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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
10, 1998, by and among Queen Sand Resources, Inc., a Delaware corporation (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT"); and
The Buyers wish, severally and not jointly, to purchase, upon the terms
and conditions stated in this Agreement, (i) an aggregate of that number of
shares of the Company's common stock, par value $.0015 per share (the "COMMON
STOCK"), equal to $2,500,000 divided by the Purchase Price (as defined below)
(the "COMMON SHARES") in the respective amounts set forth opposite each Buyer's
name on the Schedule of Buyers attached hereto, (ii) the right with respect to
each Common Share (the "REPRICING RIGHT") to require the Company, subject to the
terms and conditions set forth herein, to issue the Buyers additional shares of
Common Stock (the "REPRICING COMMON SHARES") as described in Section 5 and (iii)
warrants in the form of Exhibit C attached hereto (the "WARRANTS"), entitling
the holders thereof to acquire from time to time from the Closing Date through
the third anniversary thereof an aggregate of 50,000 shares of Common Stock at
an exercise price (subject to adjustment as provided therein) equal to 110% of
the Purchase Price (the "WARRANT SHARES"). The Common Shares, the Warrants, the
Warrant Shares, the Repricing Rights, the Repricing Common Shares and any shares
of common stock issued as payment of Registration Delay Payments (as defined in
the Registration Rights Agreement, as defined below) collectively are referred
to in this Agreement as the "SECURITIES").
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES.
a. The Closing. The issuance and sale of the Common Shares, Repricing
Rights and Warrants pursuant to this Agreement shall occur on November 24, 1998
(the "CLOSING DATE"). The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall occur on the Closing Date at the offices of
Robinson Silverman Pearce Aronsohn & Berman, 1290 Avenue of the Americas, New
York, New York 10104, or at such other location as may be agreed to by the
parties.
b. Purchase of Securities. At the Closing (1) the Company shall deliver
to or as directed by each Buyer (i) a stock certificate, registered in the name
of such Buyer or such Buyer's designee (all such certificates are collectively,
the "STOCK CERTIFICATES") representing the number of Common Shares to be
acquired at the Closing by such Buyer (which shall equal the dollar amount of
Common Shares to be acquired at the Closing by each Buyer, as set forth in the
Schedule of Buyers attached hereto, divided by $6.00 (the "PURCHASE PRICE")),
(ii) a Warrant entitling such Buyer to acquire such Buyer's pro rata
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portion of the Warrant Shares (determined by reference to such Buyer's pro rata
portion of the aggregate Purchase Price being paid at Closing), (iii) one
Repricing Right for each Common Share issued at the Closing to such Buyer (which
shall be deemed incorporated and part of each Common Share issued), (iv) the
legal opinion of Haynes and Boone, LLP, dated as of the Closing Date, in form,
scope and substance customary for a transaction of this type and satisfactory to
such Buyer, (v) a certificate evidencing the incorporation or formation and good
standing (or similar instrument) of the Company and each Subsidiary in such
entity's jurisdiction of formation as of a date within ten days of the Closing
Date, (vi) a secretary's certificate of the Company as (A) resolutions
consistent with Section 3(b)(ii), (B) certified copies of the Company's
Certificate of Incorporation and Bylaws, each in effect at the Closing, (vii)
the Irrevocable Transfer Agent Instructions, in the form of Exhibit A attached
hereto, acknowledged in writing by the Company's transfer agent, and (viii) all
other instruments and writings required to have been delivered at or prior to
the Closing by the Company pursuant to this Agreement, including without
limitation, an executed Registration Rights Agreement, dated as of the Closing
Date, between the Company and the Buyers in the form of Exhibit D attached
hereto (the "REGISTRATION RIGHTS AGREEMENT"); and (2) each Buyer shall deliver
or cause to be delivered to the Company (i) by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, the
Purchase Price for the Securities being acquired by it at the Closing
(determined by reference to the Schedule of Buyers attached hereto); and (ii)
all documents, instruments and writings required to have been delivered at or
prior to the Closing by such Buyer pursuant to this Agreement, including,
without limitation, an executed Registration Rights Agreement.
