EXHIBIT 10.4
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is made as of February 3, 2006 by
and among Falcon Natural Gas Corp., a Nevada corporation with its principal
offices at Westchase Center, 0000 Xxxx Xxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxx, XX
00000 ("FNGC") and Source Capital Group, Inc., a corporation with offices at
0000 Xxxx Xxxx Xxxx, Xxxxxxxx, XX 00000 ("SCGI"). The foregoing parties are
sometimes referred to hereinafter collectively as the "Parties", and each,
individually, as a "Party".
RECITALS
A. FNGC and SCGI are the Parties to a Financial Advisory Services
Agreement ("FAS Agreement"), dated August 9, 2004 pursuant to which SCGI is
entitled to receive up to a 10% cash and 10% warrant fee on up to $10,000,000 in
monies raised by FNGC, other than overseas capital, during the term of the FAS
Agreement.
B. A 10% warrant fee and 10% cash fee is due to SCGI under the FAS
Agreement with regard to $7,000,000 financing (the "Financing") provided by
Cornell Capital Partners, LP and Highgate House Funds, Ltd. during the period
July 2005 through October 2005.
C. FNGC is obligated to issue 1,166,666 warrants to SCGI and its assignees
pursuant to the 10% warrant provision in the FAS Agreement.
D. FNGC is obligated to issue $700,000 in cash to SCGI pursuant to the 10%
cash provision in the FAS Agreement, $40,000 of which was paid in December 2005.
E. The Parties have agreed that FNGC will issue an additional 833,334
warrants to SCGI and its assignees in lieu of $300,000 in cash otherwise due to
SCGI under the FAS Agreement.
F. The Parties have agreed to enter into a payment plan in the future with
regard to the $360,000 cash balance due to SCGI from FNGC.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
promises, covenants and conditions herein contained, the Parties agree as
follows:
1. Settlement. The Parties acknowledge and agree that SCGI earned a 10%
warrant and 10% cash fee under the FAS Agreement with respect to the Financing.
In full satisfaction thereof the Parties have agreed that FNGC will issue to
SCGI and its assignees (i) an aggregate of 2,000,000, 5 year, common stock
purchase warrants (the "Warrants") in the form attached hereto as Exhibit A,
with an exercise price, subject to adjustment, of $0.60 per share; and (ii)
$400,000 in cash, $40,000 of which has been previously paid. The Parties also
agree that the $360,000 cash balance (the "Cash Balance") will be paid pursuant
to a payment plan to be entered into between the Parties in the future. The
Parties further agree that FNGC's sole obligation to SCGI with respect to the
Financing is to issue the Warrants and pay the Cash Balance.
2. Entire Agreement. This Agreement contains the sole, complete and entire
agreement and understanding of the Parties concerning the matters contained
herein and may not be altered, modified, or changed in any manner except by a
writing duly executed by the Parties. No Party is relying on any representations
other than those expressly set forth herein. No conditions precedent to the
effectiveness of this Agreement exists, other than as expressly provided for
herein. There are no oral or written collateral agreements hereto. All prior
discussions and negotiations have been and are merged, integrated into and
superseded by this Agreement.
3. Waiver. The delay or failure of a Party to exercise any right, power or
privilege hereunder, or failure to strictly enforce any breach or default shall
not constitute a waiver with respect thereto; and no waiver of any such right,
power, privilege, breach or default on any one occasion shall constitute a
waiver thereof on subsequent occasion unless clear and express notice thereof in
writing is provided.
4. Applicable Law; Venue. This Agreement shall be governed by and construed and
enforced in accordance with and subject to the laws of the State of New York,
and any and all actions brought under this Agreement shall be brought in the
state or federal courts sitting in New York, New York.
5. Warranties. The Parties, and each of them, warrant: (i) that they, and each
of them, have the sole right and exclusive authority to execute this Agreement;
and (ii) that they have not sold, assigned, transferred, conveyed or otherwise
disposed of any claim, demand, cause of action, obligation, damage or liability
covered in this Agreement.
6. Recitals Incorporated. The Recitals of this Agreement are incorporated herein
and made a part hereof.
7. Counterparts. This Agreement may be executed in one or more counterparts, all
of which together constitute one single document.
