SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
16, 2006, by and among Maverick Oil and Gas, Inc., a Nevada corporation, with
headquarters located at 00000 Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000-0000
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and
Regulation D ("REGULATION D") promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior convertible
secured debentures of the Company (the "DEBENTURES"), which Debentures shall be
convertible into shares (as converted, collectively, the "CONVERSION SHARES") of
the Company's common stock, $0.001 par value per share (the "COMMON STOCK"), in
accordance with the terms of the Debentures.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) that aggregate principal
amount of Debentures, in substantially the form attached hereto as Exhibit A,
set forth opposite such Buyer's name in column (3) on the Schedule of Buyers
(which aggregate amount for all Buyers shall be $6,750,000) and (ii) warrants,
in substantially the form attached hereto as Exhibit B (the "WARRANTS"), to
acquire that number of shares (as exercised, collectively, the "WARRANT Shares")
of Common Stock set forth opposite such Buyer's name in column (4) on the
Schedule of Buyers.
D. The Debentures bear interest, which at the option of the Company,
subject to certain conditions, may be paid in additional shares (collectively,
the "INTEREST SHARES") of Common Stock.
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares, the Interest Shares
and the Warrant Shares under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
F. The Debentures, the Conversion Shares, the Interest Shares, the
Warrants (including any Additional Warrants (as defined in Section 29(a) of the
Debentures)) and the Warrant Shares, are collectively are referred to herein as
the "SECURITIES."
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
(a) Amount. Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7 below, the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, agrees to purchase from the
Company on the Closing Date (as defined below), a principal amount of Debentures
as is set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers, along with Warrants to acquire that number of Warrant Shares as is set
forth opposite such Buyer's name in column (4) on the Schedule of Buyers.
(b) Closing. The closing (the "CLOSING") of the purchase of the
Debentures and the Warrants by the Buyers shall occur at the offices of
XxXxxxxxx Will & Xxxxx LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. The
date and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New York
City Time, on the date hereof, subject to notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or
such later date as is mutually agreed to by the Company and each Buyer).
(c) Purchase Price. The purchase price (the "PURCHASE PRICE") of the
Debentures and related Warrants to be purchased by each Buyer at the Closing
shall be equal to $0.8888 for each $1.00 of principal amount of Debentures being
purchased by such Buyer at the Closing (or $6,000,000 in the aggregate for
$6,750,000 in aggregate principal amount of Debentures).
(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay its
aggregate Purchase Price to the Company for the Debentures and the Warrants to
be issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer the Debentures (in the
denominations as such Buyer shall have requested prior to the Closing) which
such Buyer is then purchasing along with the Warrants (in the denominations as
such Buyer shall have requested prior to the Closing) such Buyer is purchasing,
duly executed on behalf of the Company and registered in the name of such Buyer
or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the
Debentures and the Warrants, (ii) upon conversion of the Debentures will acquire
the Conversion Shares, (iii) upon the receipt of any Interest Shares, will
acquire such Interest Shares, and (iv) upon exercise of the Warrants will
acquire the Warrant Shares, in each case, for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof in a manner that would violate the 1933 Act, except pursuant to sales
registered or exempted under 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 or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act. Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business. Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.
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(b) Investor Status. Such Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D. Such Buyer is also an
"institutional buyer" as such term is defined in Section 11.12(e) of Title 13 of
the Official Compilation of Codes, Rules and Regulations of the State of New
York.
(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 United States federal and state 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.
(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 materials relating to the offer and sale of the Securities
which 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
herein. 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.
(e) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: the Securities have not been and are not
being registered under the 1933 Act or any state 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 sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act (or, in each case, a successor rule thereto); provided, however, that
the Securities may be pledged in connection with a bona fide margin account or
other loan or financing arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Buyer effecting a 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 (as defined in Section 3(b)), including, without limitation, this
Section 2(f).
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(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Debentures and the Warrants and, until removed in
accordance with Section 3(l) of the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant Shares, except
as set forth below, shall bear any legend as required by the "blue sky" laws of
any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE][EXERCISABLE] HAVE BEEN][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, AND APPLICABLE STATE
SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A 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.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the 1933 Act,
and the Buyer has complied with Section 3(l) of the Registration Rights
Agreement, (ii) in connection with a sale, assignment or other transfer, such
holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable requirements of
the 1933 Act, or (iii) such Securities are sold, assigned or transferred
pursuant to Rule 144, or such holder provides the Company with reasonable
assurance that the Securities can be sold, assigned or transferred pursuant to
Rule 144(k).
(h) Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As an inducement to the Buyers to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company represents and
warrants to each of the Buyers that each and all of the following
representations and warranties (as modified by the disclosure schedules
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delivered to the Buyers contemporaneously with the execution and delivery of
this Agreement (the "SCHEDULES")) are true and correct as of the date of this
Agreement. The Schedules shall be arranged by the Company in paragraphs
corresponding to the sections and subsections contained in this Section 3.
(a) Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, taken as whole, or on the
transactions contemplated hereby and the other Transaction Documents, or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents. The Company has no Subsidiaries,
except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Debentures, the Warrants, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the Pledge
and Security Agreement among the Company and the Buyers dated the date hereof
(the "SECURITY AGREEMENT"), and each of the other agreements entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement (collectively, the "TRANSACTION DOCUMENTS") and to issue the
Securities in accordance with the terms hereof and thereof. Except as set forth
on Schedule 3(b), the execution and delivery of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the
Debentures, the reservation for issuance and the issuance of the Conversion
Shares issuable upon conversion of the Debentures, the issuance of the Warrants
and the reservation for issuance and issuance of the Warrant Shares issuable
upon exercise of the Warrants, have been duly authorized by the Company's Board
of Directors and (other than the filing with the SEC of a Form D and one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement and other than filings with "Blue Sky" authorities as required
therein) no further filing, consent, or authorization is required by the
Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
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(c) Issuance of Securities. The issuance of the Debentures and the
Warrants are duly authorized and are free from all taxes, liens and charges with
respect to the issue thereof. As of the Closing, except as set forth on Schedule
3(c), the Company shall have reserved from its duly authorized capital stock not
less than the sum of (i) 130% of the maximum number of shares of Common Stock
issuable upon conversion of the Debentures (assuming for purposes hereof, that
the Debentures are convertible at the Conversion Price and without taking into
account any limitations on the conversion of the Debentures set forth in the
Debentures) and (ii) 130% of the maximum number of shares of Common Stock
issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants). Upon
issuance or conversion in accordance with the Debentures or exercise in
accordance with the Warrants, as the case may be, the Interest Shares, the
Conversion Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of the representations made by each Buyer in Section 2, the offer and
issuance by the Company of the Securities is exempt from registration under the
1933 Act.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Debentures, the Warrants, and the Interest Shares and, except as
set forth on Schedule 3(d), the reservation for issuance of the Conversion
Shares and the Warrant Shares) will not (i) result in a violation of the
Articles of Incorporation or Bylaws (each as defined in Section 3(r)) of the
Company or the governing documents of any of its Subsidiaries or the terms of
any capital stock of the Company or any of its Subsidiaries; (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both,
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party; or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and the rules and regulations of
the OTC Bulletin Board (the "PRINCIPAL MARKET")) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected.
