concurrently
with the acquisition by the Company or any of the Subsidiaries, at any time
during the Security Period, of any real estate or real property leasehold
interests, the Company shall deliver or cause to be delivered to the Bridge
Collateral Agent, with respect to such real estate, (A) a mortgage or deed
of
trust, as applicable, in form and substance satisfactory to the Bridge
Collateral Agent, executed by the title holder thereof, (B) an ALTA
lender’s title insurance policy issued by a title insurer reasonably
satisfactory to the Bridge Collateral Agent in form and substance and in amounts
reasonably satisfactory to the Bridge Collateral Agent ensuring the Bridge
Collateral Agent’s first priority Lien on such real estate, free and clear of
all defects, encumbrances and Liens except Permitted Liens; (C) a current ALTA
survey, certified to the Bridge Collateral Agent by a licensed surveyor, in
form
and substance satisfactory to the Bridge Collateral Agent, (D) a certificate,
in
form and substance acceptable to the Bridge Collateral Agent, to the Bridge
Collateral Agent from a national certification agency acceptable to the Bridge
Collateral Agent, certifying that such real estate is not located in a special
flood hazard area, and (E) in the case of real estate that consists of a
leasehold estate, such estoppel letters, consents and waivers from the landlords
and non-disturbance agreements from any holders of mortgages or deeds of trust
on such real estate as may be requested by the Bridge Collateral Agent, all
of
which shall be in form and substance satisfactory to the Bridge Collateral
Agent. Notwithstanding
any interpretation or construction of this Section
5(t)(iii)
to the
contrary, clauses (B) and (C) hereof shall not apply to the acquisition of
any
oil and gas leases or other oil and gas rights and interests associated with
the
exploration and production of oil, gas and other minerals under oil, gas and
mineral leases or similar agreements granting such rights and interests.
(iv) During
the Security Period, the Company shall, and shall cause each of the Subsidiaries
to, (A) refrain from engaging to any extent in any business other than the
ownership and operation of oil, gas and other hydrocarbon drilling, exploration
and development rights, concessions, working interests and participation
interests and hydrocarbon transportation facilities and businesses reasonably
related thereto or in furtherance thereof, and (B) preserve, renew and keep
in
full force and effect their respective material rights, privileges and
franchises necessary or desirable in the normal conduct of their
business.
u. Public
Information.
(i) With
a
view to making available to the holders of the Securities the benefits of Rule
144, the Company agrees to, during the Reporting Period, (A) make and keep
public information available, as those terms are understood and defined in
Rule
144; (B) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1934 Act; and (C) furnish to each holder
of
Securities so long as such holder of Securities owns Securities, promptly upon
request, (1) a written statement by the Company, if true, that it has complied
with the reporting requirements of Rule 144 and the 1934 Act, (2) a copy of
the
most recent annual or quarterly report of the Company and such other reports
and
documents so filed by the Company if such reports are not publicly available
via
XXXXX, and (3) such other
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32 -
information
as may be reasonably requested to permit the holders of Securities to sell
such
Securities pursuant to
Rule 144
without registration.
(ii) If
the
Company at any time, during the period commencing on October 24, 2008 (which
is
the date that is six (6) months after the original issue date of the earliest
issued Existing Marquis Demand Note) and ending on the first date on which
(A)
no shares of Common Stock may be issued pursuant to an Override Exchange or
the
exercise by any Buyer of the Investor Share Option and (B) all shares of Common
Stock that have been issued pursuant to the Override Exchange and the Investor
Share Option may be sold by the holders thereof pursuant to Rule 144 without
limitation and without compliance with the current public information
requirement thereof, fails to timely file with the SEC an annual report on
Form
10-K or a quarterly report on Form 10-Q (i.e., fails to file any such report
on
or before the applicable filing deadline therefor, without giving effect to
any
extensions of time that may be permitted by Rule 12b-25 under the 1934 Act
(or
successor thereto)), or on any day hereafter sales of all of the Securities
cannot be made as a result of a breach or violation of this Section
5(u),
then,
as partial relief for the damages to any holder of Securities by reason of
any
reduction of its ability to sell the Securities (which remedy shall not be
exclusive of any other remedies available hereunder, at law or in equity),
the
Company shall pay to each such holder an amount in cash equal to two percent
(2%) of the Aggregate Market Value of the Demand Note Exchange Shares, the
Override Exchange Shares and the Option Shares held by such holder with respect
to each thirty (30) day period occurring on and after such failure, breach
or
violation and prior to the date that the applicable annual or quarterly report
is filed with the SEC or the breach or violation is cured, as applicable (in
each case, pro rated for periods totaling less than thirty (30) days). The
payments to which a holder shall be entitled pursuant to this Section
5(u)
are
referred to herein as “Filing
Delay Payments.”
Filing
Delay Payments shall be paid on the earlier of (I) the last day of the calendar
month during which such Filing Delay Payments are incurred and (II) the third
(3rd)
Business Day after the failure, breach or violation giving rise to the Filing
Delay Payments is cured. Notwithstanding the foregoing, no Filing Delay Payments
shall accrue with respect to any period after the later of (A) the one-year
anniversary of the date hereof, and (B) the first date after the Override
Exchange Date (or, if the Company fails to deliver an Override Exchange Notice
by the two-year anniversary of the Closing Date, the first date after such
two-year anniversary) as of which the holders of Securities may sell all of
the
Securities pursuant to Rule 144 without the requirement for compliance with
Rule
144(c) (or successor thereto). In the event the Company fails to make Filing
Delay Payments in a timely manner, such Filing Delay Payments shall bear
interest, in each case until paid in full, at the rate of one and one-half
percent (1.5%) per month, prorated for partial months.
For
purposes hereof, (i) “Market
Value”
of
any
of the Demand Note Exchange Shares, the Override Exchange Shares or the Option
Shares means the arithmetic average of the Weighted Average Price of the Common
Stock on the Principal Market on each of the five (5) trading days immediately
preceding the date of original issuance of such Demand Note Exchange Share,
Override Exchange Share, or Option Share on the Closing Date, pursuant to the
Override Exchange or the Investor Share Option, as applicable; and (ii)
“Aggregate
Market Value”
of
the
Demand Note Exchange Shares, the Override Exchange Shares and the Option Shares
held by any holder thereof means the sum of the respective Market Values of
all
of the Demand Note Exchange Shares, the Override Exchange Shares and the Option
Shares held by such holder.
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33 -
v. Stop
Orders.
The
Company will advise each of the Buyers, within one Business Day after it
receives notice of issuance by the SEC, any state securities commission or
any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
w. Market
Regulations.
The
Company shall notify the SEC, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable Law for the legal
and
valid issuance of the Securities to the Buyers and promptly provide copies
thereof to the Buyers.
6. NEGATIVE
COVENANTS.
a. Prohibition
Against Variable Priced Securities.
