EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT DATED APRIL 25, 2006
BETWEEN GALAXY ENERGY CORPORATION AND THE BUYERS NAMED THEREIN
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is dated as of
April 25, 2006, among Galaxy Energy Corporation, a Colorado corporation (the
"COMPANY"), and the purchasers identified on the signature pages hereto (each,
including its successors and assigns, a "PURCHASER" and collectively the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT") and Rule 506 promulgated thereunder, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as more
fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"AGENT" shall have the meaning ascribed to such term in
Section 4.1 hereof.
"AFFILIATE" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is
under common control with a Person, as such terms are used in and
construed under Rule 144 under the Securities Act.
"CAPITAL SHARES" means the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of
the Company.
"CAPITAL SHARES EQUIVALENTS" means any securities, rights or
obligations that are convertible into or exchangeable for or give any
right to subscribe for or purchase, directly or indirectly, any Capital
Shares of the Company or any warrants, options or other rights to
subscribe for or purchase, directly or indirectly, Capital Shares or
any such convertible or exchangeable securities.
"CLOSING" means the closing of the purchase and sale of the
Securities pursuant to SECTION 2.2.
"CLOSING DATE" shall be that date on which Closing occurs.
"CLOSING PRICE" shall mean 125% of the VWAP for the 20 trading
days prior to the Closing Date, but in no event lower than $1.56.
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"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par
value $.001 per share, and any securities into which such common stock
shall hereinafter have been reclassified into.
"COMPANY COUNSEL" means Dill Dill Carr Stonbraker & Hutchings,
P.C., with offices at 455 Sherman Street, Suite 300, Denver, Colorado
80203.
"DEBENTURES" means, the 15% Secured Convertible Debentures
issued by the Company to the Purchasers hereunder, in the form of
EXHIBIT A, due 30 months from their date of issuance, so long as
payment of principal and interest on such date shall not violate any of
the terms of the Company's debt instruments or agreements with its
senior creditors.
"DISCLOSURE SCHEDULES" shall have the meaning ascribed to such
term in Section 3.1 hereof.
"EFFECTIVE DATE" means the date that the initial Registration
Statement filed by the Company pursuant to Section 5.13 hereof is first
declared effective by the Commission.
"EFFECTIVENESS DATE" means, with respect to the initial
Registration Statement required hereunder, the 150th calendar day
following the Closing Date and, with respect to any additional
Registration Statements which may be required pursuant to Section
5.13(c)(iii), the 90th calendar day following the date on which the
Company first knows, or reasonably should have known, that such
additional Registration Statement is required hereunder; PROVIDED,
HOWEVER, in the event the Company is notified by the Commission that
one of the above Registration Statements will not be reviewed or is no
longer subject to further review and comments, the Effectiveness Date
as to such Registration Statement shall be the fifth Trading Day
following the date on which the Company is so notified if such date
precedes the dates required above.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means, with respect to the initial Registration
Statement required hereunder, the 90th day following the Closing Date
and, with respect to any additional Registration Statements which may
be required pursuant to Section 3(c), the 15th day following the date
on which the Company first knows, or reasonably should have known that
such additional Registration Statement is required hereunder.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h) hereof.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"LIENS" shall have the meaning ascribed to such term in
Section 3.1(a) hereof.
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"LOSSES" means any and all losses, claims, damages,
liabilities, settlement costs and expenses, including without
limitation costs of preparation and reasonable attorneys' fees.
"MATERIAL ADVERSE EFFECT" shall have the meaning assigned to
such term in Section 3.1(b) hereof.
"OBLIGATIONS" means all of the Company's obligations under
this Agreement, the Debentures, the Warrants, and any other agreements
or obligations undertaken by the Company to the Purchasers.
"PERSON" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
"PLEDGED COLLATERAL" means the collateral in which the
Purchasers are granted a security interest pursuant to Section 4.1 of
this Agreement.
"PRINCIPAL MARKET" means initially the American Stock Exchange
and shall also include the Over the Counter Bulletin Board, New York
Stock Exchange, the NASDAQ Small-Cap Market or the NASDAQ National
Market, whichever is at the time the principal trading exchange or
market for the Common Stock, based upon share volume.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"REGISTRABLE SECURITIES" means (i) all of the shares of Common
Stock issuable upon conversion in full of the Debentures, (ii) all
shares issuable as interest on the Debentures assuming all interest
payments are made in shares of Common Stock and the Debentures are held
until maturity, (iii) all Warrant Shares, (iv) any securities issued or
issuable upon any stock split, dividend or other distribution
recapitalization or similar event with respect to the foregoing and (v)
any additional shares issuable in connection with any anti-dilution
provisions in the Debentures.
"REGISTRATION STATEMENT" means the registration statement to
be filed by the Company pursuant to Section 5.13 hereof.
"REQUIRED APPROVALS" shall have the meaning ascribed to such
term in Section 3.1(e) hereof.
"REQUIRED MINIMUM" means, as of any date, the maximum
aggregate number of shares of Common Stock then issued or potentially
issuable in the future pursuant to the Transaction Documents, including
any Underlying Shares issuable upon exercise or conversion in full of
all Warrants and Debentures, ignoring any conversion or exercise limits
set forth therein, and assuming that the Set Price is at all times on
and after the date of determination the lesser of the Set Price and 75%
of the VWAP on the Trading Day immediately prior to the date of
determination.
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"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such
Rule.
"SEC REPORTS" shall have the meaning ascribed to such term in
Section 3.1(h) hereof.
"SECURITIES" means the Debentures, the Warrants and the
Underlying Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SET PRICE" shall have the meaning ascribed to such term in
the Debentures.
"SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amount
to be paid for Debentures purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to
the heading "Subscription Amount", in United States Dollars and in
immediately available funds.
"SUBORDINATION AGREEMENT" means collectively the Subordination
Agreements for the benefit of the holders of the Company's indebtedness
identified in Schedule 3.1(x) hereof, in the form of EXHIBIT C
delivered by each of the Purchasers at the Closing in accordance with
Section 2.2 hereof.
"SUBSIDIARY" means any subsidiary of the Company as set forth
on Schedule 3.1(a) attached hereto.
"TRADING DAY" means any day during which the Principal Market
shall be open for business.
"TRANSACTION DOCUMENTS" means this Agreement, the Debentures,
the Warrants, and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of the Debentures and upon exercise of the Warrants and
issued and issuable in lieu of the cash payment of interest on the
Debentures.
"UNDERLYING SHARES REGISTRATION STATEMENT" OR "REGISTRATION
STATEMENT" means a registration statement meeting the requirements set
forth in Section 5.13 hereof and covering the resale of the Underlying
Shares by each Purchaser as provided for in such section.
Securities Purchase Agreement - Page 4
"VWAP" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg Financial L.P. (based on a trading day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the
Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the OTC Bulletin Board; (c) if the
Common Stock is not then listed or quoted on the OTC Bulletin Board and
if prices for the Common Stock are then reported in the "Pink Sheets"
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in
good faith by the Purchasers and reasonably acceptable to the Company.