c. Closing Bid Price. For purposes of this Agreement, "CLOSING BID
PRICE" means, for any security as of any date, the last closing bid price for
such security on The Nasdaq SmallCap Market as reported by Bloomberg Financial
Markets ("BLOOMBERG"), or, if The Nasdaq SmallCap Market is not the principal
trading market for such security, the last closing bid price of such security on
a Subsequent Market (as defined below) on which such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last closing
trade price of such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as mutually determined by the Company and the holders of a majority of the
outstanding Common Shares and Repricing Rights (on an as exercised basis),
including for purposes of this determination any Common Shares and Repricing
Rights (on an as exercised basis) with respect to which the Purchase Price is
being determined. If the Company and the holders of Common Shares and Repricing
Rights are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 5(c)(iii) with the term
"Closing Bid Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
d. Trading Day. For purposes of this Agreement, "TRADING DAY" shall
mean (a) a day on which the Common Stock is listed for trading on the Nasdaq
SmallCap Market or on the New York Stock Exchange, American Stock Exchange or
Nasdaq National Market (each a "SUBSEQUENT MARKET") or (b) if the Common Stock
is not listed on the Nasdaq SmallCap Market or a Subsequent Market, a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board,
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or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then a Trading Day shall be a Business Day.
f. Business Day. For purposes of this Agreement, "BUSINESS DAY" shall
mean any day except Saturday, Sunday and any day which shall be a legal holiday
or a day on which banking institutions in the State of New York are authorized
or required by law or other government action to close.
e. U.S. Dollars. Unless otherwise specified, all references to dollars
($) are to U.S. dollars (US$).
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer is acquiring the Securities to be
issued or issuable to it hereunder for its own account for investment only and
not with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the completeness and accuracy of the materials provided
to such Buyer by or on behalf of the Company with respect to the transactions
contemplated hereby or on the Company's representations and warranties contained
in this Agreement. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
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e. No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that, except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that the
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, (C) such Buyer
provides the Company with reasonable assurance that the Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or
a successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder, or (D) such transferee or assignee is an affiliate
controlled by Buyer. Notwithstanding anything to the contrary contained in the
Transaction Documents (as defined below), each Buyer shall be entitled to pledge
the Securities in connection with a bona fide margin account. Notwithstanding
anything to the contrary contained herein, the Company agrees that a Buyer may
transfer Securities to an affiliate thereof or to an investment fund that is
under common management with such Buyer or affiliate.
g. Authorization; Enforcement. This Agreement has been, and upon the
Closing the Registration Rights Agreement will have been, duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable against such Buyer in accordance
with its terms.
h. Residency. Such Buyer is a resident of that country or jurisdiction
specified on the Schedule of Buyers.
The Company acknowledges and agrees that the Buyers make no
representations and warranties with respect to the transaction contemplated by
this Agreement except for those specifically set forth in this Section 2.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that:
a. Organization and Qualification. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest representing 50% or more of the outstanding equity or similar interests
(a complete list of which is set forth in Schedule 3(a)) are corporations duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite
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corporate power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not
reasonably be expected to have or result in a Material Adverse Effect. As used
in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect
on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith or on the
authority or ability of the Company to perform its obligations in a timely
manner under the Transaction Documents (as defined below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Warrants, the Registration Rights Agreement, and the
Irrevocable Transfer Agent Instructions (as defined in Section 8) (collectively,
the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the
terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Common Shares, the Repricing Rights and the Warrants and the reservation for
issuance and the issuance of the Warrant Shares and the Repricing Common Shares
issuable upon exercise of the Warrants and the Repricing Rights, respectively,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders generally (other than the consent of the stockholders that may
be required by the applicable rules of the Nasdaq Stock Market, Inc.), (iii)
this Agreement has been, and upon execution by the Company and delivery of the
other Transaction Documents, such other Transaction Documents will have been
duly executed and delivered by the Company, and (iv) this Agreement constitutes,
and upon execution and delivery by the Company of the other Transaction
Documents, such other Transaction Documents will constitute the valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, of which as
of the date hereof, 30,933,612 shares were issued and outstanding, 3,500,000
shares are issuable and reserved for issuance pursuant to the Company's 1997
Incentive Equity Plan and the Company's Directors' Nonqualified Option Plan and
22,231,974 shares are currently issuable pursuant to securities (other than the
Repricing Rights and the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock; and (ii) 50,000,000 shares of
preferred stock, par value $0.01 per share, of which as of the date hereof,
9,609,700 shares were issued and outstanding and 9,600,000 shares are reserved
for issuance. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities; (iii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities
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or rights convertible into, any shares of capital stock of the Company or any of
its Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement); (v) there are no
outstanding securities of the Company or any of its Subsidiaries which contain
any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement.