From
the date of this Agreement until the end of the Reporting Period, the Company
shall not in any manner issue or sell any Options (as defined below) or
Convertible Securities (as defined below) that are convertible into or
exchangeable or exercisable for shares of Common Stock at a price that varies
or
may vary with the market price of the Common Stock, including by way of one
or
more resets to a fixed price or increases in the number of shares of Common
Stock issued or issuable, or at a price that upon the passage of time or the
occurrence of certain events automatically is reduced or is adjusted or at
the
option of any Person may be reduced or adjusted, whether or not based on a
formulation of the then current market price of the Common Stock. For purposes
of this Agreement, “Convertible
Securities”
means
any stock or securities (other than Options) directly or indirectly convertible
into or exchangeable or exercisable for Common Stock and “Options”
means
any rights, warrants or options to subscribe for or purchase Common Stock or
Convertible Securities.
b. Status.
From the
date of this Agreement until the end of the Reporting Period, the Company shall
not, nor will it permit any of the Subsidiaries to, become a USRPHC; and upon
any Buyer’s request, the Company shall inform the Buyers whether any of the
Securities then held by any Buyer constitute a U.S. real property interest
pursuant to Treasury Regulation Section 1.897-2(h) without regard to Treasury
Regulation Section 1.897-2(h)(3).
c. Stay,
Extension and Usury Laws.
The
Company covenants (to the extent that it may lawfully do so) that it shall
not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law that
would prohibit or forgive it from paying all or any portion of any principal
of,
or interest or premium on, any of the Bridge Notes
as
contemplated herein or therein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of any of the
Transaction Documents; and the Company (to the extent it may lawfully do so),
on
behalf of itself and the Subsidiaries, hereby
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34 -
expressly
waives all benefit or advantage of any such law, and covenants that it will
not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Buyers, but will suffer and permit the execution of every
such power as though no such law has been enacted. Notwithstanding the
foregoing, the obligations of the Company hereunder shall be subject to the
limitation that payments of Interest (as defined in the Bridge Notes)
on
any Bridge Note
shall not be required, for any period for which Interest is computed thereon,
to
the extent (but only to the extent) that contracting for or receiving such
payment by the Buyer holding such Bridge Note
would be contrary to the provisions of any law applicable to such Buyer, and
in
such event the Company shall pay such Buyer Interest at the highest rate
permitted by applicable law (“Maximum
Lawful Rate”);
provided, however, that if at any time thereafter the rate of Interest payable
under such Bridge Note
is
less than the Maximum Lawful Rate, Company shall continue to pay Interest
thereon at the Maximum Lawful Rate until such time as the total Interest
received by such Buyer is equal to the total Interest that would have been
received by such Buyer had the Interest payable on such Bridge Note
been
(but for the operation of this paragraph) the Interest rate payable since the
date hereof as otherwise provided in such Bridge Note.
d. Payment
Restrictions Affecting Subsidiaries.
During
the Security Period, (i) the Company shall not, nor will it permit any of the
Subsidiaries to, enter into or assume any agreement prohibiting or otherwise
restricting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or requiring the grant of
any
security for an obligation, except to the extent any such agreement provides
for
Permitted Liens; and (ii) except as provided herein, the Company shall not,
and
shall not cause or permit the Subsidiaries to, directly or indirectly create
or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or consensual restriction of any kind on the ability of any such
Subsidiary to: (A) pay dividends or make any other distribution on any of such
Person’s Capital Stock owned by the Company or any other Subsidiary; (B) pay any
Indebtedness owed to the Company or any other Subsidiary; (C) make loans or
advances to the Company or any other Subsidiary; or (D) transfer any of its
property or assets to the Company or any other Subsidiary.
e. Prepayments.
Except
for the intercompany indebtedness among the Company and the Subsidiaries
permitted by Section
6(f),
from
the date of this Agreement until the end of the Reporting Period, the Company
shall not, nor will the Company permit any of the Subsidiaries to, prepay any
Indebtedness that is in parity with or subordinate to the Bridge Notes
by
structure or contract.
f. Indebtedness.
From the
date of this Agreement until the end of the Reporting Period, the Company shall
not, and the Company shall cause each of the Subsidiaries not to, create, incur,
assume, extend the term of, become obligated on or suffer to exist (directly
or
indirectly), any Indebtedness other than Indebtedness under the
Bridge Notes
issued pursuant to this Agreement and under the
Existing Senior Notes issued pursuant to the Existing Senior Purchase Agreement,
except that the Company and the Subsidiaries may, (i) incur non-convertible
Indebtedness for
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35 -
borrowed
money, and only to the extent, that (A) a subordination agreement in favor
of
and in form and substance satisfactory to the Buyers in its sole and absolute
discretion is executed and delivered to the Buyers with respect thereto (which
subordination agreement shall prohibit payments in respect of such subordinated
Indebtedness for so long as any Bridge Notes
are
outstanding), (B) the terms of such subordinated Indebtedness does not require
or permit payment of principal thereon until at least ninety (90) days after
the
Maturity Date of any outstanding Bridge Notes,
and (C) such subordinated Indebtedness is not secured by any of the assets
of
the Company or any of the Subsidiaries; (ii) incur purchase money Indebtedness
or Capital Lease Obligations in an aggregate amount not to exceed $250,000
outstanding at any time; (iii) incur unsecured intercompany Indebtedness
amongst the Company and one or more of its wholly-owned domestic Subsidiaries
that is a party to, and in compliance with, the Bridge Security Agreement and
the Bridge Guaranty, to the extent such Indebtedness is evidenced by a
promissory note that has been pledged to the Bridge Collateral Agent; (iv)
incur
Indebtedness of the Company and the Subsidiaries for taxes, assessments,
municipal or governmental charges not yet due; (v) incur obligations of the
Company and the Subsidiaries resulting from endorsements for collection or
deposit in the ordinary course of business; (vi) suffer to exist the Diversity
Note (and the obligations thereunder), the Leexus Additional Consideration
Obligation and the Leexus Settlement Obligation, in each case as in effect
on
the date of its original issuance or incurrence, without waiver, amendment,
supplement, restatement or other modification thereof after such date, and
(vii) incur reimbursement obligations in respect of letters of credit
issued for the account of the Company or any of the Subsidiaries in the ordinary
course of their business for the purpose of securing performance obligations
of
the Company or any other of the Subsidiaries or for the purpose of satisfying
federal, state and/or local legal requirements for owning and operating oil
and
gas properties, so long as the aggregate face amount of such letters of credit
does not exceed $500,000 at any one time (any Indebtedness that the Company
or
any of the Subsidiaries is expressly permitted to incur pursuant to clauses
(i)
through (vii) above being referred to herein as “Permitted
Indebtedness”).
g. Liens.
From the
date of this Agreement until the end of the Security Period, the Company shall
not, and shall cause each of the Subsidiaries not to, grant or suffer to exist
(voluntarily or involuntarily) any Lien, claim, security interest or other
encumbrance whatsoever on any of its assets, other than Permitted Liens.
h. Corporate
Existence.