"WARRANTS" means collectively the Common Stock purchase
warrants, in the form of EXHIBIT B delivered to the Purchasers at the
Closing in accordance with Section 2.2 hereof, with a term of exercise
of 5 years.
"WARRANT SHARES" means the shares of Common Stock issuable
upon exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 ESCROW. The Company shall enter into a suitable escrow agreement
to implement the provisions of this Article II.
2.2 CLOSING.
(a) Upon the terms and subject to the conditions set forth
herein, concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers
agree to purchase in the aggregate, severally and not jointly, up to
$7,000,000 principal amount of the Debentures. Each Purchaser shall
deliver to the Escrow Agent via wire transfer or a certified check
immediately available funds equal to such Purchaser's Subscription
Amount and shall simultaneously deliver or cause to be delivered this
Agreement and the Subordination Agreement to the offices of Company
Counsel, duly executed by such Purchaser.
(b) The Company, within two Business Days after being advised
by the Escrow Agent that the Escrow Agent has received the Subscription
Amounts for the Closing, shall deliver to each Purchaser the following
via overnight delivery service:
(i) a Debenture with a principal amount equal to such
Purchaser's Subscription Amount, registered in the name of
such Purchaser;
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(ii) a Warrant registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock
equal to 30% of such Purchaser's Subscription Amount divided
by the Closing Price at an exercise price equal to $1.60 per
Warrant Share; and
(iii) this Agreement, duly executed by the Company.
2.3 CONDITIONS TO CLOSING. Upon satisfaction or waiver by the party
sought to be benefited thereby of the conditions set forth in this Section 2.3,
the Closing shall occur at the offices of Company Counsel.
(a) All representations and warranties of the other party
contained herein shall remain true and correct as of the Closing Date
and all covenants of the other party shall have been performed if due
prior to such date.
(b) There shall have been no Material Adverse Effect (as
defined in Section 3.1(b)) with respect to the Company since the date
hereof.
(c) From the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission (except
for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing),
and, at any time prior to the Closing Date, trading in securities
generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or
on the Principal Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities, nor
shall there have occurred any material outbreak or escalation of
hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any
financial market which, in each case, in the reasonable judgment of the
Purchasers, makes it impracticable or inadvisable to purchase the
Debentures at the Closing.
(d) The aggregate Subscription Amount in escrow shall be at
least $1,000,000 on or before April 30, 2006, which date may be
unilaterally extended by the Company for up to an additional ten (10)
Trading Days (the "OFFERING TERMINATION DATE").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "DISCLOSURE SCHEDULES") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.
(a) SUBSIDIARIES. Except as set forth in the SEC Reports, the
Company has no direct or indirect subsidiaries. The Company owns,
directly or indirectly, all of the
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capital stock or other equity interests of each Subsidiary free and
clear of any lien, charge, security interest, encumbrance, right of
first refusal or other restriction (collectively, "Liens"), and all the
issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of
preemptive and similar rights. Schedule 3.1(a) lists each Subsidiary by
name, place of organization, and indicates the entity or entities which
own the capital stock of such Subsidiary.
(b) ORGANIZATION AND QUALIFICATION. Each of the Company and
the Subsidiaries is an entity duly incorporated or otherwise organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing
as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or
in good standing, as the case may be, could not, individually or in the
aggregate: (i) adversely affect the legality, validity or
enforceability of any Transaction Document, (ii) have or result in or
be reasonably likely to have or result in a material adverse effect on
the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) adversely impair the Company's ability to perform
fully on a timely basis its obligations under any of the Transaction
Documents (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT").
(c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder or thereunder. The
execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated
hereby or thereby have been duly authorized by all necessary action on
the part of the Company and no further consent or action is required by
the Company other than Required Approvals. Each of the Transaction
Documents has been (or upon delivery will be) duly executed by the
Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and general principles of equity. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other
organizational or charter documents.
(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 thereby do not and will not:
(i) conflict with or violate any provision of the Company's or any
Subsidiary's certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) subject to obtaining the
Required Approvals,
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conflict with, or constitute a default (or an event that 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
(with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) result,
in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or result in a Material
Adverse Effect.
(e) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization
or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery
and performance by the Company of the Transaction Documents, other than
(i) the filings required under Section 5.7, (ii) the filing with the
Commission of the Underlying Shares Registration Statement, (iii) the
notice and/or application(s) to each applicable Principal Market for
the issuance and sale of the Debentures and Warrants and the listing of
the Underlying Shares for trading thereon in the time and manner
required thereby, and (iv) the filing of Form D with the Commission and
applicable Blue Sky filings (collectively, the "REQUIRED APPROVALS").
(f) ISSUANCE OF THE SECURITIES. The Securities are duly
authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued,
fully paid and non-assessable, free and clear of all Liens. The Company
has reserved from its duly authorized capital stock a number of shares
of Common Stock for issuance of the Underlying Shares at least equal to
the Required Minimum on the date hereof. The Company has not, and to
the knowledge of the Company, no Affiliate of the Company has sold,
offered for sale or solicited offers to buy or otherwise negotiated in
respect of any security (as defined in Section 2 of the Securities Act)
that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of
the sale of the Securities to the Purchasers, or that would be
integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Principal Market.
(g) CAPITALIZATION. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set
forth in the Schedule 3.1(g) attached hereto. No securities of the
Company are entitled to preemptive or similar rights, and no Person has
any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by
the Transaction Documents. Except as set forth in Schedule 3.1(g) and
as a result of the purchase and sale of the Securities, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving
any Person any right to
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subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.
(h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC REPORTS") on a timely basis
or has received a valid extension of such time of filing and has filed
any such SEC Reports prior to the expiration of any such extension. The
Company has identified and made available to the Purchasers a copy of
all SEC Reports filed within the 10 days preceding the date hereof. As
of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) MATERIAL CHANGES. Since the date of the latest audited
financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports: (i) there has been no event,
occurrence or development that has had or that could result in a
Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in
the Company's financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has
not altered its method of accounting or the identity of its auditors,
(iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company
stock option or similar plans.
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(j) LITIGATION. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an
"ACTION") which: (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of
fiduciary duty. The Company does not have pending before the Commission
any request for confidential treatment of information. There has not
been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) COMPLIANCE. Neither the Company nor any Subsidiary: (i) is
in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not
such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has
been in violation of any statute, rule or regulation of any
governmental authority, except in each case as could not, individually
or in the aggregate, have or result in a Material Adverse Effect.
(l) LABOR RELATIONS. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the
employees of the Company.
(m) REGULATORY PERMITS. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Reports, except where the failure to possess such permits could
not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect ("MATERIAL PERMITS"), and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.
(n) TITLE TO ASSETS. The Company and the Subsidiaries have
good and marketable title to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good
and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in
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each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by
the Company and the Subsidiaries. Any real property and facilities held
under lease by the Company and the Subsidiaries are held under valid,
subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
(o) INSURANCE. The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged. To
the best of Company's knowledge, such insurance contracts and policies
are accurate and complete. Neither the Company nor any Subsidiary has
any reason to believe 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 without a significant increase in cost.