(e) Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof (other than (v) the filing with the SEC of a
Form D or one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, (w) filings with "Blue Sky"
authorities as required thereby, (x) filings required by the Security Agreement,
(y) the filing of the certificate of amendment to the Company's Articles of
Incorporation, as contemplated by Section 4(q) and (z) as set forth on Schedule
3(e)). All consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the Closing Date, and the Company and its
Subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or
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filings pursuant to the preceding sentence. The Company is not in violation of
the listing requirements of the Principal Market and has no knowledge of any
facts which would reasonably lead to delisting or suspension of the Common Stock
in the foreseeable future. The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the "1934 ACT")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. Except as set forth on Schedule 3(g) and except for the payment of
expenses of Castlerigg Master Investments Ltd. to be reimbursed pursuant to
Section 4(g), the Company shall not pay any placement agent's fees, financial
advisory fees, or brokers' commissions relating to or arising out of the
transactions contemplated hereby. Notwithstanding the foregoing, the Company
shall be responsible for the payment of any placement agent's fees, financial
advisory fees, or brokers' commissions (other than for Persons engaged by any
Buyer or its investment advisor) 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, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, or any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of 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 provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates or any Person acting on their behalf
will take any action or steps referred to in the preceding sentence that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
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(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Debentures, and the
number of Warrant Shares issuable upon exercise of the Warrants, will increase
in certain circumstances. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Debentures in accordance with
this Agreement and the Debentures and its obligation to issue the Warrant Shares
upon exercise of the Warrants in accordance with this Agreement and the Warrants
is, in each case, absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
(j) Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Articles of Incorporation of the Company or
the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
(k) SEC Documents; Financial Statements. During the two years prior to
the date hereof, the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the 1934 Act (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements, notes
and schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered to
the Buyers or their respective representatives true, correct and complete copies
of the SEC Documents not available on the XXXXX system. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
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(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l) or
in the Company's Quarterly Report on Form 10-Q for the period ended May 31,
2006, since May 31, 2006, there has been no material adverse change and no
material adverse development in the business, assets, properties, operations,
condition (financial or otherwise), results of operations or prospects of the
Company. Except as disclosed in Schedule 3(l), since May 31, 2006, the Company
has not (i) declared or paid any dividends, (ii) sold any assets or (iii) had
capital expenditures, individually or in the aggregate, in excess of $100,000,
other than in connection with its ongoing oil and gas projects in the ordinary
course of business. The Company has not taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact which would reasonably lead a
creditor to do so. The Company is not as of the date hereof, and after giving
effect to the transactions contemplated hereby to occur at the Closing, will not
be Insolvent (as defined below). For purposes of this Section 3(l), "INSOLVENT"
means (i) the present fair saleable value of the Company's assets is less than
the amount required to pay the Company's total Indebtedness (as defined in
Section 3(s)), (ii) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature or
(iv) the Company has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances.
Except as set forth on Schedule 3(m), no event, liability, development or
circumstance has occurred or exists, or is contemplated to occur with respect to
the Company, its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its Articles
of Incorporation or Bylaws or other governing documents. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. During the two (2) years prior to the date
hereof, (i) the Common Stock has been designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market. Except as set forth
in Schedule 3(a), the Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
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(o) Foreign Corrupt Practices. Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(p) Xxxxxxxx-Xxxxx Act. The Company is in compliance with any and all
applicable requirements of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least ten days prior to the date hereof, none of the
officers, directors or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 10,000,000 shares of preferred stock,
$0.001 par value per share, none of which is issued and outstanding, and
260,000,000 shares of Common Stock, of which as of the date hereof, 103,184,120
shares are issued and outstanding, 11,404,000 shares are reserved for issuance
pursuant to the Company's stock option and purchase plans and 114,309,185 shares
are reserved for issuance pursuant to securities (other than the Debentures and
the Warrants) exercisable or exchangeable for, or convertible into, shares of
Common Stock (subject to increase to cover the anti-dilution provisions
associated therewith). All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(r) or the Company's Quarterly Report on Form 10-Q for
the period ending May 31, 2006: (i) none of the Company's share capital is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any share capital of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional share capital of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any share capital of the Company or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (iv) there are no
10
financing statements securing obligations in any material amounts, either singly
or in the aggregate, filed in connection with the Company or any of its
Subsidiaries; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company's or its Subsidiaries' respective businesses.
(s) Indebtedness and Other Contracts. Except as disclosed in the
Company's Quarterly Report on Form 10-Q for the period ended May 31, 2006, or
Schedule 3(s), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness, (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument would result in a Material
Adverse Effect, (iii) is in violation of any term of or in default under any
contract, agreement or instrument relating to any Indebtedness, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect, except as otherwise disclosed in
Schedule 3(s). Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness. For purposes of this Agreement: (x)
"INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
"capital leases" in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) 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 or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) 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 which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
11
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the 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; and
(z) "PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(t) Absence of Litigation. Except as set forth in Schedule 3(t), there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency (including the SEC), self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or its Subsidiaries' officers or directors.
(u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility 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 and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations. Neither Company nor any of its Subsidiaries is
a party to any collective bargaining agreement or employs any member of a union.
The Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company or any of its
Subsidiaries has notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary. No executive
officer of the Company or any of its Subsidiaries, to the knowledge of the
Company or any such Subsidiary, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any such
Subsidiary to any liability with respect to any of the foregoing matters. The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
12
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except as set forth on Schedule 3(w), which does not materially affect
the value of such property and does not interfere with the use made and proposed
to be made of such property by the Company and any of its Subsidiaries (and the
Company shall, no later than five (5) days after the Closing Date, pay the
obligation relating to the lien set forth on Schedule 3(w) and shall promptly
cause such lien to be released and removed). Any real property and facilities
held under lease by the Company and any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and facilities by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights
("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective
businesses as now conducted. None of the Company's Intellectual Property Rights
have expired or terminated, or are expected to expire or terminate, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company, being threatened, against the Company or its
Subsidiaries regarding its Intellectual Property Rights. The Company is unaware
of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") 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.