During
the Reporting Period, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company’s assets (including, for
the avoidance of any doubt, all or substantially all of the assets of the
Subsidiaries in the aggregate), except in the event of a merger or consolidation
or sale or transfer of all or substantially all of the Company’s assets
(including, for the avoidance of any doubt, all or substantially all of the
assets of the Subsidiaries in the aggregate) where (i) the surviving or
successor entity in such transaction (A) assumes the Company’s obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (B) is a publicly traded corporation whose common stock is listed
on a national securities exchange, (ii) immediately before and immediately
after
giving effect to such transaction, no Event of Default shall have occurred
and
be continuing, and (iii)
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36 -
immediately
before and immediately after giving effect to such transaction, there shall
not
be a Financial Covenant Failure, and if such transaction had occurred as of
the
last day of the period covered by the most recently filed Periodic Report,
there
would not have been a Financial Covenant Failure. From the date of this
Agreement until the first date following the Closing Date on which no Bridge
Notes are outstanding, the Company shall, and shall cause each of the
Subsidiaries to, refrain from violating, breaching or defaulting under in any
respect, or taking or failing to take any action that (with or without notice
or
lapse of time or both) would constitute a violation or breach of, or default
under, any term or provision of any Lease to which the Company or any of its
Subsidiaries is a party, except to the extent such violation, breach or default,
action or inaction would not and would not be reasonably expected to have,
either individually or in the aggregate, a Material Adverse Effect.
i. Restriction
on Loans; Investments; Subsidiary Equity.
During
the Security Period, the Company shall not, and shall not permit any of the
Subsidiaries to, (i) except for Permitted Investments (as defined herein) in
which the holders of the Bridge Notes
have a valid, perfected first priority security interest, make any loans to,
or
investments in, any other person or entity, including through lending money,
deferring the purchase price of property or services (other than trade accounts
receivable on terms of ninety (90) days or less), purchasing any note, bond,
debenture or similar instrument, entering into any letter of credit,
guaranteeing (or taking any action that has the effect of guaranteeing) any
obligations of any other person or entity, or acquiring any equity securities
of, or other ownership interest in, or making any capital contribution to any
other entity, other than unsecured intercompany indebtedness permitted by
Section
6(f)
(and not
otherwise prohibited hereunder) and capital contributions to Subsidiaries
incident to the formation and capitalization of such Subsidiaries in accordance
with this Agreement and limited to de minimis amounts necessary to form and
capitalize such Subsidiaries, (ii) invest in, participate in, lease, purchase,
obtain or otherwise acquire any real property, facilities, or oil, gas or other
mineral drilling, exploration or development rights, concessions, working
interests or participation interests in which the Buyers are not granted a
valid, perfected first priority security interest, or (iii) issue, transfer
or
pledge any Capital Stock or equity interest in any Subsidiary to any Person
other than the Company. “Permitted
Investments”
means
any investment in (A) direct obligations of the United States or
obligations guaranteed by the United States, in each case which mature and
become payable within ninety (90) days of the investment by the Company or
any
Subsidiary, (B) commercial paper rated at least A-1 by Standard & Poor’s
Ratings Service and P-1 by Xxxxx’x Investors Services, Inc., (C) time deposits
with, including certificates of deposit issued by, any office located in the
United States of any bank or trust company which is organized under the
laws of the United States or any State thereof and has capital, surplus and
undivided profits aggregating at least $250,000,000 and which issues (or the
parent of which issues) certificates of deposit or commercial paper with a
rating described in clause (B) above, in each case which mature and become
payable within ninety (90) days of the investment by the Company or any
Subsidiary, (D) repurchase agreements with respect to securities described
in
clause (A) above entered into with an office of a bank or trust company meeting
the criteria specified in clause (C) above, provided
in each
case that such investment matures and becomes payable within ninety (90) days
of
the investment by the Company or any Subsidiary, or (E) any money market or
mutual fund which invests only in the foregoing types of investments and the
liquidity of which is satisfactory to the Bridge Collateral Agent.
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37 -
j. Equipment.
During
the Security Period, the Company shall not, and shall cause each of the
Subsidiaries not to, (i) permit any Equipment to become a fixture to Real
Property unless such Real Property is owned or leased by such Person and is
subject to a mortgage in favor of the Bridge Collateral Agent, for the benefit
of the Buyers, and if such Real Property is leased, is subject to a landlord’s
agreement in favor of the Buyers on terms acceptable to the Bridge Collateral
Agent, or (ii) permit any Equipment to become an accession to any other personal
property unless such personal property is subject to a first priority perfected
Lien in favor of the Bridge Collateral Agent, for the benefit of the Buyers
and
any other holders of the Bridge Notes.
k. Affiliate
Transactions.
During
the Reporting Period, the Company shall not, and shall cause each of the
Subsidiaries not to, enter into, amend, modify or supplement any transaction,
contract, agreement, instrument, commitment, understanding or other arrangement
with any Related Party, except for transactions with either of the Buyers or
the
Bridge Collateral Agent or any of their respective Affiliates and intercompany
transactions between or among the Company and its wholly-owned Subsidiaries,
in
each case as permitted (and not otherwise prohibited) hereunder, and customary
employment arrangements and benefit programs, on reasonable terms, that are
not
otherwise prohibited by this Agreement.
l. Settling
of Accounts.
From
the date of this Agreement until the end of the Security Period, the Company
shall not, and shall cause each of the Subsidiaries not to, sell, discount,
settle or adjust any Account (as defined in the Bridge Security Agreement);
provided
that
after
the date hereof, so long as no Event of Default shall have occurred and be
continuing, the Company and the Subsidiaries may (i) discount or settle past
due
Accounts on an arm’s length basis in the ordinary course of business, and (ii)
provide early payment discounts in respect of Accounts in the ordinary course
of
business, consistent with past practice.
m. Limitation
on Sale and Leaseback Transactions.
During
the Reporting Period, the Company shall not, and shall cause each of the
Subsidiaries not to, directly or indirectly, enter into any arrangement with
any
Person whereby in a substantially contemporaneous transaction the Company or
any
of the Subsidiaries sells or transfers all or substantially all of its right,
title and interest in an asset and, in connection therewith, acquires or leases
back the right to use such asset.
n. Investment
Company; Public Utility.
During
the Reporting Period, the Company shall not, and shall cause each of the
Subsidiaries not to, become an “investment company,” a company controlled by an
“investment company,” or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company,” as such terms are defined in the
Investment Company Act of 1940; nor shall the Company become, or permit any
of
the Subsidiaries to become, subject to regulation as (i) a “public utility,”
(ii) “public utility company,” (iii) a “holding company” of a “public
utility”
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38 -
or
a
“public utility company,” (iv) a “subsidiary company” of a such a “holding
company,” or (v) an affiliate of a such a “holding company” or such a
“subsidiary company,” in each case as such terms or similar terms are used
within the meaning of any Law.
o. Real
Property Leases.