(p) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as
required to be set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of
the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as
employees, officers and 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 officer, director or such
employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(q) INTERNAL ACCOUNTING CONTROLS. The Company and the
Subsidiaries maintain 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 GAAP and to
maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization, and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the Company and designed such disclosures controls and
procedures to ensure that material information relating to the Company,
including its subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which
the Company's Form 10-K or 10-Q, as the case may be, is being prepared.
(r) SOLVENCY/INDEBTEDNESS. Based on the financial condition of
the Company as of the Closing Date: (i) the fair saleable value of the
Company's assets exceeds the amount that will be required to be paid on
or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; and (ii) the
current cash flow of the Company, together with the proceeds the
Company would
Securities Purchase Agreement - Page 11
receive, were it to liquidate all of its assets, after taking into
account all anticipated uses of the cash, would be sufficient to pay
all amounts on or in respect of its debt when such amounts are required
to be paid. The Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead
it to believe that it will file for reorganization or liquidation under
the bankruptcy or reorganization laws of any jurisdiction within one
year from the Closing Date. The SEC Reports set forth as of the dates
thereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary
has commitments. For the purposes of this Agreement, "INDEBTEDNESS"
shall mean (a) any liabilities for borrowed money or amounts owed in
excess of $100,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guarantees and endorsements,
whether or not the same are or should be reflected in the Company's
balance sheet or the notes thereto, except guarantees by endorsement of
negotiable instruments for deposit or collection in the ordinary course
of business, and (c) the present value of any lease payments in excess
of $100,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with
respect to any Indebtedness.
(s) CERTAIN FEES. Except as set forth in Schedule 5.9, no
brokerage or finder's fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect
to the transactions contemplated by this Agreement, and the Company has
not taken any action that would cause any Purchaser to be liable for
any such fees or commissions. The Company agrees that the Purchasers
shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of any Person for fees of the type
contemplated by this Section with the transactions contemplated by this
Agreement.
(t) PRIVATE PLACEMENT. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
3.2(b)-(f), the offer, issuance and sale of the Securities to the
Purchasers as contemplated hereby are exempt from the registration
requirements of the Securities Act. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of
the Principal Market.
(u) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not,
in the 12 months preceding the date hereof, received notice from any
Principal Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Principal Market. The
Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing
and maintenance requirements.
(v) REGISTRATION RIGHTS. The Company has not granted or agreed
to grant to any Person any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been
satisfied.
Securities Purchase Agreement - Page 12
(w) APPLICATION OF TAKEOVER PROTECTIONS. 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 Company's
Certificate of Incorporation (or similar charter documents) or the laws
of its state of incorporation that is or could become applicable to the
Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.
(x) SENIORITY. Except as set forth in Schedule 3.1(x) attached
hereto, as of the Closing Date, no indebtedness of the Company is
senior to the Debentures in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(y) DISCLOSURE. To the best knowledge of the Company, neither
it nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information. The
Company understands and confirms that the Purchasers will rely on the
foregoing representations in effecting transactions in securities of
the Company. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of
the Company with respect to the representations and warranties made
herein are true and correct with respect to such representations and
warranties and do 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 light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(z) TAX STATUS. The Company and each of its Subsidiaries has
made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which
it is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith
and has set aside on its books provisions 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. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any
Securities Purchase Agreement - Page 13
foreign, federal, statue or local tax. None of the Company's tax
returns is presently being audited by any taxing authority.
(aa) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Purchasers are
acting solely in the capacity of arm's length purchasers with respect
to this Agreement and the transactions contemplated hereby. The Company
further acknowledges that any statement made by any Purchaser or any of
their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that
the Company's decision to enter into this Agreement has been based
solely on the independent evaluation of the Company and its
representatives.
(bb) NO GENERAL SOLICITATION OR ADVERTISING IN REGARD TO THIS
TRANSACTION.
Neither the Company nor, to the knowledge of the Company, any of its
directors or officers (i) has conducted or will conduct any general
solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to the sale of the Debentures or the
Warrants, or (ii) made any offers or sales of any security or solicited
any offers to buy any security under any circumstances that would
require registration of the Debentures, the Underlying Shares or the
Warrants under the Securities Act or made any "directed selling
efforts" as defined in Rule 902 of Regulation S.
(cc) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are
no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and
lawyers formerly or presently employed by the Company and the Company
is current with respect to any fees owed to its accountants and
lawyers.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser, if not an
individual, is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with
the requisite corporate or partnership power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The
purchase by such Purchaser of the Securities hereunder has been duly
authorized by all necessary action on the part of such Purchaser. This
Agreement has been duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of such Purchaser, enforceable
against it in accordance with its terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes
only and not with a view to or for distributing or reselling such
Securities or any part thereof, without prejudice, however,
Securities Purchase Agreement - Page 14
to such Purchaser's right, subject to the provisions of this Agreement,
at all times to sell or otherwise dispose of all or any part of such
Securities pursuant to an effective registration statement under the
Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such
Purchaser to hold Securities for any period of time. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the
Securities.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Securities, it was, and at the date hereof it is, and on each date
on which it exercises any Warrants or converts any Debentures it will
be, an "accredited investor" as defined in Rule 501(a) under the
Securities Act. Such Purchaser has not been formed solely for the
purpose of acquiring the Securities. Such Purchaser is not a registered
broker-dealer under Section 15 of the Exchange Act.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) OPEN SHORT POSITION. From the date of this Agreement until
the filing of the Form 8-K described in SECTION 5.7, such Purchaser
represents and warrants that it shall not engage in short sales of the
Company's Common Stock, as that term is defined in applicable
Commission and NASD rules. The Purchaser further represents and
warrants that it will not maintain a negative net short position at any
time its Debenture or Warrant is outstanding
(g) DISCLOSURE OF INFORMATION; INDEPENDENT Investigation. Such
Purchaser has received, read, carefully considered, and fully
understands this Agreement and all documents related to the Company and
its operations required by and furnished to such Purchaser. In making
its decision to invest in the Securities, such Purchaser has relied
upon the independent investigations made by such Purchaser and by such
Purchaser's own professional advisors. Such Purchaser and its advisors,
if any, have been given the opportunity to obtain information and to
examine this Agreement and certain other information regarding the
Company and to ask questions of, and to receive answers from the
Company or any Person acting on the Company's behalf concerning the
Securities, the Company, and terms and conditions of this investment,
and to obtain any additional
Securities Purchase Agreement - Page 15
information to verify the accuracy of any information previously
furnished. All such questions have been answered to such Purchaser's
full satisfaction.
ARTICLE IV
SUBORDINATION
4.1 ACKNOWLEDGMENT EXISTING DEBT. Purchaser agrees and acknowledges
that the Company has advised the Purchaser of its existing senior debt
obligations, which are set forth in Schedule 3.1(x) hereto.