(z) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
13
(aa) Investment Company. The Company is not, and is not an affiliate
of, an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(bb) Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
(cc) Internal Accounting and Disclosure Controls. The Company maintains
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset and liability
accountability, (iii) access to assets or incurrence of liabilities is permitted
only in accordance with management's general or specific authorization and (iv)
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 difference. The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-14 under the 0000
Xxx) that are effective in ensuring that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the SEC, including, without limitation, controls and
procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as set forth on Schedule 3(cc), during the twelve months
prior to the date hereof, neither the Company nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.
(dd) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its 1934 Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
(ee) Ranking of Debentures. Except as permitted by the Debentures, no
Indebtedness of the Company will rank senior to or pari passu with the
Debentures in right of payment, whether with respect to payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.
14
(ff) Form S-3 Eligibility. Upon either (i) the listing and registration
of shares of Common Stock on a national securities exchange or (ii) the
quotation of Common Stock on an automated quotation system of a national
securities association, the Company will be eligible to register the Conversion
Shares, the Warrant Shares and the Interest Shares for resale by the Buyers
using Form S-3 promulgated under the 1933 Act, as such form is in effect on the
date hereof. For the avoidance of doubt, this Section 3(ff) shall not obligate
the Company to list and register of shares of Common Stock on a national
securities exchange, or have the Common Stock quoted on an automated quotation
system of a national securities association.
(gg) Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to each Buyer
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.
(hh) Manipulation of Price. The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities (except for customary placement
fees payable in connection with this transaction), or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company (except for customary placement fees payable in
connection with this transaction).
(ii) Disclosure. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company, its business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of the Company is true
and correct and does not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each press release issued by the Company since March 10, 2005 did
not at the time of release contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed, except for information that will be contained within the Company's
next due Form 10-Q and information relative to this transaction.
4. COVENANTS.
(a) Commercially Reasonable Efforts. Each party shall use commercially
reasonable efforts timely to satisfy each of the conditions to be satisfied by
it as provided in Sections 6 and 7 of this Agreement.
15
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer 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 (or to obtain an exemption from such qualification), 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 date on which the Investors (as defined
in the Registration Rights Agreement) shall have sold all the Conversion Shares,
Interest Shares and Warrant Shares and none of the Debentures or Warrants is
outstanding (the "REPORTING PERIOD"), the Company shall 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 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale of
the Securities for, in the following order: (i) payment of the fees and expenses
associated with the sale of the Securities; (ii) payment of outstanding trade
payables associated with the Xxxxxxx Shale and Fayetteville Shale projects;
(iii) funding required in connection with the Xxxxxxx Shale and Fayetteville
Shale projects in order to preserve value and leasehold; and (iv) general
corporate expenses.
(e) Financial Information. The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless filed with the SEC through XXXXX and available to
the public through the XXXXX system, within one business day after the filing
thereof with the SEC, a copy of all Annual Reports on Form 10-K or 10-KSB, any
interim reports or any consolidated balance sheets, income statements,
stockholders' equity statements and/or cash flow statements for any period other
than annual, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on
the same day as the release thereof, copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
(f) Listing. To the extent the Company's Registrable Securities are
listed upon a national securities exchange or automated quotation system that
provides for the listing of securities, the Company shall promptly secure the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to official
notice of issuance) and shall maintain such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
16
(g) Fees. The Company shall reimburse Castlerigg Master Investments
Ltd. (a Buyer) or its designee(s) (in addition to any other expense amounts paid
to any Buyer prior to the date of this Agreement) for all reasonable costs and
expenses incurred in connection with the transactions contemplated by the
Transaction Documents (including all reasonable legal fees and disbursements in
connection therewith, documentation and implementation of the transactions
contemplated by the Transaction Documents and due diligence in connection
therewith), which amounts may be withheld by such Buyer from its Purchase Price
at the Closing. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or broker's commissions (other
than for Persons engaged by any Buyer) 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, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.
(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is 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 a 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, without limitation, Section 2(f) hereof. 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.
(i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York City time, on the second business day following the
date of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of Debentures, the form of Warrant and
the Registration Rights Agreement) (including all attachments, the "8-K
FILING"). Any material non-public information provided by the Company to any
Buyer in connection with this transaction shall be included by the Company
within the aforementioned 8-K Filing. From and after the filing of the 8-K
Filing with the SEC, the Company represents and acknowledges that that no Buyer
shall be in possession of any material, nonpublic information received from the
Company or any of its Subsidiaries, or any of their respective officers,
directors, employees or agents, that is not disclosed in the 8-K Filing. The
Company shall not, and shall cause each of its 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
its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of such Buyer. In the event of a breach of
the foregoing covenant by the Company, any of its 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, a Buyer may, but
shall not be obligated to, notify the Company of such breach and the material,
nonpublic information the receipt of which resulted in such breach. Within two
17
business days of receipt of such notice, the Company shall either (a) deliver a
notice to such Buyer certifying such material, non-public information has
already been publicly disclosed by the Company or (b) make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information. Subject to the foregoing, neither the Company,
its Subsidiaries nor any Buyer shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written consent of
any applicable Buyer, the Company shall not disclose the name of any Buyer or
its affiliates in any filing, announcement, release or otherwise.
(j) Restriction on Redemption and Cash Dividends. So long as any
Debentures are outstanding, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, the Common Stock
without the prior express written consent of the holders of Debentures
representing not less than a majority of the aggregate principal amount of the
then outstanding Debentures.