During
the Security Period, the Company shall not, and shall cause each of the
Subsidiaries not to, amend, modify, violate, breach or default under in any
respect, or take or fail to take any action that (with or without notice or
lapse of time or both) would constitute a violation or breach of, or default
under, any term or provision of, or would result in a reversion of rights to
a
Person under, any Real Property Leases, except easements, rights of way, access
agreements, surface damage agreements, surface use agreements or similar
agreements that pertain to Real Property that is contained wholly within the
boundaries of any owned or leased Real Property to which the Company or any
of
the Subsidiaries is a party, except to the extent such amendment, modification,
violation, breach or default, action or inaction could not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect.
p. Restriction
on Purchases or Payments.
During
the Security Period, the Company shall not, and the Company shall cause each
of
the Subsidiaries not to, (i) declare, set aside or pay any dividends on or
make
any other distributions (whether in cash, stock, equity securities or property)
in respect of any Capital Stock or split, combine or reclassify any Capital
Stock or issue or authorize the issuance of any other securities in respect
of,
in lieu of or in substitution for, any Capital Stock; provided, however, that
any Subsidiary may declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any of its Capital Stock that is held solely by the Company or by a domestic
Subsidiary, provided that all of the equity of such domestic Subsidiary is
directly or indirectly owned by the Company, such domestic Subsidiary is
controlled by the Company and such domestic Subsidiary is a party to, and in
compliance with, the Bridge Guaranty and the Bridge Security Agreement, or
(ii)
purchase, redeem or otherwise acquire, directly or indirectly, any shares of
the
Common Stock or the Capital Stock of any of the Subsidiaries.
q. No
Avoidance of Obligations.
During
the Reporting Period, the Company shall not, and shall cause each of the
Subsidiaries not to, enter into any agreement which would limit or restrict
the
Company’s or any of the Subsidiaries’ ability to perform under, or take any
other voluntary action to avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by it under, this Agreement,
the
Bridge Notes
or
the other Transaction Documents.
r. No
Integrated Offering.
Neither
the Company nor any of the Subsidiaries, nor any Affiliates of the foregoing
or
any Person acting on the behalf of any of the foregoing, shall, directly or
indirectly, make any offers or sales of any security or solicit any offers
to
purchase any security, under any circumstances that would require registration
of any of the Securities under the 1933 Act or
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39 -
cause
the
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act, the rules and regulations of the Principal Market
or any regulatory or self-regulatory authority.
s. Regulation
M.
Neither
the Company, nor the Subsidiaries nor any Affiliates of the foregoing shall
take
any action prohibited by Regulation M under the 1934 Act, in connection with
the
offer, sale and delivery of the Securities
contemplated hereby.
t. Financial
Covenant.
(i) The
Company shall not allow the Daily Barrel Average to be less than Two Hundred
Twenty-Five (225) barrels of oil and/or its equivalent in natural gas (including
barrels of oil and barrels of oil equivalents from gas produced into a sales
pipeline at a ratio of one (1) barrel of oil for each six thousand (6,000)
cubic
feet (“MCF”)
of gas
(collectively, “XXXx”))
in
the calendar quarter ending September 30, 2008, or be less than Two Hundred
Fifty (250) XXXx in the calendar quarter ending December 31, 2008, or be
less than Three Hundred Fifty (350) XXXx in the calendar quarter ending
March 31, 2009, or be less than Four Hundred (400) XXXx in the
calendar quarter ending June 30, 2009 or be less than Five Hundred (500)
XXXx in the calendar quarter ending September 30, 2009 (the failure of the
Daily
Barrel Average to be at least the applicable minimum (as set forth in this
sentence) in any such calendar quarter being referred to as a “Financial
Covenant Failure”).
For
purposes of this Agreement, the “Daily
Barrel Average”
means,
for any calendar quarter, the arithmetic average of the aggregate XXXx produced
by all of the Real Property of the Company and the Subsidiaries that are,
directly or indirectly, wholly owned by the Company (the “Covered
Properties”),
net
to the Working Interests (as defined in the Conveyances of Limited Overriding
Royalty Interests) owned by the Company and such Subsidiaries in such Real
Property, on each of the days in such calendar quarter; provided, however,
that
there shall be excluded, in making any such computation, such portion of the
XXXx produced by the Covered Properties that are not Current Override Properties
in excess of the portion that would result in such production constituting
50%
of the aggregate XXXx produced by the Covered Properties.
(ii) On
the
second Business Day following each date that the Company files or is required
to
file a Periodic Report (which in each case shall disclose the Company’s Daily
Barrel Average for the calendar quarter covered by such Periodic Report (or,
in
the case of an Annual Report on Form 10-K, for the fourth calendar quarter
of
the year covered by such Annual Report), details of the calculations and
components thereof and any Financial Covenant Failure with respect to any such
month), the Company shall deliver to each Buyer, by facsimile or overnight
courier, a certificate executed by its principal financial officer (an
“Officer’s
Certificate”)
certifying as to the accuracy of the Periodic Report and of each of the Daily
Barrel Averages disclosed therein. Notwithstanding anything contained herein
to
the contrary, no Officer’s Certificate delivered by the Company to any Buyer
shall contain any material non-public information regarding the Company or
any
of the Subsidiaries.
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40 -
(iii) In
the
case of a bona fide dispute as to the determination of the Daily Barrel Average
for any calendar quarter, the Company shall transmit an explanation of the
disputed determinations to the Buyers via facsimile within two (2) Business
Days
of the occurrence of the dispute. If the Buyers and the Company are unable
to
agree upon the determination of such Daily Barrel Average for such calendar
quarter within two (2) Business Days of such disputed determination being
transmitted to the Buyers, then the Company shall promptly (and in any event
within two (2) Business Days) submit via facsimile the disputed determination
of
the Daily Barrel Average to a qualified, independent petroleum engineer, agreed
to by the Company and the holders of all of the Notes then outstanding. The
Company shall direct the petroleum engineer to perform the determinations or
calculations, at the Company’s expense, and notify the Company and the Buyers of
the results no later than two (2) Business Days from the time it receives the
disputed determinations. Such petroleum engineer’s determination shall be
binding upon all parties absent manifest error.
7. TRANSFER
AGENT INSTRUCTIONS.
The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or, provided that such transfer
agent is a participant in the DTC Fast Automated Securities Transfer Program,
credit shares to the applicable balance accounts at DTC, registered in the
name
of each Buyer or its respective nominee(s), for any Option Shares issued upon
exercise of the Investor Share Option, as provided in the Bridge Notes. The
Company warrants that no other instruction other than the foregoing and any
legal opinion pursuant to Section
3(g)
hereof
that may be required by such transfer agent, will be given by the Company to
its
transfer agent, and that the Securities shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section
3(g),
the
Company shall permit the transfer and shall promptly instruct its transfer
agent
to issue one or more certificates or, provided that such transfer agent is
a
participant in the DTC Fast Automated Securities Transfer Program, credit shares
to the applicable balance accounts at DTC in such name and in such denominations
as specified by such Buyer to effect such sale, transfer or assignment. In
the
event that such sale, assignment or transfer involves Option Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section
7
will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 7,
that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or 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.
8. CONDITIONS
TO THE OBLIGATIONS OF THE COMPANY TO SELL.