ARTICLE V
OTHER AGREEMENTS OF THE PARTIES
5.1 TRANSFER RESTRICTIONS.
(a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement,
to the Company or to an Affiliate of a Purchaser, the Company may
require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the
Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall
have the rights of a Purchaser under this Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this SECTION 5.1(B), of the following legend on any
certificate evidencing Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF
COUNSEL TO THE TRANSFEROR REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Securities Purchase Agreement - Page 16
The Company acknowledges and agrees that a Purchaser may from
time to time pledge pursuant to a bona fide margin agreement or grant a
security interest in some or all of the Securities and, if required
under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. If
required by the Company's transfer agent in order to effect a pledge,
the Company shall cause its counsel, at no cost to the Purchasers, to
issue an opinion of counsel to the Company's transfer agent. Further,
no notice shall be required of such pledge. At the appropriate
Purchaser's expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities
may reasonably request in connection with a pledge or transfer of the
Securities, including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend
the list of Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 5.1(b)
hereof): (i) while a registration statement (including the Underlying
Shares Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such
Underlying Shares pursuant to Rule 144, or (iii) if such Underlying
Shares are eligible for sale under Rule 144(k), or (iv) if such legend
is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission); PROVIDED, HOWEVER, in connection with the
issuance of the Underlying Shares, each Purchaser, severally and not
jointly with the other Purchasers, hereby agrees to adhere to and abide
by all prospectus delivery requirements under the Securities Act and
rules and regulations of the Commission. If all or any portion of a
Debenture or Warrant is converted or exercised (as applicable) at a
time when there is an effective registration statement to cover the
resale of the Underlying Shares, or if such Underlying Shares may be
sold under Rule 144(k) or if such legend is not otherwise required
under applicable requirements of the Securities Act (including judicial
interpretations thereof) then such Underlying Shares shall be issued
free of all legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this
Section 5.1(c), it will, no later than five Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent
of a certificate representing Underlying Shares issued with a
restrictive legend (such fifth Trading Day, the "LEGEND REMOVAL DATE"),
deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section.
(d) In addition to such Purchaser's other available remedies,
the Company shall pay to a Purchaser, in cash, as liquidated damages
and not as a penalty, for each $5,000 of Underlying Shares (based on
the VWAP of the Common Stock on the date such Securities are submitted
to the Company's transfer agent) delivered for removal of the
restrictive legend and subject to this Section 5.1(c), $50 per Trading
Day (increasing to $100 per Trading Day five Trading Days after such
damages have begun to accrue) for
Securities Purchase Agreement - Page 17
each Trading Day after the Legend Removal Date until such certificate
is delivered without a legend.
5.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
5.3 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. Upon the request of any Purchaser, the Company shall deliver to
such Purchaser a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell such Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144.
5.4 INTEGRATION. The Company shall not, and shall use its best efforts
to ensure that no Affiliate of the Company shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Principal Market.
5.5 RESERVATION AND LISTING OF SECURITIES.
(a) The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued
(and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the
Company shall use commercially reasonable efforts to amend the
Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
the Required Minimum at such time, as soon as possible and in any event
not later than the 75th day after such date.
Securities Purchase Agreement - Page 18
(c) The Company shall, if applicable: (i) in the time and
manner required by the Principal Market, prepare and file with such
Principal Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum
on the date of such application, (ii) take all steps necessary to cause
such shares of Common Stock to be approved for listing on the Principal
Market as soon as possible thereafter, (iii) provide to the Purchasers
evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date
on such Principal Market or another Principal Market.
(d) The Company shall not undertake a reverse or forward stock
split or reclassification of the Common Stock without the prior written
consent of the Purchasers holding a majority in interest of the
Debentures.
5.6 CONVERSION AND EXERCISE PROCEDURES. The form of Notice of Exercise
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional legal
opinion or other information or instructions shall be required of the Purchasers
to exercise their Warrants or convert their Debentures. The Company shall honor
exercises of the Warrants and conversions of the Debentures and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
5.7 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the Closing Date, issue a press
release or file a Current Report on Form 8-K disclosing all material terms of
the transactions contemplated hereby. The Company and the Purchasers shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby. Notwithstanding the foregoing, other than in
any registration statement filed pursuant to Section 5.13 hereof and filings
related thereto, the Company shall not publicly disclose the name of any
Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Principal Market, without the prior
written consent of such Purchaser, except to the extent such disclosure is
required by law or Principal Market regulations.
5.8 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
5.9 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes as set forth on
Schedule 5.9 attached hereto.
5.10 REIMBURSEMENT. If any Purchaser becomes involved in any capacity
in any Proceeding by or against any Person who is a stockholder of the Company,
solely as a result of such Purchaser's acquisition of the Securities under this
Agreement and without causation by any other activity, obligation, condition or
liability on the part of, or pertaining to such Purchaser
Securities Purchase Agreement - Page 19
and not to the purchase of Securities pursuant to this Agreement, the Company
will reimburse such Purchaser, to the extent such reimbursement is not provided
for in Section 5.11, for its reasonable legal and other expenses (including the
cost of any investigation, preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations (and limitations thereon) of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement except to the extent any covenant or warranty owing to the
Company is breached.
5.11 INDEMNIFICATION OF PURCHASERS. Subject to the provisions of this
Section 5.11, each party (the "INDEMNIFYING Party") will indemnify and hold the
other parties and their directors, officers, shareholders, partners, employees
and agents (each, an "INDEMNIFIED PARTY") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Indemnified Party may
suffer or incur as a result of or relating to any breach of any of the
representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement or in the other Transaction Documents. If any action
shall be brought against any Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party except to the extent
that (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) the Indemnifying Party has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Indemnifying
Party and the position of such Indemnified Party. The Indemnifying Party will
not be liable to any Indemnified Party under this Agreement (i) for any
settlement by an Indemnified Party effected without the Indemnifying Party's
prior written consent, which shall not be unreasonably withheld or delayed; or
(ii) to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Indemnified Party's breach of any of the
representations, warranties, covenants or agreements made by the Purchasers in
this Agreement or in the other Transaction Documents. In no event shall the
liability of any Purchaser hereunder be greater in amount than the dollar amount
of the net proceeds received by such Purchaser upon the sale of the Securities.
5.12 SHAREHOLDERS RIGHTS PLAN. In the event that a shareholders rights
plan is adopted by the Company, no claim will be made or enforced by the Company
or any other Person that
Securities Purchase Agreement - Page 20
any Purchaser is an "Acquiring Person" under the plan or in any way could be
deemed to trigger the provisions of such plan by virtue of receiving Securities
under the Transaction Documents.
5.13 REGISTRATION RIGHTS.
(a) On or prior to each Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering
the resale of 130% of the Registrable Securities on such Filing Date
for an offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (unless the Company is
not then eligible to register for resale the Registrable Securities on
Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith). Subject to the terms of this
Agreement, the Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event
prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective
under the Securities Act until all Registrable Securities covered by
such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and
the affected Holders (the "EFFECTIVENESS PERIOD"). The Company shall
immediately notify the Holders via facsimile of the effectiveness of
the Registration Statement on the same day that the Company receives
notification of the effectiveness from the Commission.