(k) Additional Debentures; Variable Securities; Dilutive Issuances. So
long as any Buyer beneficially owns any Securities, the Company will not issue
any Debentures (other than to the Buyers as contemplated hereby) and the Company
shall not issue any other securities that would cause a breach or default under
the Debentures. For so long as any Debentures or Warrants remain outstanding,
the Company shall not, in any manner, issue or sell any rights, warrants or
options to subscribe for or purchase Common Stock or directly or indirectly
convertible into or exchangeable or exercisable for Common Stock at a price
which varies or may vary after issuance with the market price of the Common
Stock, including by way of one or more reset(s) to any fixed price, unless the
conversion, exchange or exercise price of any such security cannot be less than
the then applicable Conversion Price (as defined in the Debentures) with respect
to the Common Stock into which any Debenture is convertible or the then
applicable Exercise Price (as defined in the Warrants) with respect to the
Common Stock into which any Warrant is exercisable. For purposes of
clarification, this does not prohibit the issuance of securities with customary
"weighted average" or "full ratchet" anti-dilution adjustments which adjust a
fixed conversion or exercise price of securities sold by the Company in the
future. For so long as any Debentures or Warrants remain outstanding, the
Company shall not, in any manner, enter into or effect any Dilutive Issuance (as
defined in the Debentures) if the effect of such Dilutive Issuance is to cause
the Company to be required to issue upon conversion of any Debentures or
exercise of any Warrant any shares of Common Stock in excess of that number of
shares of Common Stock which the Company may issue upon conversion of the
Debentures and exercise of the Warrants without breaching the Company's
obligations under the rules or regulations of the Principal Market.
(l) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Debentures) unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Debentures and the Warrants.
18
(m) Incurrence of Liens. So long as any Debentures are outstanding, the
Company shall not, directly or indirectly, allow or suffer to exist any Lien,
other than Permitted Liens (as defined in the Debentures), upon any property or
assets (including accounts and contract rights) owned by the Company or any
Subsidiary.
(n) Reservation of Shares. On and after the Stockholder Approval
Deadline set forth in Section 4(q), the Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 130% of the sum of the number of Interest Shares issuable pursuant to
the terms of the Debentures, shares of Common Stock issuable upon conversion of
all of the Debentures and shares of Common Stock issuable upon exercise of the
Warrants.
(o) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(p) Additional Issuances of Securities.
(i) For purposes of this Section 4(p), the following definitions shall
apply.
(1) "CONVERTIBLE SECURITIES" means any stock or securities (other
than Options) convertible into or exercisable or exchangeable for shares of
Common Stock.
(2) "OPTIONS" means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.
(3) "COMMON STOCK EQUIVALENTS" means, collectively, Options and
Convertible Securities.
(ii) From the date hereof until 120 business days following the
Effective Date (as defined in the Registration Rights Agreement) the Company
will not, directly or indirectly file any registration statement with the SEC
other than (i) the Registration Statement (as defined in the Registration Rights
Agreement), (ii) an amendment to the Company's Registration Statement on Form
S-1 (No. 333-131913) (provided that such amendment does not increase the
quantity of registered shares under such registration statement) and (iii) the
amendment to the Company's Registration Statement on Form S-1 filed with the SEC
on July 21, 2006.
(iii) From the Effective Date until the third anniversary of the
Closing Date, the Company will not, directly or indirectly, offer, sell, grant
any option to purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition of) any of its or its
Subsidiaries' equity or equity equivalent securities, including without
19
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life, and under any circumstance, convertible into or
exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents or debt securities (any such offer, sale, grant, disposition or
announcement being referred to as a "SUBSEQUENT PLACEMENT") unless the Company
shall have first complied with this Section 4(p)(iii).
(1) The Company shall deliver to each Buyer a written notice
(the "OFFER NOTICE") of any proposed or intended issuance or sale or
exchange (the "OFFER") of the securities being offered (the "OFFERED
SECURITIES") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price
and other terms upon which they are to be issued, sold or exchanged,
and the number or amount of the Offered Securities to be issued, sold
or exchanged, (y) identify the Persons (if known) to which or with
which the Offered Securities are to be offered, issued, sold or
exchanged and (z) offer to issue and sell to or exchange with such
Buyers the Offered Securities, allocated among such Buyers (a) based on
such Buyer's allocable pro rata portion of the aggregate principal
amount of Debentures purchased hereunder, and (b) with respect to each
Buyer that elects to purchase its pro rata portion of such Offered
Securities, any additional portion of the Offered Securities
attributable to the pro rata portion of other Buyers as such Buyer
shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their pro rata portions (the "UNDERSUBSCRIPTION
AMOUNT"). The Buyers shall have the right to participate as set forth
above in any Subsequent Placements to the extent of 100% for any
Subsequent Placement. For purposes of this Agreement, a Buyer's
allocable pro rata portion of any Offered Securities shall be defined
as the "ALLOCABLE PORTION".
(2) To accept an Offer, in whole or in part, such Buyer must
deliver a written notice to the Company prior to the end of the tenth
business day after such Buyer's receipt of the Offer Notice (the "OFFER
Period"), setting forth the portion of such Buyer's Allocable Portion
that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Allocable Portion, the Undersubscription Amount, if
any, that such Buyer elects to purchase (in either case, the "NOTICE OF
ACCEPTANCE"). If the Allocable Portions subscribed for by all Buyers
are less than the total of all of the Allocable Portions, then each
Buyer who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Allocable
Portions subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts
subscribed for exceed the difference between the total of all the
Allocable Portions and the Allocable Portions subscribed for (the
"AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed
for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Allocable
Portion of such Buyer bears to the total Allocable Portions of all
Buyers that have subscribed for Undersubscription Amounts, subject to
rounding by the Company to the extent its deems reasonably necessary.
(3) The Company shall have fifteen business days from the
expiration of the Offer Period above to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Buyers (the "REFUSED SECURITIES"),
but only to the offerees described in the Offer Notice (if so described
therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company
than those set forth in the Offer Notice.
20
(4) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 4(p)(iii)(3) above), then each Buyer
may, at its sole option and in its sole discretion, reduce the number
or amount of the Offered Securities specified in its Notice of
Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase
pursuant to Section 4(p)(iii)(2) above multiplied by a fraction, (i)
the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange
(including Offered Securities to be issued or sold to Buyers pursuant
to Section 4(p)(iii)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original number or amount of the
Offered Securities. In the event that any Buyer so elects to reduce the
number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until
such securities have again been offered to the Buyers in accordance
with Section 4(p)(iii)(1) above.
(5) Upon the closing of the issuance, sale or exchange of all
or less than all of the Refused Securities, the Buyers shall acquire
from the Company, and the Company shall issue to the Buyers, the number
or amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(p)(iii)(4) above if the Buyers have so
elected, upon the terms and conditions specified in the Offer Notice.
The purchase by the Buyers of any Offered Securities is subject in all
cases to the preparation, execution and delivery by the Company and the
Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their
respective counsel.
(6) Any Offered Securities not acquired by the Buyers or other
Persons in accordance with Section 4(p)(iii)(3) above may not be
issued, sold or exchanged until they are again offered to the Buyers
under the procedures specified in this Agreement.