8. Facsimile Signatures. This Agreement and any documents relating to it may be
executed and transmitted to any other party by facsimile, which facsimile shall
be deemed to be, and utilized in all respects as, an original, wet-inked
document.
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IN WITNESS WHEREOF, the Parties hereto have executed this Note and
Settlement Agreement as of the day and year first written above.
FALCON NATURAL GAS CORP.
By: /s/ Xxxx Xxxxxxx
---------------------------------
Name: Xxxx Xxxxxxx
Title: President
SOURCE CAPITAL GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Managing Director
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EXHIBIT A
---------
Void after 5:00 p.m., New York Time on February 2, 2011
Warrant to Purchase ________ Shares of Common Stock
WARRANT TO PURCHASE COMMON STOCK
OF
FALCON NATURAL GAS CORP.
THIS WARRANT, AND THE SECURITIES INTO WHICH IT IS EXERCISABLE (COLLECTIVELY, THE
"SECURITIES"), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT
BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE.
FOR VALUE RECEIVED, Falcon Natural Gas Corp., a corporation organized
under the laws of Nevada (the "Company"), grants the following rights to
__________ and/or his assigns (the "Holder"):
ARTICLE 1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Corporate Office" shall mean the office of the Company (or its successor)
at which at any particular time its principal business shall be administered.
"Exercise Date" shall mean any date on which the Holder gives the Company
a Notice of Exercise in the form attached hereto as Appendix I.
"Exercise Price" shall mean the Fixed Price per share of Common Stock,
subject to adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on February 2,
2011.
"Fair Market Value" shall have the meaning set forth in Section 2.2(b).
"Fixed Price" shall mean US$0.60.
"Market Value" shall have the meaning set forth in Section 2.2(b).
"Market Price" shall mean the closing price of the Company's common stock
on the OTC Bulletin Board or such other U.S. market or exchange on which the
Company's common stock is then trading.
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of this Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS
2.1 Exercise of Warrant; Sale of Warrant and Warrant Shares. (a) This
Warrant shall entitle the Holder to purchase, at the Exercise Price, ________
shares of Common Stock. This Warrant shall be exercisable at any time and from
time to time from the date hereof and prior to the Expiration Date (the
"Exercise Period"). This Warrant and the right to purchase Warrant Shares
hereunder shall expire and become void on the Expiration Date.
2.2 Manner of Exercise.
(a) The Holder may exercise this Warrant at any time and from time to time
during the Exercise Period, in whole or in part (but not in denominations of
fewer than 10,000 Warrant Shares, except upon an exercise of this Warrant with
respect to the remaining balance of Warrant Shares purchasable hereunder at the
time of exercise), in accordance with the cashless exercise provision in Section
2.2(b) hereof or by delivering to the Company (i) a duly executed Notice of
Exercise in substantially the form attached as Appendix I hereto, (ii) the
certificate representing the Warrants and (iii) a bank cashier's or certified
check for the aggregate Exercise Price of the Warrant Shares being purchased.
(b) The Holder may, at its option, in lieu of paying cash for Warrant
Shares, exercise this Warrant by an exchange, in whole or in part (a "Warrant
Exchange"), by delivery to the Company of (i) a duly executed Notice of Exercise
electing a Warrant Exchange and (ii) the certificate representing this Warrant.
In connection with any Warrant Exchange, the Holder shall be deemed to have paid
for the Warrant Shares an amount equal to the Fair Market Value of each Warrant
delivered, and the Warrants shall be deemed exercised to the extent of the
amount so paid. For this purpose, the Fair Market Value of each Warrant is the
amount by which the Market Value of a share of Common Stock exceeds the Exercise
Price on the Exercise Date. Market Value shall mean the average Closing Bid
Price of a share of Common Stock during the ten (10) Trading Days ending one (1)
Trading Day prior to the Exercise Date.
2.3 Termination. All rights of the Holder in this Warrant, to the extent
they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. This Warrant shall not entitle the Holder
to any voting or other rights as a stockholder of the Company.