(b) If: (i) a Registration Statement is not filed on or prior
to its Filing Date (if the Company files a Registration Statement
without affording the Holders the opportunity to review and comment on
the same as required by Section 5.13(c), the Company shall not be
deemed to have satisfied clause (i)), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule
461 promulgated under the Securities Act, within five Trading Days of
the date that the Company is notified (orally or in writing, whichever
is earlier) by the Commission that a Registration Statement will not be
"reviewed," or not subject to further review, or (iii) prior to its
Effectiveness Date, the Company fails to file a pre-effective amendment
and otherwise respond in writing to comments made by the Commission in
respect of such Registration Statement within 10 Trading Days after the
receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be
declared effective, or (iv) a Registration Statement filed or required
to be filed hereunder is not declared effective by the Commission by
its Effectiveness Date, or (v) after the Effectiveness Date, a
Registration Statement ceases for any reason to remain continuously
effective as to all Registrable Securities for which it is required to
be effective, or the Holders are not permitted to utilize the
Prospectus therein to resell such Registrable Securities for 15
consecutive Trading Days or an aggregate of 25 Trading Days during any
12-month period (which need not be consecutive Trading Days) (any such
failure or breach being referred to as an "EVENT", and for purposes of
clause (i) or (iv) the date on which such Event occurs, or for purposes
of clause (ii) the date on which such five Trading Day period is
exceeded, or for purposes of clause (iii) the date which such 10
Trading Day period is exceeded, or for purposes of clause (v) the date
on which
Securities Purchase Agreement - Page 21
such 15 or 25 Trading Day period, as applicable, is exceeded being
referred to as "EVENT DATE"), then, on the monthly anniversary of each
such Event Date until the applicable Event is cured, the Company shall
pay to each Holder an amount in cash, as liquidated damages and not as
a penalty, equal to 1.5% of the Subscription Amount of such Holder,
prorated for any period of less than one month. If the Company fails to
pay any liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such liquidated damages are due until such amounts,
plus all such interest thereon, are paid in full.
(c) REGISTRATION PROCEDURES. In connection with the Company's
registration obligations hereunder, the Company shall:
(i) Not less than five Trading Days prior to the
filing of each Registration Statement or any related
Prospectus or within a reasonable time prior to filing any
amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by
reference), the Company shall, (i) furnish to each Holder
copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of
such Holders, and (ii) cause its officers and directors,
counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to conduct a
reasonable investigation within the meaning of the Securities
Act. The Company shall not file the Registration Statement or
any such Prospectus or any amendments or supplements thereto
to which the Holders of a majority of the Registrable
Securities shall reasonably and in good faith object,
provided, the Company is notified of such objection in writing
no later than 3 Trading Days after the Holders have been so
furnished copies of such documents.
(ii) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to a
Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement
continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file
with the Commission such additional Registration Statements in
order to register for resale under the Securities Act all of
the Registrable Securities; (ii) cause the related Prospectus
to be amended or supplemented by any required Prospectus
supplement (subject to the terms of this Agreement), and as so
supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible, and in any
event within 10 Trading Days, to any comments received from
the Commission with respect to a Registration Statement or any
amendment thereto and as promptly as reasonably possible
provide the Holders true and complete copies of all
correspondence from and to the Commission relating to a
Registration Statement; and (iv) comply in all material
respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement
during the applicable period in accordance (subject to the
Securities Purchase Agreement - Page 22
terms of this Agreement) with the intended methods of
disposition by the Holders thereof set forth in such
Registration Statement as so amended or in such Prospectus as
so supplemented.
(iii) If during the Effectiveness Period, the number
of Registrable Securities at any time exceeds 85% of the
number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as
reasonably practicable but in any case prior to the applicable
Filing Date, an additional Registration Statement covering the
resale by the Holders of not less than 130% of the number of
such Registrable Securities.
(iv) Notify the Holders of Registrable Securities to
be sold (which notice shall, pursuant to clauses (ii) through
(vi) of this Section 5.13(c)(iv), shall be accompanied by an
instruction to suspend the use of the Prospectus until the
requisite changes have been made) as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five
Trading Days prior to such filing) and (if requested by any
such Person) confirm such notice in writing no later than one
Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a
"review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement
(the Company shall provide true and complete copies thereof
and all written responses thereto to each of the Holders); and
(C) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to
a Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) of
the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; (v) of the occurrence of any
event or passage of time that makes the financial statements
included in a Registration Statement ineligible for inclusion
therein or any statement made in a Registration Statement or
Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material
respect or that requires any revisions to a Registration
Statement, Prospectus or other documents so that, in the case
of a Registration Statement or the Prospectus, as the case may
be, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading; and (vi) the occurrence or existence of any
pending corporate development with respect to the Company that
the Company believes may be material and that, in the
determination of the Company, makes it not in the best
interest of the Company to allow continued
Securities Purchase Agreement - Page 23
availability or the Registration Statement or Prospectus;
provided that any and all of such information shall remain
confidential to each Holder until such information otherwise
becomes public, unless disclosure by a Holder is required by
law; PROVIDED, FURTHER, notwithstanding each Holder's
agreement to keep such information confidential, the Holders
make no acknowledgement that any such information is material,
non-public information.
(v) Promptly deliver to each Holder, without charge,
as many copies of the Prospectus or Prospectuses (including
each form of prospectus) and each amendment or supplement
thereto as such Persons may reasonably request. Subject to the
terms of this Agreement, the Company hereby consents to the
use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(vi) Use commercially reasonable efforts to register
or qualify the resale of such Registrable Securities as
required under applicable securities or Blue Sky laws of each
State within the United States as any Holder requests in
writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness
Period; provided, that the Company shall not be required to
qualify generally to do business in any jurisdiction where it
is not then so qualified or subject the Company to any
material tax in any such jurisdiction where it is not then so
subject.
(vii) Cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee
pursuant to a Registration Statement, which certificates shall
be free, to the extent permitted by the Purchase Agreement, of
all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such
names as any such Holders may request.
(viii) Upon the occurrence of any event contemplated
by this Section 5.13(c), as promptly as reasonably possible
under the circumstances taking into account the Company's good
faith assessment of any adverse consequences to the Company
and its stockholders of the premature disclosure of such
event, prepare a supplement or amendment, including a
post-effective amendment, to a Registration Statement or a
supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as
thereafter delivered, neither a Registration Statement nor
such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading. If the Company notifies the Holders in accordance
with clauses (ii) through (vi) of Section 5.13(c)(iv) above to
suspend the use of the use of any Prospectus until the
requisite changes to such Prospectus have been made, or the
Company otherwise notifies the Holders of its election to
suspend the availability
Securities Purchase Agreement - Page 24
of a Registration Statement and Prospectus pursuant to clause
(vi) of Section 5.13(c)(iv), then the Holders shall suspend
use of such Prospectus. The Company will use its best efforts
to ensure that the use of the Prospectus may be resumed as
promptly as is practicable, except that in the case of
suspension of the availability of a Registration Statement and
Prospectus pursuant to clause (vi) of Section 5.13(c)(iv), the
Company shall not be required to take such action until such
time as it shall determine that the continued availability of
the Registration Statement and Prospectus is no longer not
in the best interest of the Company. Notwithstanding the
Company's right to suspend the use of the prospectus
hereunder, the Company shall remain liable to the Holders
pursuant to Section 5.13(b) for any suspensions of the
Registration Statement hereunder which otherwise require
payment thereunder.