(iv) The restrictions contained in subsections (ii) and (iii) of
this Section 4(p) shall not apply in connection with the issuance of any
Excluded Securities (as defined in the Debentures, including the securities
described in clause (vi) of the definition of Excluded Securities, provided,
that such securities may only be issued and sold within sixteen (16) calendar
days after the Closing Date pursuant to the agreements satisfactory in form and
substance to the Buyers) or any security issued in a bona fide underwritten
public offering by the Company or any of its Subsidiaries.
(q) Amendment of Articles; Stockholder Approval. The Company shall, no
later than January 31, 2007 (the "STOCKHOLDER APPROVAL DEADLINE"), amend its
Articles of Incorporation to increase the Company's authorized shares of Common
Stock to an amount equal to at least 130% of the amount that would allow the
21
issuance of all of the Interest Shares issuable pursuant to the terms of the
Debentures, all of the shares of Common Stock issuable upon conversion of all of
the Debentures and all of the shares of Common Stock issuable upon exercise of
the Warrants. Without limiting the generality of the foregoing, unless the
Company submits such amendment to its Articles of Incorporation to a general
vote of its stockholders at its 2007 annual meeting to be held in January 2007,
the Company shall provide each stockholder an information statement,
substantially in the form which has been previously reviewed by the Buyers and
XxXxxxxxx Will & Xxxxx LLP (the "INFORMATION STATEMENT"), providing for such
increase in authorized shares in accordance with applicable law (such
affirmative approval being referred to herein as the "STOCKHOLDER APPROVAL").
The Company shall be obligated to use its best efforts to obtain the Stockholder
Approval by the Stockholder Approval Deadline.
(r) Trading Restrictions. During each Company Conversion Measuring
Period (as defined in the Debentures), no Buyer, nor any of such Buyer's
affiliates that it exercises investment discretion over, may engage in a
Restricted Activity other than the sale of shares of Common Stock received as
Interest Shares or upon a Company Conversion (as defined in the Debentures),
upon a conversion of Debentures pursuant to Section 3 of the Debentures, upon
exercise of any Warrants or the transfer of any Debentures or Warrants as
permitted by their terms. "RESTRICTED ACTIVITY" means (i) any Acquisition or
Disposition, in open market transactions of (A) any shares of Common Stock or
(B) any securities convertible into or exchangeable for or derivative of shares
of Common Stock and (ii) any other action taken intentionally for the purpose of
manipulating the price of shares of Common Stock. "ACQUISITION" means any direct
or indirect voluntary acquisition or purchase (other than by merger,
consolidation, combination, recapitalization or other reorganization, or by
operation of law). "DISPOSITION" means any direct or indirect voluntary sale, or
monetization, including through a Subsidiary or by means of an equity offering
by any such Subsidiary, but shall not include, any of the actions contemplated
by Section 4(h) or any disposition thereunder.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Debentures and the
Warrants in which the Company shall record the name and address of the Person in
whose name the Debentures and the Warrants have been issued (including the name
and address of each transferee), the principal amount of Debentures held by such
Person, the number of Conversion Shares issuable upon conversion of the
Debentures and Warrant Shares issuable upon exercise of the Warrants held by
such Person. The Company shall keep the register open and available at all times
during business hours for inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares, the Interest Shares, if any,
and the Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Debentures or exercise of the
Warrants in the form of Exhibit D attached hereto (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the
22
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(g) hereof, will be given
by the Company to its transfer agent with respect to the Securities, and that
the Securities shall otherwise be freely transferable on the books and records
of the Company, as applicable, 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 2(g), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or 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 Conversion Shares, Interest Shares, or Warrant 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 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to seek 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.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) The obligation of the Company hereunder to issue and sell the
Debentures and the related Warrants 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 by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) Such Buyer and each other Buyer shall have delivered to the
Company the Purchase Price (less, in the case of Castlerigg Master Investments
Ltd., the amounts withheld by it pursuant to Section 4(g)) for the Debentures
and the related Warrants being purchased by such Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
(iii) The representations and warranties of such Buyer shall be
true and correct in all material respects 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), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
23
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
(a) The obligation of each Buyer hereunder to purchase the Debentures
and the related Warrants 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 by such
Buyer at any time in its sole discretion by providing the Company with prior
written notice thereof:
(i) The Company shall have executed and delivered to such Buyer (A)
each of the Transaction Documents and (B) the Debentures (in such denominations
as such Buyer shall have requested prior to the Closing) and the related
Warrants (in such denominations as such Buyer shall have requested prior to the
Closing) being purchased by such Buyer at the Closing pursuant to this
Agreement.
(ii) Such Buyer shall have received the opinions of Xxxxxxxx
Xxxxxxxxx & Xxxxxx, PC, and Xxxxxxxx & Wedge, each the Company's outside
counsel, dated as of the Closing Date, in substantially the form of Exhibit E
attached hereto.
(iii) The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit D attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
(iv) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity's jurisdiction of formation issued by the Secretary
of State (or comparable office) of such jurisdiction, as of a date reasonably
proximate to the Closing Date.
(v) The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date reasonably
proximate to the Closing Date.
(vi) The Company shall have delivered to such Buyer a certified
copy of the Articles of Incorporation as certified by the Secretary of State of
the State of Nevada as of a date reasonably proximate to the Closing Date.
(vii) The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Articles of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit F.
(viii) 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 specific date), and
the Company shall have performed, satisfied and complied in all respects 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 in the form attached hereto as Exhibit G.
24
(ix) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five days of the Closing Date.
(x) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.
(xi) The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale of the
Securities.
(xii) The Company shall have obtained all consents, amendments
and/or waivers required under (A) the Securities Purchase Agreement dated as of
January 5, 2006 among the Company and the buyers named therein and the other
transaction documents entered into in connection therewith (collectively, the
"JANUARY TRANSACTION Documents") and (B) the Securities Purchase Agreement dated
as of June 21, 2006 among the Company and the buyers named therein and the other
transaction documents entered into in connection therewith (collectively, the
"JUNE TRANSACTION DOCUMENTS"), in each case, necessary for the consummation of
the transactions contemplated by the Transaction Documents (including sale of
the Securities) or as any Buyer or its counsel may reasonably request.
(xiii) The Company shall have delivered to such Buyer, written
consents in the form attached hereto as Exhibit H, executed by stockholders
holding at least 51% of the outstanding shares of Common Stock, indicating such
stockholders' consent to the amendment to the Articles of Incorporation
contemplated by Section 4(q).
(xiv) The Company and its Subsidiaries shall have executed and
delivered to such Buyer the Security Agreement encumbering all the assets of the
Company and its Subsidiaries.