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2.5 Fractional Shares. No fractional shares shall be issuable upon
exercise of this Warrant, and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole number. If, upon exercise of this Warrant, the
Holder hereof would be entitled to receive any fractional share, the Company
shall issue to the Holder one additional share of Common Stock in lieu of such
fractional share.
2.6 Adjustments to Exercise Price and Number of Securities.
(a) Computation of Adjusted Exercise Price. In case the Company shall at
any time after the date hereof and until this Warrant is fully exercised or
terminated issue or sell any shares of Common Stock (other than the issuances or
sales referred to in Section 2.7 (f) hereof), including shares held in the
Company's treasury and shares of Common Stock issued upon the exercise of any
options, rights or warrants to subscribe for shares of Common Stock and shares
of Common Stock issued upon the direct or indirect conversion or exchange of
securities for shares of Common Stock (excluding shares of Common Stock issuable
upon exercise of options, warrants or conversion rights granted as of the date
hereof), for a consideration per share less than the Exercise Price on the
trading date one day prior to the date of issuance or sale of such shares, or
without consideration, then forthwith upon such issuance or sale, the Exercise
Price shall (until another such issuance or sale) be reduced to the price equal
to the quotient derived by dividing (A) an amount equal to the sum of (X) the
product of (a) the Exercise Price on the date immediately prior to the issuance
or sale of such shares, multiplied by (b) the total number of shares of Common
Stock outstanding immediately prior to such issuance or sale plus, (Y) the
aggregate of the amount of all consideration, if any, received by the Company
upon such issuance or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale; provided, however, that (i)
in no event shall the Exercise Price be adjusted pursuant to this computation to
an amount in excess of the Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock, as provided by Section 2.7 (c) hereof, and (ii) in no event shall the
Exercise Price be adjusted pursuant to this computation where the consideration
per share although less than the Exercise Price is equal to or greater than the
closing Market Price on the trading date one day prior to the date of issuance
or sale of such shares.
For the purposes of any computation to be made in accordance with this
Section 2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received
by the Company for such shares (or, if shares of Common Stock are offered
by the Company for subscription, the subscription price, or if either of
such securities shall be sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price) before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services, or any expenses incurred in
connection therewith.
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(ii) In case of the issuance or sale (otherwise than as a dividend
or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash,
the amount of the consideration therefor other than cash shall be deemed
to be the value of such consideration as determined in good faith by the
Board of Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(iv) The reclassification of securities of the Company other than
shares of the Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close
of business on the date fixed for the determination of security holders
entitled to receive such shares, and the value of the consideration
allocable to such shares of Common Stock shall be determined as provided
in subsection (ii) of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable (subject
to readjustment upon the actual issuance thereof) upon the exercise of
options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities; provided, however, that shares
issuable upon the exercise of the Warrants shall not be included in such
calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable Securities.
In case the Company shall at any time after the date hereof and until this
Warrant is fully exercised issue options, rights or warrants to subscribe for
shares of Common Stock, or issue any securities convertible into or exchangeable
for shares of Common Stock, for a consideration per share less than the closing
Market Price and the Exercise Price on the trading date one day prior to the
date of issuance of such options, rights or warrants (excluding shares of Common
Stock issuable upon exercise of options, warrants or conversion rights granted
as of the date hereof and shares of Common Stock issuable upon exercise of stock
options at or above the closing market price per share of Common Stock under any
stock option plan of the Company), or such convertible or exchangeable
securities, or without consideration, the Exercise Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provision of Section
2.7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or
warranties were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or warrants
at the time of issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the
Company for such options, rights or warrants.
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(ii) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities
shall be deemed to be issued and outstanding at the time of issuance of
such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or
sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
(iii) If any change shall occur in the price per share provided for
in any of the options, rights or warrants referred to in subsection (a) of
this Section 2.7, or in the price per share at which the securities
referred to in subsection (b) of this Section 2.7 are convertible or
exchangeable, such options, rights or warrants or conversion or exchange
rights, as the case may be, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the
exercise of such options, rights or warrants or the conversion or exchange
of such convertible or exchangeable securities.
(iv) If any options, rights or warrants referred to in subsection
(a) of this Section 2.7, or any convertible or exchangeable securities
referred to in subsection (b) of this Section 2.7, expire or terminate
without exercise or conversion, as the case may be, then the Exercise
Price of the remaining outstanding Warrant shall be readjusted as if such
options, rights or warrants or convertible or exchangeable securities, as
the case may be, had never been issued.