(ix) Comply with all applicable rules and regulations
of the Commission.
(x) Use its best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of a Registration Statement, or
(ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(xi) The Company may require, at any time prior to
the third Trading Day prior to the Filing Date, each Holder to
furnish to the Company a statement as to the number of shares
of Common Stock beneficially owned by such Holder and, if
requested by the Commission, the controlling person thereof,
within three Trading days of the Company's request. During any
periods that the Company is unable to meet its obligations
hereunder with respect to the registration of the Registrable
Securities solely because any Holder fails to furnish such
information within three Trading Days of the Company's
request, any liquidated damages that are accruing at such time
shall be tolled and any Event that may otherwise occur solely
because of such delay shall be suspended, until such
information is delivered to the Company.
(d) REGISTRATION EXPENSES. All fees and expenses incident to
the performance of or compliance with this Agreement by the Company
shall be borne by the Company whether or not any Registrable Securities
are sold pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to
be made with the Principal Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state
securities or Blue Sky laws reasonably agreed to by the Company in
writing (including, without limitation, fees and disbursements of
counsel for the Company in connection with Blue Sky qualifications or
exemptions of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws
of such jurisdictions as requested by the Holders), (ii) printing
expenses (including, without limitation, expenses of printing
certificates for Registrable Securities
Securities Purchase Agreement - Page 25
and of printing prospectuses requested by the Holders), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements
of counsel for the Company, and (v) fees and expenses of all other
Persons retained by the Company in connection with the consummation of
the transactions contemplated by this Agreement. In addition, the
Company shall be responsible for all of its internal expenses incurred
in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities
on any securities exchange as required hereunder. In no event shall the
Company be responsible for any broker or similar commissions or, except
to the extent provided for in the Transaction Documents, any legal fees
or other costs of the Holders.
(e) INDEMNIFICATION
(i) INDEMNIFICATION BY THE COMPANY. The Company
shall, notwithstanding any termination of this Agreement,
indemnify and hold harmless each Holder, the officers,
directors, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a
pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them,
each Person who controls any such Holder (within the meaning
of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and
all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and reasonable
attorneys' fees) and expenses (collectively, "LOSSES"), as
incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in a
Registration Statement, any prospectus or any form of
prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in
the case of any prospectus or form of prospectus or supplement
thereto, in light of the circumstances under which they were
made) not misleading, except to the extent, but only to the
extent, that (1) such untrue statements or omissions or
alleged untrue statements or omissions are based upon
information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing
by such Holder expressly for use in a Registration Statement,
such prospectus or such form of prospectus or in any amendment
or supplement thereto or (2) in the case of the use by such
Holder of an outdated or defective prospectus after the
Company has notified such Holder in writing that the
prospectus is outdated or defective and prior to the receipt
by such Holder of written notice thereof from the Company. The
Company shall notify the Holders promptly of the institution,
threat or assertion of any action, claim, suit, investigation,
or proceeding, whether threatened or commenced (a
"PROCEEDING")
Securities Purchase Agreement - Page 26
arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.
(ii) INDEMNIFICATION BY HOLDERS. Each Holder shall,
severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses (as determined by
a court of competent jurisdiction in a final judgment not
subject to appeal or review) arising out of or based upon any
untrue statement of a material fact contained in any
Registration Statement, any prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or
arising solely out of or based solely upon: (1) such Holder's
failure to comply with the prospectus delivery requirements of
the Securities Act or (2) any omission of a material fact
required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to
the extent, such untrue statement or omission is contained in
any information so furnished in writing by such Holder to the
Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (1) such
untrue statements or omissions are based upon information
regarding such Holder furnished in writing to the Company by
such Holder expressly for use therein, or to the extent such
information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such
prospectus or such form of prospectus or in any amendment or
supplement thereto or (2) in the case of an occurrence of an
event of the type specified in Sections 5.13(b)(iv) and
5.13(b)(v), the use by such Holder of an outdated or defective
prospectus after the Company has notified such Holder in
writing that the prospectus is outdated or defective and prior
to the receipt by such Holder of written notice thereof from
the Company. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount
of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification
obligation.
(iii) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any
Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "INDEMNIFIED PArty"), such
Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to
the extent that such failure shall have prejudiced the
Indemnifying Party.
Securities Purchase Agreement - Page 27
An Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified
Party or Parties unless: (1) the Indemnifying Party has agreed
in writing to pay such fees and expenses; or (2) the
Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding;
or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a material conflict of interest is
likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense thereof and the
expense of one such counsel for each Holder shall be at the
expense of the Indemnifying Party). The Indemnifying Party
shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes
an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such
Proceeding.
Subject to the terms of this Agreement, all
fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section)
shall be paid to the Indemnified Party, as incurred, within
ten Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that
an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees
and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification
hereunder).
(iv) CONTRIBUTION. If a claim for indemnification
under Section 5.13(e)(i) or Section 5.13(e)(ii) is unavailable
to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements
or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined
by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of
a material fact or omission or
Securities Purchase Agreement - Page 28
alleged omission of a material fact, has been taken or made
by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed
to include, subject to the limitations set forth in Section
5.13(e)(iii), any reasonable attorneys' or other reasonable
fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section
5.13(e)(iv) were determined by pro rata allocation or by any
other method of allocation that does not take into account the
equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this
Section 5.13(e)(iv), no Holder shall be required to
contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder
has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
The indemnity and contribution agreements
contained in this Section are in addition to any liability
that the Indemnifying Parties may have to the Indemnified
Parties.
(f) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any
of its security holders (other than the Holders in such capacity
pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities. The
Company shall not file any other registration statement on Form S-1 or
S-3 until the initial Registration Statement required hereunder is
declared effective by the Commission, provided that this Section shall
not prohibit the Company from filing amendments to registration
statements already filed.
ARTICLE VI
MISCELLANEOUS
6.1 TERMINATION. This Agreement may be terminated by any Purchaser, by
written notice to the other parties, if the Closing has not been consummated on
or before April 30, 2006; provided that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).
6.2 FEES AND EXPENSES. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company
Securities Purchase Agreement - Page 29
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of any Securities.
6.3 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
6.4 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified on the signature page attached hereto prior to 5:30 p.m. (Denver time)
on a Trading Day and an electronic confirmation of delivery is received by the
sender, (b) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:30 p.m. (Denver
time) on any Trading Day, (c) three Trading Days following the date of mailing,
if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
addresses for such notices and communications are those set forth on the
signature pages hereof, or such other address as may be designated in writing
hereafter, in the same manner, by such Person.
6.5 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.
6.6 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.
6.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities.
6.8 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
Securities Purchase Agreement - Page 30
6.9 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of Colorado, without regard to the principles of
conflicts of law thereof. 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 via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of this Agreement, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
6.10 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
6.11 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.12 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; PROVIDED,
HOWEVER, in the case of a rescission of a conversion of a Debenture or exercise
of a Warrant, the Purchaser shall be required to return any shares of Common
Stock subject to any such rescinded conversion or exercise notice.
6.14 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution
Securities Purchase Agreement - Page 31
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
Securities.