(xv) The Company shall have obtained and delivered to such Buyer
searches of Uniform Commercial Code filings in the jurisdiction of formation of
the Company and its Subsidiaries, the jurisdiction of the chief executive office
of the Company and its Subsidiaries and each jurisdiction where any Collateral
(as defined in the Security Agreement) is located or where a filing would need
to be made in order to perfect the Buyers' security interest in the Collateral,
copies of the financing statements on file in such jurisdictions and evidence
that no Liens exist other than Permitted Liens.
25
(xvi) The Company and its Subsidiaries shall have executed and
delivered to such Buyer UCC financing statements for each appropriate
jurisdiction as is necessary, in the Buyers' sole discretion, to perfect the
Buyers' security interest in the Collateral.
(xvii) The Company shall have delivered to such Buyer each of the
outstanding post-closing deliveries and other documents relating to the closing
of the transactions under the June Transaction Documents.
(xviii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.
8. INTENTIONALLY DELETED.
9. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before five business days from the date hereof due to
the Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 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;
provided, however, if this Agreement is terminated pursuant to this Section 9,
the Company shall remain obligated to reimburse the non-breaching Buyers for the
expenses described in Section 4(g) above.
10. 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 jurisdictions) that would cause the application
of the laws of any jurisdictions 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 City of New York, 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 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. 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 WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
26
(b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to each other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
(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 and the other
Transaction Documents supersede all other prior oral or written agreements
between the Buyers, the Company, their Affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the 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 any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 10(e) shall be
binding on all Buyers and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration also is offered to
all of the parties to the Transaction Documents, holders of Debentures or
holders of the Warrants, as the case may be. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Buyer has made
any commitment or promise or has any other obligation to provide any financing
to the Company or otherwise.
(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 (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
27
If to the Company:
Maverick Oil and Gas, Inc.
00000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000-0000
Telephone: 000 000-0000
Facsimile: 000 000-0000
Attention: Xxxxx X. Xxxx, Chairman and Chief Executive Officer
With a copy (for informational purposes only) to:
Xxxxxxx X. Xxxxx, Esq.
Director of Legal Affairs/Corporate Counsel
Two Xxxxx Square
00xx xxx Xxxx Xxxxxxx, Xxx. 0000
Xxxxxxxxxxxx, XX 00000
Telephone: 000 000-0000
Facsimile: 000 000-0000
and to
Xxxxx North, Esq.
Xxxxxxxx Xxxxxxxxx, PC
0000 Xxxxxx Xxxxxx, 00xx xxxxx
Xxxxxxxxxxxx, XX 00000
Telephone: 000 000-0000
Facsimile: 000 000-0000
If to the Transfer Agent:
StockTrans, Inc.
00 X. Xxxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: 000 000-0000
Facsimile: 000 000-0000
Attention: Xxxxxxxx Xxxxxx
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,
with a copy (for informational purposes only) to:
XxXxxxxxx Will & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000 000-0000
Facsimile: 000 000-0000
Attention: Xxxxxxx X. Older, Esq.
28
or to 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 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 an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier 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 Debentures or the Warrants. The Company shall
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way
of a Fundamental Transaction (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Debentures and the Warrants). A Buyer may assign some or all of its rights
hereunder in connection with transfer of any of its Securities without the
consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 9, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
10 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
(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
any 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) Indemnification. 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 other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (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
29
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in 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 Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The indemnification provided in this Section 10(k) shall not apply to any
indemnified Liabilities which are the subject of the indemnification provided
for in Section 6 of the Registration Rights Agreement, as well as shall not
apply to those matters covered by the express exceptions to indemnification
provided by Section 6 of the Registration Rights Agreement. Except as otherwise
set forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 10(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.
(l) 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.
(m) 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 which such holders have been granted at any time under any other
agreement or contract and all of the rights which such 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), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents 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, a trustee,
receiver or any other Person under any law (including, without limitation, any
30
bankruptcy law, foreign, 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.
(o) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document 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 under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, 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 by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any 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.
[SIGNATURE PAGES FOLLOW]
31
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
COMPANY:
MAVERICK OIL AND GAS, INC.
By:_______________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYER:
By:_______________________
Name:
Title:
IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.
BUYER:
By:_______________________
Name:
Title:
SCHEDULE OF -BUYERS
(1) (2) (3) (4) (5) (6)
AGGREGATE
PRINCIPAL AGGREGATE NUMBER AGGREGATE LEGAL REPRESENTATIVE'S
AMOUNT OF OF WARRANTS PURCHASE PRICE ADDRESS AND FACSIMILE
BUYER ADDRESS AND FACSIMILE NUMBER DEBENTURES NUMBER
$5,062,500 Total Warrants: $4,500,000 XxXxxxxxx Will & Xxxxx LLP
13,500,000 000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Older, Esq.
$1,687,500 Total Warrants: 0 $1,500,000 Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx
Xxxxx, Esq.
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Total Total Warrants to be $6,000,000
principal issued:
amount of
Debentures: 13,500,000
$6,750,000
EXHIBITS
Exhibit A Form of Debentures
Exhibit B Form of Warrants
Exhibit C Registration Rights Agreement
Exhibit D Irrevocable Transfer Agent Instructions
Exhibit E Form of Outside Company Counsel Opinion
Exhibit F Form of Secretary's Certificate
Exhibit G Form of Officer's Certificate
Exhibit H Shareholder Consents
SCHEDULES
Schedule 3(a) Organization and Qualification
Schedule 3(b) Authorization; Enforcement; Validity
Schedule 3(c) Issuance of Securities
Schedule 3(d) No Conflicts
Schedule 3(e) Consents
Schedule 3(g) No General Solicitation; Placement Agent's Fees
Schedule 3(l) Absence of Certain Changes
Schedule 3(m) No Undisclosed Events, Liabilities, Developments
or Circumstances
Schedule 3(r) Equity Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Absence of Litigation
Schedule 3(w) Title
Schedule 3(cc) Internal Accounting and Disclosure Controls
SCHEDULES TO SECURITIES PURCHASE AGREEMENT
These are the Schedules referred to in that certain Securities Purchase
Agreement dated as of November 16, 2006 (the "Agreement") by and among the
Buyers referred to therein (the "Buyers") and Maverick Oil and Gas, Inc. (the
"Company"). Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in the Agreement. The headings in the Schedules
are for convenience of reference only.