The
obligation of the Company to issue and sell the Bridge Notes to each Buyer
at
the Closing is subject to the satisfaction, at or before the Closing Date,
of
each of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived
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41 -
by
the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
a. Such
Buyer shall have executed each of the Transaction Documents to which it is
a
party and delivered the same to the Company.
b. Such
Buyer shall have delivered to the Company the Purchase Price (less the amount
withheld pursuant to Section 5(h)(i))
for the
Bridge Notes being purchased by such Buyer at the Closing by wire transfer
of
immediately available funds pursuant to the wire instructions provided by the
Company.
c. The
representations and warranties of such Buyer 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
shall
be true and correct as of such date), and such Buyer shall have performed,
satisfied and complied with the covenants, agreements and conditions required
by
the Transaction Documents to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
d. No
injunction or other court or governmental agency order shall be in effect that
prohibits the transactions contemplated by this Agreement to be effected at
the
Closing.
9. CONDITIONS
TO BUYERS’ OBLIGATIONS TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Bridge Notes from the Company
at the Closing is subject to the satisfaction, at or before the Closing Date,
of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived only by such Buyer at any time in its
sole discretion by providing the Company with prior written notice
thereof:
a. The
Company shall have executed each of the Transaction Documents, including the
Bridge Notes, to which it is a party and delivered the same to such
Buyer.
b. 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 shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer.
c. Such
Buyer shall have received the opinion of Xxxxxxxx & Knight LLP dated as of
the Closing Date, in form, scope and substance reasonably satisfactory to such
Buyer and in substantially the form of Exhibit G
attached
hereto.
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42 -
d. The
Company shall have executed and delivered to such Buyer the Bridge Notes (in
such denominations as such Buyer shall request) for the Bridge Notes being
purchased by such Buyer at the Closing.
e. The
Company shall have executed and delivered to Marquis the Demand
Note Exchange Share Certificate
for the Demand
Note Exchange Shares to
be
issued to Marquis at the Closing.
f. The
Company shall have made all filings under all applicable securities laws
necessary to consummate the issuance of the Securities pursuant to this
Agreement in compliance with such laws.
g. The
Company shall have delivered and pledged to the Bridge Collateral Agent any
and
all Instruments, Negotiable Documents, Chattel Paper (each of the foregoing
terms, as defined in the Bridge Security Agreement) and certificated securities
(accompanied by stock powers executed in blank), duly endorsed and/or
accompanied by such instruments of assignment and transfer executed by the
Company in such form and substance as the Bridge Collateral Agent may
request.
h. The
Company shall have given, executed, delivered, filed and/or recorded any
financing statements, notices, instruments, documents, agreements and other
papers that may be necessary or desirable (in the reasonable judgment of the
Bridge Collateral Agent) to create, preserve, perfect or validate the security
interest granted to the Bridge Collateral Agent pursuant to the Bridge Security
Agreement and to enable such Buyer to exercise and enforce its rights with
respect to such security interest.
i. The
Company shall have delivered to such Buyer or the Bridge Collateral Agent such
other documents relating to the transactions contemplated by this Agreement
as
such Buyer or the Bridge Collateral Agent or their respective counsel may
reasonably request.
10. INDEMNIFICATION.
a. Company
Indemnification Obligation.
In
consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of
the
Company’s obligations under the Transaction Documents, the Company (for purposes
of this Section
10(a),
the
“Indemnifying
Party”)
shall
defend, protect, indemnify and hold harmless each Buyer and each other holder
of
the Securities and all of their equity holders, partners, officers, directors,
members, managers, employees and direct or indirect investors and any of the
foregoing Persons’ agents or other representatives (including those retained in
connection with the transactions contemplated by this Agreement) (for purposes
of this Section
10(a),
collectively, the “Indemnitees”)
from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (collectively, for purposes of this Section
10,
the
“Indemnified
Liabilities”),
incurred by any Indemnitees as a result of, or arising out of, or relating
to
(a) any misrepresentation or breach of any representation or warranty made
by the
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43 -
Indemnifying
Party in any of the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Indemnifying Party contained in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against
such Indemnitees and arising out of or resulting from the execution, delivery,
performance or enforcement of the Transaction Documents in accordance with
the
terms hereof or thereof or any other certificate, instrument or document
contemplated hereby or thereby in accordance with the terms thereof (other
than
a cause of action, suit or claim brought or made against an Indemnitee by such
Indemnitee’s owners, investors or Affiliates), or (d) any assets or transaction
financed or to be financed in whole or in part, directly or indirectly, with
the
proceeds of the issuance of any of the Securities. To the extent that the
foregoing undertaking by the Indemnifying Party may be unenforceable for any
reason, such Indemnifying Party shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.
b. Indemnification
Procedures.
Each
Indemnitee (as defined under Section
10(a))
shall
(i) give prompt written notice to the Indemnifying Party of any claim with
respect to which it seeks indemnification or contribution pursuant to this
Agreement (provided, however, that the failure of the Indemnitee to promptly
deliver such notice shall not relieve the Indemnifying Party of any liability,
except to the extent that the Indemnifying Party is prejudiced in its ability
to
defend such claim) and (ii) permit such Indemnifying Party, as applicable,
to
assume the defense of such claim with counsel selected by such Indemnifying
Party and reasonably satisfactory to the Indemnitee; provided,
however,
that
any Indemnitee entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the
fees and expenses of such counsel shall be at the expense of the Indemnitee
unless (A) the Indemnifying Party has agreed in writing to pay such fees and
expenses, (B) the Indemnifying Party shall have failed to assume the defense
of
such claim within five (5) days of delivery of the written notice of the
Indemnitee with respect to such claim or failed to employ counsel selected
by
such Indemnifying Party and reasonably satisfactory to the Indemnitee, or (C)
in
the reasonable judgment of the Indemnitee, based upon advice of its counsel,
a
conflict of interest may exist between the Indemnitee and the Indemnifying
Party
with respect to such claims (in which case, if the Indemnitee notifies the
Indemnifying Party in writing that it elects to employ separate counsel at
the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such claim on behalf of the Indemnitee). If
the
Indemnifying Party assumes the defense of the claim, it shall not be subject
to
any liability for any settlement or compromise made by the Indemnitee without
its consent (but such consent shall not be unreasonably withheld, conditioned
or
delayed). In connection with any settlement negotiated by an Indemnifying Party,
no Indemnifying Party shall, and no Indemnitee shall be required by an
Indemnifying Party to, (I) enter into any settlement which does not include
as
an unconditional term thereof the giving by the claimant or plaintiff to the
Indemnitee of a release from all liability in respect to such claim or
litigation, (II) enter into any settlement that attributes by its terms any
liability to the Indemnitee, or (III) consent to the entry of any judgment
that
does not include as a term thereof a full dismissal of the litigation or
proceeding with prejudice. In addition, without the consent of the Indemnitee,
no Indemnifying Party shall consent to entry of any judgment or enter into
any
settlement which provides for any action on the part of the
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44 -
Indemnitee
other than the payment of money damages which are to be paid in full by the
Indemnifying Party. If an Indemnifying Party fails or elects not to assume
the
defense of a claim pursuant to clause (B) above, or is not entitled to assume
or
continue the defense of such claim pursuant to clause (C) above, the
Indemnifying Party shall have the right without prejudice to its right of
indemnification hereunder to, in its discretion exercised in good faith and
upon
advice of counsel, to contest, defend and litigate such claim and may settle
such claim, either before or after the initiation of litigation, at such time
and upon such terms as the Indemnitee deems fair and reasonable, provided that,
at least five (5) days prior to any settlement, written notice of its intention
to settle is given to the Indemnifying Party. If requested by the Indemnifying
Party, the Indemnitee agrees (at no expense to the Indemnitee) to reasonably
cooperate with the Indemnifying Party and its counsel in contesting any claim
that the Indemnifying Party elects to contest.