d. Issuance of Securities. The Common Shares, the Repricing Rights and
the Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights set forth herein and the Warrants. 883,333 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f) below) have been duly authorized and reserved for issuance upon
exercise of the Warrants and the Repricing Rights. Upon exercise in accordance
with the Warrants or this Agreement, as the case may be, the Warrant Shares and
the Repricing Common Shares, will be validly reserved and issued, duly listed,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Warrant Shares and the Repricing Common Shares) do not and will not (i) result
in a violation of its Restated Certificate of Incorporation, as amended and as
in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the Company's Amended and Restated By-laws, as
in effect on the date hereof (the "BY-LAWS"); (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party (except for such conflicts or
defaults that individually or in the aggregate would not reasonably be expected
to have or result in a Material Adverse Effect); or (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
principal market or exchange on which the Common Stock is traded or listed)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected (except for
such violations that individually or in the aggregate would not reasonably be
expected to have or result in a Material Adverse Effect). Neither the Company
nor its Subsidiaries is in violation of any term of or in default under (x) its
Certificate of Incorporation, any Certificate of Designation, Preferences and
Rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, or (y) any contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order or any
statute, rule or regulation applicable to the Company or its Subsidiaries,
except for defaults that individually or in the aggregate would not have
Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted, and shall not be
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conducted, in violation of any law, ordinance or regulation of any governmental
entity other than violations that would not have a Material Adverse Effect.
Except as specifically required by this Agreement and, the filing of a
registration statement in accordance with the Registration Rights Agreement, the
filing of a Form D with the Securities and Exchange Commission, filings required
under applicable state securities or "blue sky" laws and filings and approvals
required by The Nasdaq SmallCap Market, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof. Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. Since May 27, 1997,
the Company has not received notice (written or oral) from The Nasdaq SmallCap
Market that the Company was not in compliance with the listing or maintenance
requirements thereof. The Company is not in violation of the listing
requirements of The Nasdaq SmallCap Market as in effect on the date hereof and
is not aware of any facts which would reasonably lead to delisting or suspension
of the Common Stock by The Nasdaq SmallCap Market in the foreseeable future,
other than in conjunction with a listing of the Common Stock on a Subsequent
Market.
f. SEC Documents; Financial Statements. Since October 12, 1996, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end immaterial audit adjustments). No other written information provided by
or on behalf of the Company to the Buyers which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have provided the Buyers with any
material, nonpublic information. The Company understands
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and confirms that the Buyers will be relying upon the foregoing representation
in effecting transactions in the securities of the Company. The Company is, and
at the Closing Date will be, eligible to register securities for resale with the
Commission under Form S-3 promulgated under the Securities Act.
g. Absence of Certain Changes. Except as disclosed in the SEC Documents
and except for general economic and industry conditions, since June 30, 1998,
there has been no event, occurrence or development that has had or that could
reasonably be expected to have or result in a Material Adverse Effect. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
any of its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding, inquiry
or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, that
could reasonably be expected to have or result in a Material Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of Securities. The Company
acknowledges and agrees that each of the Buyers is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby. The Company further acknowledges that each
Buyer is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any of the Buyers or
any of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings not permitted to be included in
the Registration Statement (as defined in the Registration Rights Agreement)
under which the Securities will be registered.
l. Employee Relations. Neither the Company nor any of its Subsidiaries
is involved in any union labor dispute nor, to the knowledge of the Company or
any of its Subsidiaries, is any such dispute threatened. Neither the Company nor
any of its Subsidiaries is a party to a collective bargaining
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agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
m. Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate within two years from the date of this
Agreement. The Company and its Subsidiaries do not have any knowledge of any
infringement by the Company or its Subsidiaries of trademarks, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secret or other similar rights
of others, or of any such development of similar or identical trade secret or
technical information by others and, there is no claim, action or proceeding
being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding trademarks, trade name
rights, patents, patent rights, inventions, copyrights, licenses, service names,
service marks, service mark registrations, trade secrets or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing.
n. Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS") other than violations which, individually or
in the aggregate, would not have or result in a Material Adverse Effect, (ii)
have received all material permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in material compliance with all terms and conditions of any such
permit, license or approval.
o. Title. The Company and its Subsidiaries have good and marketable (or
if applicable, defensible) title in fee simple to all real property and good and
marketable (or if applicable, defensible) title to all personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all liens, encumbrances and defects except such
as are described in Schedule 3(o) or such as are customary in the oil and gas
industry or such as would not have or result in a Material Adverse Effect. Any
real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are customary in the oil and gas industry or such as
would not have or result in a Material Adverse Effect.
p. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary for similarly-situated and sized companies in the businesses in which
the Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
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q. Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. Internal Accounting Controls. The Company and each of its
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 generally accepted accounting principles and to maintain asset
accountability, and (iii) access to assets is permitted only in accordance with
management's general or specific authorization.