6.15 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.16 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights 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 bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17 USURY. To the extent it may lawfully do so, the Company hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "MAXIMUM RATE"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
Securities Purchase Agreement - Page 32
6.18 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.
6.19 LIQUIDATED DAMAGES. The Company's obligations to pay any
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such liquidated damages or
other amounts are due and payable shall have been canceled.
***********************
Securities Purchase Agreement - Page 33
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
GALAXY ENERGY CORPORATION
By: /s/ MARC E. BRUNER
---------------------------------------
Name: Marc E. Bruner
Title: President
ADDRESS FOR NOTICE:
1331 - 17th Street, Suite 1050
Denver, Colorado 80202
Attn: Marc E. Bruner, President
Tel: (303) 293-2300
Fax: (303) 293-2417
With a copy to:
(which shall not constitute notice) Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203
Attn: Fay M. Matsukage
Tel: (303) 777-3737
Fax: (303) 777-3823
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
Securities Purchase Agreement - Page 34
PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
[PURCHASER'S SIGNATURE PAGE CONTINUED]
Purchaser Name: NICOLAS MATHYS
----------------------------------------------------------
Signature: /s/ NICOLAS MATHYS
----------------------------------------------------------
Name of Signatory: NICOLAS MATHYS
----------------------------------------------------------
Title of Signatory: N.A.
----------------------------------------------------------
Subscription Amount: $1,000,000
-----------------------------------
Number of Warrants: 192,307
-----------------------------------
Address for Notice: WEINBERGHOHE 17, 6340 BAAR, SWITZERLAND
----------------------------------------------------------
- --------------------------------------------------------------------------------
Fax Number: +41 41 724 57 09
----------------------------------------------------------
With a copy to:
----------------------------------------------------------
(which shall not constitute notice)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Securities Purchase Agreement - Page 2
[PURCHASER'S SIGNATURE PAGE CONTINUED]
Purchaser Name: BRUNO SAUTER
----------------------------------------------------------
Signature: /s/ BRUNO SAUTER
----------------------------------------------------------
Name of Signatory: BRUNO SAUTER
----------------------------------------------------------
Title of Signatory: N.A.
----------------------------------------------------------
Subscription Amount: $1,000,000
-----------------------------------
Number of Warrants: 192,307
-----------------------------------
Address for Notice: IM LEEACHER 3, 8123 EBMATINGEN, SWITZERLAND
----------------------------------------------------------
- --------------------------------------------------------------------------------
Fax Number: +41 44 680 44 77
----------------------------------------------------------
With a copy to:
----------------------------------------------------------
(which shall not constitute notice)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Securities Purchase Agreement - Page 2
[PURCHASER'S SIGNATURE PAGE CONTINUED]
Purchaser Name: FOR AN ON BEHALF OF EVERSOUCE GROUP LIMITED
----------------------------------------------------------
Signature: /s/ CECILIA CHOW
----------------------------------------------------------
Name of Signatory: CECILIA CHOW
----------------------------------------------------------
Title of Signatory: PRESIDENT
----------------------------------------------------------
Subscription Amount: $2,500,000.00
-----------------------------------
Number of Warrants: 480,769
-----------------------------------
Address for Notice: SUITE 906, OCEAN CENTRE, HARBOUR CITY, 5 CANTON ROAD,
----------------------------------------------------------
TST, KOWLOON, HONG KONG
- --------------------------------------------------------------------------------
Fax Number: (702) 973-1853
----------------------------------------------------------
With a copy to:
----------------------------------------------------------
(which shall not constitute notice)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Securities Purchase Agreement - Page 2
GALAXY ENERGY CORPORATION
SCHEDULE 3.1(a) TO THE SECURITIES PURCHASE AGREEMENT
Galaxy Energy Corporation owns 100% of the outstanding capital stock of:
o Dolphin Energy Corporation, a Nevada corporation
o Pannonian International, Ltd., a Colorado corporation
GALAXY ENERGY CORPORATION
SCHEDULE 3.1(g) TO THE SECURITIES PURCHASE AGREEMENT
Outstanding options issued to directors, employees and consultants pursuant to
the Company's 2003 Stock Option Plan
- ----------------------------------------------------------------------------------------------------------
DATE OF GRANT NUMBER OF OPTIONS EXERCISE PRICE EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------
May 15, 2003 60,000 $1.00 May 14, 2013
- ----------------------------------------------------------------------------------------------------------
Mar 2, 2004 180,000 $3.51 Mar 1, 2014
- ----------------------------------------------------------------------------------------------------------
Apr 6, 2004 2,375,000 $2.64 Apr 5, 2014
- ----------------------------------------------------------------------------------------------------------
Apr 20, 2004 60,000 $2.24 Apr 19, 2014
- ----------------------------------------------------------------------------------------------------------
Apr 28, 2004 300,000 $1.50 Apr 27,2014
- ----------------------------------------------------------------------------------------------------------
Jul 1, 2004 325,000 $1.55 Jun 30, 2014
- ----------------------------------------------------------------------------------------------------------
Aug 12, 2004 200,000 $1.30 Aug 11, 2014
- ----------------------------------------------------------------------------------------------------------
Dec 2, 2004 875,000 $1.34 Dec 2, 2014
- ----------------------------------------------------------------------------------------------------------
Jan 1, 2005 50,000 $1.26 Jan 1, 2015
- ----------------------------------------------------------------------------------------------------------
Nov 16, 2005 50,000 $1.07 Nov 16, 2015
- ----------------------------------------------------------------------------------------------------------
Jan 4, 2006 240,000 $1.19 Jan 4, 2016
- ----------------------------------------------------------------------------------------------------------
TOTAL 4,715,000
- ----------------------------------------------------------------------------------------------------------
Outstanding warrants to purchase shares of common stock
- ----------------------------------------------------------------------------------------------------------
NUMBER OF
ISSUE DATE WARRANTS EXERCISE PRICE EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------
Sep 24, 2003 722,033 $0.71 Sep 24, 2008
- ----------------------------------------------------------------------------------------------------------
Sep 24, 2003 1,230,508 $0.83 Sep 24, 2008
- ----------------------------------------------------------------------------------------------------------
Oct 3, 2003 147,458 $0.71 Oct 3, 2008
- ----------------------------------------------------------------------------------------------------------
Oct 3, 2003 274,577 $0.83 Oct 3, 2008
- ----------------------------------------------------------------------------------------------------------
Oct 3, 2003 185,083 $0.59 Oct 3, 2008
- ----------------------------------------------------------------------------------------------------------
Dec 18, 2003 500,715 $1.80* Dec, 18, 2007
- ----------------------------------------------------------------------------------------------------------
Dec 18, 2003 105,166 $1.40 Dec 18, 2007
- ----------------------------------------------------------------------------------------------------------
Jan 15, 2004 1,321,979 $4.05* Jan 15, 2009
- ----------------------------------------------------------------------------------------------------------
Jan 15, 2004 358,435 $1.80* Jan 15, 2009
- ----------------------------------------------------------------------------------------------------------
Aug 19, 2004 5,194,806 $1.54* Aug 19, 2007
- ----------------------------------------------------------------------------------------------------------
Aug 19, 2004 300,000 $1.54 Aug 19, 2009
- ----------------------------------------------------------------------------------------------------------
Oct 27, 2004 100,000 $1.54 Oct 27, 2009
- ----------------------------------------------------------------------------------------------------------
Mar 1, 2005 1,637,234 $1.88* Mar 1, 2008
- ----------------------------------------------------------------------------------------------------------
May 31, 2005 200,000 $1.88 May 31, 1020
- ----------------------------------------------------------------------------------------------------------
TOTAL 12,277,994
- ----------------------------------------------------------------------------------------------------------
- -----------------
*Exercise price adjusted to $1.25.