11. [INTENTIONALLY
OMITTED]
12. GOVERNING
LAW; MISCELLANEOUS.
a. Governing
Law; Jurisdiction; Jury Trial.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or
rule (whether of the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State
of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of
the state and federal courts sitting in the New York City, Borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or
with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that
the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof by
registered or certified mail, return receipt requested, or by deposit with
a
nationally recognized overnight delivery service, to such party at the address
for such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties acknowledge that each Buyer has
an
office in the State of New York, that each Buyer will make payment of the
Purchase Price from its bank account located in the State of New York and that
any payment to any initial Buyer under the Transaction Documents shall be made
to a bank account of such Buyer located in the State of New York. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,
A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
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45 -
b. Counterparts.
This
Agreement and any amendments hereto may be executed and delivered in one or
more
counterparts, and by the different parties hereto in separate counterparts,
each
of which when executed shall be deemed to be an original, but all of which
taken
together shall constitute one and the same agreement, and shall become effective
when counterparts have been signed by each party hereto and delivered to the
other parties hereto, it being understood that all parties need not sign the
same counterpart. In the event that any signature to this Agreement or any
amendment hereto is delivered by facsimile transmission or by e-mail delivery
of
a “.pdf” format data file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof. At the request of any party, each
other
party shall promptly re-execute an original form of this Agreement or any
amendment hereto and deliver the same to the other party. No party hereto shall
raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data
file to deliver a signature to this Agreement or any amendment hereto or the
fact that such signature was transmitted or communicated through the use of
a
facsimile machine or e-mail delivery of a “.pdf” format data file as a defense
to the formation or enforceability of a contract, and each party hereto forever
waives any such defense.
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 Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
e. Entire
Agreement; Amendments.
This
Agreement supersedes all other prior oral or written agreements among the
Buyers, the Company, and the Subsidiaries and Persons acting on their behalf
with respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the other instruments referenced herein and therein
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 either of the Buyers makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement may be amended, modified or supplemented other than by an
instrument in writing signed by the Company and each of the Buyers. Any such
amendment shall bind all holders of the Bridge
Notes.
No such amendment shall be effective to the extent that it applies to less
than
all of the holders of the Bridge Notes
then outstanding.
f. Notices.
Any
notices, consents, waivers or other communications required or permitted to
be
given under the terms of this Agreement must be in writing and will be deemed
to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile
-
46 -
(provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If
to the
Company:
South
Texas Oil Company
000
X.
Xxxxxxxx Xxxx.
Xxxxx
0000
Xxx
Xxxxxxx, Xxxxx 00000
Facsimile:
(000) 000-0000
Attention: Xxxxxxx
X. Xxxxxxx,
Chief
Executive Officer and President
XxxxX@xxxxxxxxxxxxx.xxx
With
a
copy to:
Corporate
Legal Solutions
6
Xxxxxxx’x Xxxxx Xxxx
Xxxxxxxxxx,
XX 00000-0000
Facsimile:
000-000-0000
Attention: Xxx
X.
Xxxxxx, Xx., Esq.
xxxxxxxx@XxxxXxxxxXxxxxxxxx.xxx
If
to a
Buyer, to its address and facsimile number set forth on the Schedule
of Buyers,
with
copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,
or, in
the case of a Buyer or any other party named above, at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt
(A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized
overnight delivery service shall be rebuttable evidence of personal service,
receipt by facsimile or deposit with a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the
Securities. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of all
of
the Bridge Notes
then outstanding, except pursuant to a merger permitted pursuant to Section
6(h).
Each
Buyer may assign some or all of its rights hereunder without the consent of
the
Company; provided, however, that any such assignment shall not release such
Buyer from its obligations hereunder unless such obligations are assumed by
such
assignee (as evidenced in writing) and the Company has consented to such
assignment and
-
47 -
assumption,
which consent shall not be unreasonably withheld. Notwithstanding anything
to
the contrary contained in the Transaction Documents, each Buyer shall be
entitled to pledge the Securities in connection with a bona fide margin account
or other loan or financing arrangement secured by the Securities.
h. No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and, to the extent provided in Section
10
hereof,
each Indemnitee, but 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 each Buyer contained in
Sections 3
and
4,
respectively, the agreements and covenants set forth in Sections 5,
6
and
12,
and the
indemnification and contribution provisions set forth in Section
10,
shall
survive the consummation of the transactions contemplated hereby. The Company
acknowledges and agrees that the provisions of Section 21 of each
Bridge Note
shall survive the redemption, repayment or surrender of each such
Bridge Note.
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.
Notwithstanding anything to the contrary contained herein, in the event that
the
Closing shall not have occurred with respect to a Buyer on or before the third
(3rd) Business Day following the date of this Agreement due to the Company’s or
such Buyer’s failure to satisfy the conditions set forth in Sections
8
and
9
above
(and the nonbreaching party’s failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party with respect thereto (and without
affecting any other rights or obligations under this Agreement); provided,
however,
that if
this Agreement is terminated pursuant to this Section
12(k),
the
Company shall be obligated to pay such Buyer (so long as such Buyer is not
a
breaching party) its transaction fees and reimbursement amounts as set forth
in
Section
5(h)
as if
such Buyer had purchased the principal amount of Bridge Notes set forth opposite
its name on the Schedule of
Buyers.
l. Placement
Agent.
The
Company represents and warrants to each Buyer that it has not engaged any
placement agent, broker or financial advisor in connection with the issuance
and
sale of the
-
48 -
Bridge Notes.
The Company shall be responsible for the payment of any fees or commissions
of
any placement agent or broker relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including attorneys’ fees and
out-of-pocket expenses) arising in connection with any claim for any such
payment.
m. No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be
applied against any party.
n. Waiver
of Subrogation. The
Company expressly waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution of any other claim which the Company may
now or hereafter have against any Person directly or contingently liable for
the
Obligations hereunder, or against or with respect to the Company’s property
(including, without limitation, any property which is collateral for the
Obligations), arising from the existence or performance of this Agreement,
until
termination of this Agreement and repayment in full of the
Obligations.
o. Remedies.