s. Investment Company. The Company is not, and is not controlled by or
under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
t. Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required to be filed 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) or in respect of tax obligations which are not
material in amount 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.
u. Certain Transactions. Except as set forth on Schedule 3(u) and in
the SEC Documents filed at least ten days prior to the date hereof and except
for arm's length transactions pursuant to which the Company makes payments in
the ordinary course of business upon terms no less favorable than the Company
could obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the executive officers or directors of the
Company is presently a party to any transaction with the Company or any of its
Subsidiaries (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 corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner that would be required to disclosed in the SEC Documents.
v. Dilutive Effect. The Company understands and acknowledges that the
number of Repricing Common Shares issuable upon exercise of the Repricing Rights
will increase in certain circumstances and could result in substantial dilution
of the outstanding shares of Common Stock. The Company further acknowledges that
its obligation to issue Repricing Common Shares upon exercise of the Repricing
Rights in accordance with this Agreement is absolute and unconditional
regardless of the
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dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
w. Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
4. COVENANTS AND CERTAIN AGREEMENTS.
a. Form D; Blue Sky Filings. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall take such
action and make such filings as the Company shall reasonably determine is
necessary and as required by applicable law to qualify the Securities for, or
obtain exemption for the Securities for, sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States, and shall provide evidence of any such action so
taken to the Buyers.
b. Furnishing of Information. So long as any Buyer 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 Section 13(a) or 15(d) of the 1934
Act. So long as any Buyer owns Securities, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the 1934 Act, it will prepare
and furnish to the Buyers and make publicly available in accordance with Rule
144(c) promulgated under the 1933 Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the 1934 Act, as well
as any other information required thereby, in the time period that such filings
would have been required to have been made under the 1934 Act. The Company
further covenants that it will take such further action as any holder of the
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Common Shares, Warrant Shares and Repricing Shares
without registration under the 1934 Act under Rule 144 promulgated under the
Securities Act. Upon the request of any such holder, the Company shall deliver
thereto a written certification of a duly authorized officer as to whether it
has complied with such requirements.
c. Use of Proceeds. The Company will use the net proceeds from the sale
of the Securities solely to repurchase shares of the Company's Series C
Convertible Preferred Stock and for general working capital purposes.
d. Certain Information. The Company agrees to send the following to
each Buyer during the Effectiveness Period (as defined in the Registration
Rights Agreement): (i) within one Business Day of the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries,
and (ii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
e. Reservation of Shares. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than 200% of the number of shares of Common Stock needed to provide for the
issuance of the Repricing Common Shares; provided, however,
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that the above requirement shall expire as to each Buyer on the Date of
Repurchase at the Company's Election (as defined herein) to the extent of a
Repurchase at the Company's Election, and the Warrant Shares (without regard to
any limitations on the exercise of the Repricing Rights or Warrants).
f. Listing. The Company shall list 1,300,000 shares of Common Stock in
respect of the Securities within 10 days of the Closing Date and shall promptly
secure the listing of all additional Registrable Securities not previously
listed as such shares are issued (as defined in the Registration Rights
Agreement) on the Nasdaq SmallCap Market and each other Subsequent Market on
which the Common Stock is then listed or traded and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stock's
authorization for listing on The Nasdaq SmallCap Market and any other Subsequent
Market on which the Common Stock is then listed or traded or in connection with
a Major Transaction (as defined below). Neither the Company nor any of its
Subsidiaries shall take any action which may result in the delisting or
suspension of the Common Stock on the Nasdaq SmallCap Market or on any
Subsequent Market on which the Common Stock is then listed or traded (other than
to switch listings from The Nasdaq SmallCap Market to a Subsequent Market). The
Company shall promptly provide to each Buyer copies of any notices it receives
from The Nasdaq SmallCap Market or any other Subsequent Market on which the
Common Stock is then listed or traded regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.
g. Filing of Form 8-K. On or before the tenth (10th) Business Day
following the Closing Date, the Company shall file a Form 8-K or a Form 10-Q
with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and consummated at such Closing, in each case in the form
required by the 1934 Act.
h. Legends. The parties agree that the certificates or other
instruments representing the Warrants and, until such time as the sale of the
Common Shares, the Repricing Common Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Common Shares, the Repricing
Common Shares and the Warrant Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.