(c) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 2.7, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest whole number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
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(e) Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property (except in the
event the property is cash, then the Holder shall have the right to exercise the
Warrant and receive cash in the same manner as other stockholders) receivable
upon such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 2.7. The foregoing provisions
of this paragraph (e) shall similarly apply to successive consolidations or
mergers.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made (i) upon the issuance of the Warrant Shares, (ii)
upon the exercise of any options, rights, or warrants outstanding as of February
3, 2006 or (iii) shares of Common Stock pursuant to any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
2.8 Piggyback Registration Rights. From February 3, 2006 until such time
that the Warrant Shares are eligible for sale pursuant to Rule 144(k) of the
General Rule and Regulations under the Securities Act of 1933, as amended, the
Warrant Shares shall have piggyback registration rights. Such piggyback
registration rights shall not be applicable, however, to Company registration
statements relating solely to employee benefit plans or business combinations.
ARTICLE 3. MISCELLANEOUS
3.1 Transfer. This Warrant may not be offered, sold, transferred, pledged,
assigned, hypothecated or otherwise disposed of, in whole or in part, at any
time, except in compliance with applicable federal and state securities laws by
the transferor and the transferee (including, without limitation, the delivery
of an investment representation letter and a legal opinion reasonably
satisfactory to the Company).
3.2 Transfer Procedure. Subject to the provisions of Section 3.1, the
Holder may transfer or assign this Warrant by giving the Company notice setting
forth the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee"), and surrendering this Warrant to the
Company for reissuance to the Transferee and, in the event of a transfer or
assignment of this Warrant in part, the Holder. (Each of the persons or entities
in whose name any such new Warrant shall be issued are herein referred to as a
"Holder").
3.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall become
mutilated or defaced or be destroyed, lost or stolen, the Company shall execute
and deliver a new Warrant in exchange for and upon surrender and cancellation of
such mutilated or defaced Warrant or, in lieu of and in substitution for such
Warrant so destroyed, lost or stolen, upon the Holder filing with the Company an
affidavit that such Warrant has been so mutilated, defaced, destroyed, lost or
stolen. However, the Company shall be entitled, as a condition to the execution
and delivery of such new Warrant, to demand reasonably acceptable indemnity to
it and payment of the expenses and charges incurred in connection with the
delivery of such new Warrant. Any Warrant so surrendered to the Company shall be
canceled.
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3.4 Notices. All notices and other communications from the Company to the
Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
3.5 Waiver. This Warrant and any term hereof may be changed, waived, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
3.6 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law. Any action to enforce the terms of this
Warrant shall be exclusively heard in the county, state and federal Courts of
New York and Country of the United States of America.
3.7 Signature. In the event that any signature on this Warrant is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same, with the same force and effect as if such facsimile
signature page were an original thereof.
3.8 Legal Fees. In the event any Person commences a legal action or
proceeding to enforce its rights under this Warrant, the non-prevailing party to
such action or proceeding shall pay all reasonable and necessary costs and
expenses (including reasonable and necessary attorney's fees) incurred in
enforcing such rights.
Dated: February 3, 2006
FALCON NATURAL GAS CORP.
By:
---------------------------------
Name:
Title:
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APPENDIX I
NOTICE OF EXERCISE
1. The undersigned hereby elects (please check the appropriate box and fill
in the blank spaces):
|_| to purchase ______ shares of Common Stock, of Falcon Natural Gas Corp.
at $0.60 per share for a total of $______ and pursuant to the terms of the
attached Warrant, and tenders herewith payment of the aggregate Exercise
Price of such Warrant Shares in full; or
|_| to purchase _______ shares of Common Stock, of Falcon Natural Gas
Corp. pursuant to the cashless exercise provision under Section 2.2 (b) of
the attached Warrant, and tenders herewith the number of Warrant Shares to
purchase such Warrant Shares based upon the formula set forth in Section
2.2 (b).
2. Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is
specified below:
Dated: ______________________________ By: ______________________________
Name: ______________________________
Title: _______________________________