Each
Buyer and each holder of the Securities shall have all rights and remedies
set
forth in the Transaction Documents and all rights and remedies that such Buyer
and holders have been granted at any time under any other agreement or contract
and all of the rights that such Buyer and holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security
or
proving actual damages), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all
other
rights granted by law; provided, however that none of the Bridge Collateral
Agent, the Buyers and any other holders of the Bridge Notes
shall be liable to the Company or any of the Subsidiaries for consequential
damages arising from any breach of contract, tort or other wrong relating to
the
establishment, administration or collection of the Obligations.
p. Rescission
and
Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever such Buyer exercises
a right, election, demand or option under a Transaction Document and the Company
or any of the Subsidiaries does not timely perform its related obligations
within the periods therein provided, then the Buyers may rescind or withdraw,
in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to
its
future actions and rights.
-
49 -
q. Payment
Set Aside.
To the
extent that the Company or any of the Subsidiaries makes a payment or payments
to the Buyers pursuant to this Agreement, the Bridge Notes,
the Bridge Guaranty or any other Transaction Document or the Buyers enforce
or
exercise their rights hereunder or thereunder, and such payment or payments
or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company or any of the Subsidiaries, by a trustee, receiver
or
any other Person under any law (including any bankruptcy law, state or federal
law, common law or equitable cause of action), then, to the extent of any such
restoration, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment
had
not been made or such enforcement or setoff had not occurred.
r. Independent
Nature of the
Buyers.
The
obligations of each Buyer hereunder are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way
for
the performance of the obligations of any other Buyer hereunder. Each Buyer
shall be responsible only for its own representations, warranties, agreements
and covenants hereunder. The decision of each Buyer to acquire the Securities
pursuant to this Agreement has been made by such Buyer independently of any
other Buyer and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or any of the Subsidiaries which may have been made
or
given by any other Buyer or by any agent or employee of any other Buyer, and
no
Buyer or any of its agents or employees shall have any liability to any other
Buyer (or any other Person or entity) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein, and
no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or
any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated hereby. Each Buyer shall be entitled to independently
protect and enforce its rights, including the rights arising out of this
Agreement, the Bridge Notes and the other Transaction Documents, and it shall
not be necessary for any other Buyer to be joined as an additional party in
any
proceeding for such purpose.
s. Interpretative
Matters.
Unless
the context otherwise requires, (a) all references to Sections, Schedules
or Exhibits are to Sections, Schedules or Exhibits contained in or attached
to
this Agreement, (b) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (c) words
in the singular or plural include the singular and plural and pronouns stated
in
either the masculine, the feminine or neuter gender shall include the masculine,
feminine and neuter, and (d) the use of the word “including” in this Agreement
shall be by way of example rather than limitation.
*
* * * * *
-
50 -
IN
WITNESS WHEREOF,
the
Company and the Buyers have caused this Securities Purchase Agreement to be
duly
executed as of the date first written above.
COMPANY:
SOUTH
TEXAS OIL COMPANY,
a
Nevada
corporation
By:
/s/ Xxxxxxx X. Xxxxxxx
Name: Xxxxxxx
X. Xxxxxxx
Title:
Chief
Executive Officer and President
BUYERS:
LONGVIEW
MARQUIS MASTER FUND, L.P.,
a
British
Virgin Islands limited partnership
By: Viking
Asset Management, LLC
Its: Investment
Advisor
By:
/s/ S. Xxxxxxx Xxxxxxx
Name: S.
Xxxxxxx Xxxxxxx
Title: Chief
Financial Officer
Signature
Page to Securities Purchase Agreement
|
Buyer’s
Name
|
Buyer’s
Address
and
Facsimile Number
|
Principal
Amount of Bridge Notes
|
Allocation
Percentage
|
Buyer’s
Legal Representative’s
Address
and Facsimile Number
|
|
Longview
Marquis Master Fund, L.P.
|
℅Viking
Asset Management, LLC
000
Xxxxxxxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxxxxxxx, XX 00000
Attention:
S. Xxxxxxx Xxxxxxx
Facsimile:
(000) 000-0000
Residence:
British Virgin Islands
and
c/o
Viking Asset Management, LLC
00
Xxxxxxxxx Xxxxxx, 0xx
Xxxxx
Xxxxxxxxx,
XX 00000
Attention:
Xxxxxx X. Xxxxxxxx
Facsimile:
(000) 000-0000
|
$7,000,000
|
100%
|
Xxxxxx
Xxxxxx Rosenman LLP
000
X. Xxxxxx Xxxxxx
Xxxxxxx,
Xxxxxxxx 00000-0000
Attention:
Xxxx X. Xxxx, Esq.
Facsimile:
(000) 000-0000
|
SCHEDULES
|
Schedule
4(a)
|
Subsidiaries
|
|
Schedule
4(d)
|
Additional
Issuances
|
|
Schedule
4(h)
|
Litigation
|
|
Schedule
4(i)
|
Reporting
Company
|
|
Schedule
4(o)
|
Capitalization
|
|
Schedule
4(u)
|
Tax
Status
|
|
Schedule
4(v)
|
Outstanding
Indebtedness; Lien
|
|
Schedule
4(z)
|
Real
Property
|
|
Schedule
4(bb)
|
Transactions
with Affiliates
|
EXHIBITS
|
Exhibit
A
|
Form
of Bridge Note
|
|
Exhibit
B
|
Form
of Bridge Security Agreement
|
|
Exhibit
C
|
Form
of Bridge Mortgage
|
|
Exhibit
D
|
Form
of Bridge Account Control Agreements
|
|
Exhibit
E
|
Form
of Bridge Guaranty
|
|
Exhibit
F
|
Form
of Bridge Pledge Agreement
|
|
Exhibit
G
|
Form
of Legal Opinion
|
|
Exhibit
H
|
Form
of Conveyances of Limited Overriding Royalty Interests
|
|
Exhibit
I
|
Form
of Intercreditor Agreement
|
TABLE
OF CONTENTS
Page
|
1.
|
PURCHASE
AND SALE OF BRIDGE NOTES; EXCHANGE OF EXISTING MARQUIS DEMAND
NOTES.
|
4
|
|
|
a.
|
Purchase
of Bridge Notes
|
4
|
|
|
b.
|
Exchange
of Existing Marquis Demand Notes
|
4
|
|
|
c.
|
The
Closing Date
|
4
|
|
|
d.
|
Form
of Payment
|
4
|
|
|
2.
|
CONVEYANCES
OF LIMITED OVERRIDING ROYALTY INTERESTS.
|
5
|
|
|
a.
|
Conveyances
of Limited Overriding Royalty Interests
|
5
|
|
|
b.
|
ORRI
Payment
|
5
|
|
|
c.
|
Exchange
Right
|
5
|
|
|
d.
|
Conditions
to Override Exchange
|
6
|
|
|
e.
|
Transferability
of Limited Overriding Royalty Interests
|
7
|
|
|
3.
|
BUYERS’
REPRESENTATIONS AND WARRANTIES.
|
7
|
|
|
a.
|
Investment
Purpose
|
7
|
|
|
b.
|
Accredited
Investor Status
|
7
|
|
|
c.
|
Reliance
on Exemptions
|
7
|
|
|
d.
|
Information
|
8
|
|
|
e.
|
No
Governmental Review
|
8
|
|
|
f.
|
Transfer
or Resale
|
9
|
|
|
g.
|
Legends
|
9
|
|
|
h.
|
Authorization;
Enforcement; Validity
|
10
|
|
|
i.
|
Residency
and Offices
|
10
|
|
|
4.