In addition to the warrants, Galaxy issued in 2004 convertible notes in the
aggregate principal amount of $20,000,000 (the "2004 Notes"). The note holders
have the right at any time to convert the convertible 2004 Notes into shares of
the Company's common stock at an initial
conversion price of $1.87 (subject to adjustment to prevent dilution). All of
the 2004 Notes, excluding accrued interest, were initially convertible into
10,695,187 shares of common stock. As of December 1, 2005, the conversion price
was adjusted to $1.25 per share.
As of March 1, 2005, Galaxy issued senior subordinated convertible notes in the
aggregate principal amount of $7,695,000 (the "March 2005 Notes"). Beginning
September 1, 2005, the note holders may convert the March 2005 Notes into
4,093,085 shares of the Company's common stock based on a conversion price of
$1.88 per share (subject to adjustment to prevent dilution). As of December 1,
2005, the conversion price was adjusted to $1.25 per share, but the number of
shares was limited to the original amount, assuming a price of $1.88.
As of May 31, 2005, Galaxy issued senior convertible notes in the aggregate
amount of $10,000,000 (the "May 2005 Notes"). The note holders may convert the
May 2005 Notes into 5,319,149 shares of the Company's common stock based on a
conversion price of $1.88 per share (subject to adjustment to prevent dilution).
As of December 1, 2005, the conversion price was adjusted to $1.25 per share.
All of the warrants listed in the table above, as well as the convertible notes
described above, contain anti-dilution provisions. If Galaxy were to issue
common stock, a security convertible into shares of common stock, or a security
exercisable to purchase common stock, where the sales price, conversion price,
or exercise price, as the case may be, of that security were lower than the
conversion price or the exercise price of the Warrants, subject to certain
exceptions, such conversion prices and exercise prices would be adjusted to a
lower price.
GALAXY ENERGY CORPORATION
SCHEDULE 3.1(u) TO THE SECURITIES PURCHASE AGREEMENT
On April 25, 2006, Galaxy received notice from the American Stock Exchange
("AMEX") that it is not in compliance with the listing requirements of AMEX.
GALAXY ENERGY CORPORATION
SCHEDULE 3.1(x) TO THE SECURITIES PURCHASE AGREEMENT
Indebtedness senior to the Debentures:
- ------------------------------------------------------------------------------------------------------------------
DATE CREDITOR NATURE OF DEBT ORIGINAL AMOUNT
INCURRED AMOUNT OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
01/14/04 DAR, LLC Secured Promissory Note $2,600,000.00 $2,049,728.00
- ------------------------------------------------------------------------------------------------------------------
08/19/04 HFTP Investment L.L.C. Senior Secured $7,750,000.00 $4,520,833.30
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
08/19/04 Gaia Offshore Master Fund, Senior Secured $2,000,000.00 $1,166,666.70
Ltd. Convertible Note
- ------------------------------------------------------------------------------------------------------------------
08/19/04 Caerus Fund, Ltd. Senior Secured $250,000.00 $145,833.30
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
08/19/04 AG Offshore Convertibles, Senior Secured $5,000,000.00 $2,916,666.70
Ltd. (1)<F1> Convertible Note
- ------------------------------------------------------------------------------------------------------------------
10/27/04 HFTP Investment L.L.C. Senior Secured $2,583,334.00 $1,506,944.80
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
10/27/04 Gaia Offshore Master Fund, Senior Secured $666,667.00 $388,889.10
Ltd. Convertible Note
- ------------------------------------------------------------------------------------------------------------------
10/27/04 Caerus Fund, Ltd. Senior Secured $83,333.00 $48,610.90
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
10/27/04 AG Offshore Convertibles, Senior Secured $1,666,666.00 $972,221.90
Ltd.(1)<F1> Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Bank Sal. Oppenheim jr. & Senior Subordinated $1,050,000.00 $1,050,000.00
Cie. (2)<F2> Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Clarion Finanz AG Senior Subordinated $1,000,000.00 $1,000,000.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Capriccio Investments Inc. Senior Subordinated $1,000,000.00 $1,000,000.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Desmodio Management Inc. Senior Subordinated $1,000,000.00 $1,000,000.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Centrum Bank AG Senior Subordinated $950,000.00 $950,000.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Finter Bank Zurich Senior Subordinated $910,000.00 $910,000.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Julius Baer Fund Senior Subordinated $685,000.00 $685,000.00
Trading (3)<F3> Convertible Note
- ------------------------------------------------------------------------------------------------------------------
03/01/05 Vanguard Capital Limited Senior Subordinated $1,100,000.00 $1,100,000.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
05/31/05 HFTP Investment L.L.C. Senior Secured $5,166,667.00 $5,166,667.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
05/31/05 Gaia Offshore Master Fund, Senior Secured $1,333,333.00 $1,333,333.00
Ltd. Convertible Note
- ------------------------------------------------------------------------------------------------------------------
05/31/05 Caerus Fund, Ltd. Senior Secured $166,667.00 $166,667.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
DATE CREDITOR NATURE OF DEBT ORIGINAL AMOUNT
INCURRED AMOUNT OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
05/31/05 Leonardo, L.P. Senior Secured $3,333,333.00 $3,333,333.00
Convertible Note
- ------------------------------------------------------------------------------------------------------------------
- ------------
<FN>
(1)<F1> Includes transfer of note from AG Domestic Convertibles, L.P.
(2)<F2> $25,000 of note to be transferred to Rahn & Bodmer
(3)<F3> To be transferred to Bank Julius Baer & Co. Ltd.
</FN>
GALAXY ENERGY CORPORATION
SCHEDULE 5.9 TO THE SECURITIES PURCHASE AGREEMENT
- ------------------------------------------------------------------
TOTAL PROCEEDS AVAILABLE $4,500,000
==========
- ------------------------------------------------------------------
USE OF PROCEEDS:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Pipeline Ridge water handling expansion $ 150,000
Leiter water handling expansion 175,000
- ------------------------------------------------------------------
Overhead and operating expenses 1,230,000
- ------------------------------------------------------------------
Convertible note payments 2,482,000
- ------------------------------------------------------------------
Working capital 313,000
- ------------------------------------------------------------------
CASH COMMISSIONS 100,000
- ------------------------------------------------------------------
LEGAL AND CONSULTING FEES AND OTHER OFFERING COSTS 50,000
- ------------------------------------------------------------------
TOTAL USES OF PROCEEDS $4,500,000
==========
- ------------------------------------------------------------------