Nothing in the Schedules is intended to broaden the scope of any
representation or warranty contained in the Agreement or to create any covenant
unless clearly specified to the contrary herein. Any disclosure on one Schedule
shall be deemed to be disclosed on each other Schedule, provided that the
qualification of the related statement in the Agreement is reasonably apparent
on its face. Inclusion of any item in the Schedules shall not constitute, or be
deemed to be, an admission to any third party concerning such item. The
Schedules include descriptions of instruments or brief summaries of certain
aspects of the Company and its business and operations. The descriptions and
brief summaries are not necessarily complete and are provided in the Schedules
to identify documents or other materials previously delivered or made available.
SCHEDULE 3(A) - ORGANIZATION AND QUALIFICATION
MAVERICK OIL AND GAS, INC. & SUBSIDIARIES/AFFILIATES
STATUS OF GOOD STANDINGS
NAME OF ENTITY EIN# DOMESTIC FOREIGN D/B/A DOCUMENT
JURISDICTION QUALIFICATION (IF APPLICABLE) DATE
Maverick Oil and Gas, Inc. 00-0000000 Nevada 10-31-2006
Florida 10-31-2006
Maverick Operating Company LLC 00-0000000 Texas Texas (Comptroller) 11-7-2006
Texas - SOS 10-30-2006
Arkansas 11-3-2006
Maverick Xxxxxx Xxxxxxxx, LLC 00-0000000 Delaware 10-30-2006
Florida 10-31-2006
Texas (Comptroller) 10-30-2006
Texas - SOS 10-30-2006
Maverick Whitewater, LLC 00-0000000 Delaware 10-30-2006
Colorado 10-30-2006
Florida 10-31-2006
Maverick Xxxxxx County, LLC 00-0000000 Delaware 10-30-2006
Florida 10-31-2006
Texas (Comptroller) Maverick Zapata 10-30-2006
Texas - SOS County 10-30-2006
Exploration, LLC
RBE, LLC 00-0000000 Delaware 10-30-2006
Florida 10-31-2006
Texas (Comptroller) 10-30-2006
Texas - SOS 10-30-2006
Maverick Basin Exploration, LLC 00-0000000 Delaware 10-30-2006
Florida 10-31-2006
Texas (Comptroller) Maverick Deep 10-30-2006
Texas - SOS Basin 10-30-2006
Exploration, LLC
Maverick Xxxxxxxx County, LLC 00-0000000 Delaware 10-30-2006
Arkansas 11-3-2006
Florida 10-31-2006
Xxxxxxx RBE Holdings, LLC 00-0000000 Delaware 10-30-2006
SCHEDULE 3(B)-AUTHORIZATION
The Company does not presently have a sufficient number of shares of Common
Stock authorized for issuance under its Articles of Incorporation to satisfy all
of the conversion, redemption, issuance or exercise features of the Debentures
or Warrants. The Board of Directors of the Company has approved an amendment to
the Company's Articles of Incorporation which would increase the number of
shares of Common Stock authorized for issuance from 260 million to 335 million
(the "Amendment"). The Company has also received written consents from the
holders of over 50% of its outstanding shares of Common Stock authorizing this
Amendment. The Company will either submit the Amendment to a general vote of its
shareholders at its 2007 Annual Meeting to be held during January 2007 (the
"2007 Annual Meeting") or will adopt the Amendment in connection with an
Information Statement to be filed with the SEC after the Closing. Changes in the
Conversion Price or Exercise Price after the Subscription Date could result in
an insufficient number of authorized shares of Common Stock for issuance
pursuant to the Debentures and the Warrants.
SCHEDULE 3(C)-ISSUANCE OF SECURITIES
By resolution of its Board of Directors, the Company has, subject to the
Amendment, fully reserved from its duly authorized capital stock 130% of the
maximum number of shares of Common Stock issuable upon conversion of the
Debentures (assuming that the Debentures are convertible at the Conversion Price
in effect on the Subscription Date and without taking into account any
limitations on the conversion of Debentures set forth in the Debentures)
and 130% of the maximum number of shares of Common Stock issuable upon exercise
of the Warrants (assuming that the Warrants are exercisable at the Exercise
Price in effect on the Subscription Date and without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants). Changes
in the Conversion Price or Exercise Price after the Subscription Date could
result in an insufficient number of authorized shares of Common Stock for
issuance pursuant to the Debentures and the Warrants.
SCHEDULE 3(D) - NO CONFLICTS
Please refer to discussion in Section 3(b) above.
SCHEDULE 3(E)-CONSENTS
To effectuate the Amendment, which is required for the issuance of Common Stock
pursuant to the Debentures and Warrants: (i) the Company will be required to
rely upon the consent resolutions provided by its principal shareholders; and
(ii) the Company will need to either solicit shareholder approval at the 2007
Annual Meeting, or file an Information Statement with the SEC and incorporate
any comments made by its staff. For the purposes hereof, the Company has
presumed that it has secured the consent of the Buyers under the terms of the
convertible debentures and warrants issued to them pursuant to the Securities
Purchase Agreement dated January 5, 2006 (the "January 2006 SPA") and the
Securities Purchase Agreement dated June 21, 2006 (the "June 2006 SPA"), each
between the Company and the Buyers.
SCHEDULE 3(G)-PLACEMENT AGENT FEES
An investment banker engaged by the Company during November 2005 is entitled to
additional cash compensation and additional warrants in the form of a "tail" on
all financings completed before December 2006 with investors who were introduced
to the Company by this investment banker. The Company does not believe this
investment banker was responsible for the introduction of the Buyers, and has
asked this banker to confirm the same. We have not yet secured this
confirmation, and can not be certain that we will.
SCHEDULE 3(L)-ABSENCE OF CERTAIN CHANGES
o Since May 31, 2006, the Company has continued to incur material losses
and cash flow deficits during its fourth quarter of fiscal year 2006 and its
first quarter of fiscal year 2007 (collectively, the "Interim Periods"). During
the Interim Periods, the Company has primarily exhausted its liquid capital
resources. Accordingly, the Company may need to include reference to a "going
concern" risk in its Annual Report on Form 10-K for fiscal year 2006, as well as
its Quarterly Report on Form 10-Q for its first quarter of fiscal year 2007.
o The Company had expenditures during its fourth fiscal quarter of 2006 in
excess of $8,000,000 in connection with its ongoing drilling projects.
o The Company has accumulated a material working capital deficit consisting
of approximately $10 million of outstanding trade payables, the majority of
which are aged beyond 60 days, offset by approximately $ 5.2 million of
receivables from our project partners. Of these receivables, approximately $3.4
million is due from our 45% Fayetteville Shale partner, an early-stage public
company who has experienced liquidity concerns. Until it is able to secure
additional funding, if at all, this partner will not have sufficient capital
resources to fund its portion of project costs.
o Absent a material financing, the Company does not have adequate resources
to satisfy its outstanding trade payables. The Company's inability to satisfy
its outstanding trade payables has had an adverse effect on the Company's
ability to remain in operation as a going concern.
o Also, in the course of the wind-down of the Company's activity in
Fayetteville, the Company became aware of certain items that could have an
adverse effect on the Company if not addressed: (i) a commitment for the
continued use of a drilling rig previously deployed in Xxxxxxxx County, through
January 2008; (ii) drilling commitments associated with certain acreage within
the Fayetteville Shale Project that impose financial penalties upon the Company
if xxxxx are not drilled by the end of 2007; and (iii) commitments to acquire
additional leasehold acreage within Xxxxxxxx and surrounding counties of
Arkansas.