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
|
11
|
|
|
a.
|
Due
Incorporation
|
11
|
|
|
b.
|
Outstanding
Stock
|
11
|
|
|
c.
|
Authorization;
Enforcement; Validity
|
11
|
|
|
d.
|
Additional
Issuances
|
12
|
|
|
e.
|
Consents
|
12
|
|
|
f.
|
No
Violation or Conflict
|
12
|
|
|
g.
|
The
Securities
|
14
|
|
|
h.
|
Litigation
|
14
|
|
|
i.
|
Reporting
Company
|
14
|
|
|
j.
|
Information
Concerning Company
|
14
|
|
|
k.
|
Defaults
|
15
|
|
|
l.
|
Listing
|
15
|
|
|
m.
|
No
Undisclosed Liabilities
|
15
|
|
|
n.
|
No
Undisclosed Events or Circumstances
|
16
|
|
|
o.
|
Capitalization
|
16
|
|
|
p.
|
No
Disagreements with Accountants and Lawyers
|
16
|
|
|
q.
|
DTC
Status
|
16
|
|
|
r.
|
Investment
Company
|
16
|
|
-
i -
|
s.
|
No
General Solicitation
|
16
|
|
|
t.
|
No
Integrated Offering
|
16
|
|
|
u.
|
Tax
Status
|
17
|
|
|
v.
|
Outstanding
Indebtedness; Liens
|
17
|
|
|
w.
|
Shell
Company Status
|
19
|
|
|
x.
|
Environmental
Laws
|
19
|
|
|
y.
|
Title
to Personal Property
|
20
|
|
|
z.
|
Real
Property
|
20
|
|
|
aa.
|
Insurance
|
21
|
|
|
bb.
|
Transactions
With Affiliates
|
21
|
|
|
cc.
|
Conveyances
of Limited Overriding Royalty Interests
|
22
|
|
|
5.
|
AFFIRMATIVE
COVENANTS.
|
22
|
|
|
a.
|
Reasonable
Best Efforts
|
22
|
|
|
b.
|
Form
D and Blue Sky
|
22
|
|
|
c.
|
Reporting
Status
|
22
|
|
|
d.
|
Use
of Proceeds
|
22
|
|
|
|
e.
|
Financial
Information of the Company
|
23
|
|
f.
|
Internal
Accounting Controls
|
23
|
|
|
g.
|
Listing
|
23
|
|
|
h.
|
Expenses
|
24
|
|
|
i.
|
Disclosure
of Transactions and Other Material Information
|
24
|
|
|
j.
|
Pledge
of Securities
|
25
|
|
|
k.
|
Notices
|
26
|
|
|
l.
|
Compliance
with Laws and Maintenance of Permits
|
27
|
|
|
m.
|
Inspection
and Audits
|
27
|
|
|
n.
|
Insurance
|
28
|
|
|
o.
|
Collateral
|
29
|
|
|
p.
|
Taxes
|
29
|
|
|
q.
|
Intellectual
Property
|
29
|
|
|
r.
|
Patriot
Act, Investor Secrecy Act and Office of Foreign Assets
Control
|
29
|
|
|
s.
|
Drilling
Title Opinions
|
30
|
|
|
t.
|
Security
Covenants
|
30
|
|
|
u.
|
Public
Information
|
32
|
|
|
v.
|
Stop
Orders
|
33
|
|
|
w.
|
Market
Regulations
|
34
|
|
|
6.
|
NEGATIVE
COVENANTS.
|
34
|
|
|
a.
|
Prohibition
Against Variable Priced Securities
|
34
|
|
|
b.
|
Status
|
34
|
|
|
c.
|
Stay,
Extension and Usury Laws
|
34
|
|
|
d.
|
Payment
Restrictions Affecting Subsidiaries
|
35
|
|
|
e.
|
Prepayments
|
35
|
|
|
f.
|
Indebtedness
|
35
|
|
|
g.
|
Liens
|
36
|
|
|
h.
|
Corporate
Existence
|
36
|
|
|
i.
|
Restriction
on Loans; Investments; Subsidiary Equity
|
37
|
|
-
ii -
|
j.
|
Equipment
|
38
|
|
|
k.
|
Affiliate
Transactions
|
38
|
|
|
l.
|
Settling
of Accounts
|
38
|
|
|
m.
|
Limitation
on Sale and Leaseback Transactions
|
38
|
|
|
n.
|
Investment
Company; Public Utility
|
38
|
|
|
o.
|
Real
Property Leases
|
39
|
|
|
p.
|
Restriction
on Purchases or Payments
|
39
|
|
|
q.
|
No
Avoidance of Obligations
|
39
|
|
|
r.
|
No
Integrated Offering
|
39
|
|
|
s.
|
Regulation
M
|
40
|
|
|
t.
|
Financial
Covenant
|
40
|
|
|
7.
|
TRANSFER
AGENT INSTRUCTIONS.
|
41
|
|
|
8.
|
CONDITIONS
TO THE OBLIGATIONS OF THE COMPANY TO SELL.
|
41
|
|
|
9.
|
CONDITIONS
TO BUYERS’ OBLIGATIONS TO PURCHASE.
|
42
|
|
|
10.
|
INDEMNIFICATION.
|
43
|
|
|
a.
|
Company
Indemnification Obligation
|
43
|
|
|
b.
|
Indemnification
Procedures
|
44
|
|
|
11.
|
[INTENTIONALLY
OMITTED]
|
45
|
|
|
12.
|
GOVERNING
LAW; MISCELLANEOUS.
|
45
|
|
|
a.
|
Governing
Law; Jurisdiction; Jury Trial
|
45
|
|
|
b.
|
Counterparts
|
45
|
|
|
c.
|
Headings
|
46
|
|
|
d.
|
Severability
|
46
|
|
|
e.
|
Entire
Agreement; Amendments
|
46
|
|
|
f.
|
Notices
|
46
|
|
|
g.
|
Successors
and Assigns
|
47
|
|
|
h.
|
No
Third Party Beneficiaries
|
48
|
|
|
i.
|
Survival
|
48
|
|
|
j.
|
Further
Assurances
|
48
|
|
|
k.
|
Termination
|
48
|
|
|
l.
|
Placement
Agent
|
48
|
|
|
m.
|
No
Strict Construction
|
49
|
|
|
n.
|
Waiver
of Subrogation
|
49
|
|
|
o.
|
Remedies
|
49
|
|
|
p.
|
Rescission
and Withdrawal Right
|
49
|
|
|
q.
|
Payment
Set Aside
|
49
|
|
|
r.
|
Independent
Nature of the Buyers
|
50
|
|
|
s.
|
Interpretative
Matters
|
50
|
|
-
iii
-