In connection with registration rights granted (see Schedule 3(r) below) to
investors who purchased securities during 2004 and 2005, certain claims may be
asserted in connection with the Company's failure to renew its Prospectus dated
August 1, 2005, although based upon: (i) the scope of the registration rights
agreed to; (ii) the ability of most of those shareholders to sell under Rule
144; and (iii) the market price of the Company's common stock since the
Prospectus became "stale", the Company does not believe any of these claims
could be material.
SCHEDULE 3(M) - NO UNDISCLOSED EVENTS, ETC.
The first five paragraphs of Schedule 3(l) have not been included in any of the
Company's SEC Documents since the information contained therein relates to
periods for which no SEC report is yet due and public disclosure is not
otherwise required .
SCHEDULE 3(R) - EQUITY CAPITALIZATION
CAPITALIZATION
The Company's equity capitalization is summarized on attached Schedule "A", and
in the Company's Registration Statement filed with the SEC on July 21, 2006
(Registration #333-135957).
The capitalization information provided above does not include the following
proposed issuance of securities which the Company intends to complete once the
closing of the sale of the Debentures occurs and once its Articles of
Incorporation are amended to increase its authorized shares available for
issuance:
o As contemplated and permitted by Section 4(p)(iv) of the Agreement, up to
13,500,000 shares of the Company's common stock may be issued and sold to
Millenium Global High Yield Fund Limited and/or one or more of its affiliates,
designees or assigns, or to Line Trust Corporation Limited or one or more of its
affiliates, designees or assigns, in each case within 16 days after the Closing,
and warrants (with an exercise price equal to the exercise price of the Warrants
included within the Securities offered to the Buyers) to purchase up to
13,500,000 shares of Common Stock issued to such parties in connection with
their purchase of such shares of Common Stock.
o As contemplated by Schedule 3(g), an investment banker with whom the
Company has an engagement letter, could assert an entitlement to warrants
covering 10% of the "amount of the shares sold in the offering....and on the
same terms as the Investor warrants". The Company would assert defenses to any
such assertion, however, the Company can provide no assurances as to the outcome
of a dispute with such investment banker, should one arise.
PREEMPTIVE AND SIMILAR RIGHTS
o The Buyers have the rights set forth in Section 4(p) to the January 2006
SPA and the June 2006 SPA.
OUTSTANDING OPTIONS AND WARRANTS
o The Company has issued the options and warrants identified in Schedule
"A"
OUTSTANDING DEBT SECURITIES AND NOTES
o The convertible debentures issued to the Buyers in the January 2006 SPA
and June 2006 SPA are outstanding
FINANCING STATEMENTS
o Reference is made to the lien searches secured by the Company and
provided to the Buyers on or before the date hereof. .
REGISTRATION RIGHTS:
o Registration rights remain in effect covering those transactions and
shares identified in the schedules to the January 2006 SPA and June 2006 SPA
o Registration rights remain in effect with respect to the shares covered
by the Company's Prospectus dated August 1, 2005.
o The Registration Rights Agreements related to the January 2006 SPA and
June 2006 SPA provide the Buyers with the registration rights set forth therein.
o As contemplated and permitted by section 4(p)(iv) of the Agreement,
registration rights will be granted to the investors who purchase the shares and
warrants identified in the third paragraph of Schedule 3(r), on the same terms
as those granted to the Buyers. These registration rights will include all
shares and warrants purchased in the transaction, as well as the balance of the
approximately 20 million shares purchased from the Company by Line Trust Limited
and its affiliates during January 2005.
ANTI-DILUTION ADJUSTMENTS
o Full-ratchet rights associated with 533,276 warrants issued or issuable
to Trident Growth Fund in connection with an October 2005 transaction (@$1.00)
and 213,310 Warrants issued to Trident in July 2004 (@$1.00) (although as a
result of the convertible debentures and associated warrants, issued pursuant to
the January 2006 SPA the exercise price of the Trident Warrants has already been
reduced to $.93 per share.)
o Full-ratchet rights contained in the warrants issued to the Buyers
pursuant to the January 2006 SPA and June 0000 XXX.
o In connection with a Letter Agreement with the Company dated November 1,
2006,a copy of which has been provided to the Buyers, Trident has agreed to
waive the "gross-up" feature of the anti-dilution provisions contained within
its warrants (while retaining all price protection).
NO LIABILITIES OR OBLIGATIONS
o The first five paragraphs of Schedule 3(l) have not been included in any
of the Company's SEC Documents since the information contained therein relates
to periods for which no SEC report is yet due, and public disclosure is not
otherwise required.
SCHEDULE 3(S) - INDEBTEDNESS AND OTHER CONTRACTS
o Indebtedness under the convertible debentures issued pursuant to the June
2006 SPA.
SCHEDULE 3(T) - ABSENCE OF LITIGATION
We have recently been sued by a service contractor for approximately $800,000 of
due and owing invoices (these invoices are included within the trade payables
referred in Schedule 3(l)). We have engaged in discussions with the Plaintiff to
settle the amount owed once we receive additional funding. In the interim, we
have received and provided to you a Motion to Dismiss to be filed by the
Plaintiff.
SCHEDULE 3(W) - TITLE
We have become aware that a Lien has been filed against a Fayetteville Shale
property by a vendor on October 31, 2006 for approximately $94,000 in unpaid
invoices. A copy of the lien has been provided.
SECTION 3(CC) - INTERNAL ACCOUNTING AND DISCLOSURE CONTROLS
As disclosed in the Company's Quarterly Report on Form 10-Q for the
period ended November 30, 2005, some accounting entries relating to debt and
equity instruments required adjustment upon review by our independent auditors.