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The legend set forth above shall be removed and the Company shall issue a
certificate without any legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in form acceptable to the Company, to the effect
that a public sale, assignment or transfer of such Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances that such Securities can be sold without
restriction pursuant to Rule 144(k). Any Repricing Shares and Warrant Shares
issued at such time as when there is an effective registration statement
covering such shares will not bear any restrictive legend. Each Buyer
acknowledges, covenants and agrees to sell the Securities represented by a
certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act.
i. Stockholder Approval Under the Rules and Regulations of The Nasdaq
Stock Market. If the Company would be, if all Repricing Rights were exercised on
such date, required under the Rules and Regulations of the Nasdaq Stock Market,
Inc. to obtain the approval of the stockholders of the Company to issue the
Repricing Shares upon such exercise (such date, the "STOCKHOLDER APPROVAL
TRIGGER DATE"), then the Company shall, (i) within 3 Business Days, notify the
holders of Repricing Rights of such fact, (ii) within 15 days of the Stockholder
Approval Trigger Date file proxy materials relating to such stockholder approval
with the Securities and Exchange Commission, and (iii) use its best efforts to
obtain as soon as possible, and in any event within 75 days after the
Stockholder Approval Trigger Date (the "STOCKHOLDER APPROVAL DEADLINE"), such
stockholder approval for the issuance of all Securities described in this
Agreement (including the approval of issuances at a discount to market as may be
required by the Rules and Regulations of the Nasdaq Stock Market, Inc.). Each
holder of Repricing Rights may deliver a notice to the Company regarding such
requirement, in which event the time periods described herein shall commence on
the date of such notice. If the Company fails to obtain the approval of the
stockholders contemplated in this Section by the Stockholder Approval Deadline,
then, as partial relief (which remedy shall not be exclusive of any other
remedies available under this Agreement, at law or in equity), the Company shall
pay to each Buyer an amount in cash equal to the product of (i) the aggregate
Purchase Price paid by such Buyer multiplied by (ii) .025; multiplied by (iii)
the quotient of (x) the number of days after the Stockholder Approval Deadline
that the approval of the stockholders required by this Section is not obtained,
divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five days of the earlier of (I) the
holding of the meeting of the Company's stockholders, the failure of which
resulted in the requirement to make such payments, and (II) the last day of each
30-day period beginning on the Stockholder Approval Deadline. In the event the
Company fails to make such payments in a timely manner, such payments shall bear
interest at the lesser of (i) the rate of 2.0% per month or (ii) the highest
lawful rate (pro rated for partial months) until paid in full.
j. Right of First Refusal. From the date of this Agreement through
December 31, 1998, the Company and its Subsidiaries shall not enter into any
agreement for any equity financing through a structure similar to that set forth
in this Agreement (including any issuance of equity securities of the Company or
any Subsidiary that are convertible or exchangeable into or for Common Stock) (a
"FUTURE OFFERING"), unless it shall have first delivered to each Buyer or a
designee appointed by such Buyer written notice (the "FUTURE OFFERING NOTICE")
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Buyer an option to purchase up to its Aggregate
Percentage (as defined below), as of the date of delivery of the Future Offering
Notice, in the Future Offering (the limitation referred to in this sentence is
referred to as the "CAPITAL RAISING LIMITATION").
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Notwithstanding anything to the contrary set forth herein, the right of first
refusal granted to the Buyers hereunder and the Capital Raising Limitation shall
be limited to up to $2,500,000 of Future Offerings. For purposes of this
Section, "AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean
the percentage obtained by dividing (i) the aggregate number of Common Shares
purchased by such Buyer at the Closing by (ii) the aggregate number of Common
Shares purchased by all Buyers at the Closing. A Buyer can exercise its option
to participate in a Future Offering by delivering written notice thereof to
participate to the Company within five Business Days of receipt of a Future
Offering Notice, which notice shall state the quantity of securities being
offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage then each Buyer
which has indicated that it is willing to purchase a number of securities in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section, the Company
shall be permitted to sell securities in the Future Offering to the extent that
the Buyers' rights under this Section were not exercised, upon terms and
conditions specified in the Future Offering Notice. The Capital Raising
Limitation shall not apply to (i) a loan from a commercial bank or any affiliate
of Enron Corp., a Delaware corporation, provided such loan does not have an
equity component valued (as determined by a national investment bank mutually
agreed upon by the Company and the holders of a majority of the outstanding
Common Shares and Repricing Rights (on an as exercised basis)) in excess of 15%
of the proceeds of such loan; (ii) any transaction involving the Company's
issuances of securities (A) as consideration in a merger or consolidation with
nonaffiliated entities, (B) in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity capital), or
(C) as consideration for the acquisition of a business, product or license or
other assets or any share in an oil or gas company by the Company; (iii) the
issuance of Common Stock in a firm commitment, underwritten public offering with
net proceeds to the Company of at least $35,000,000, (iv) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof, (v) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option plan, restricted stock plan, stock purchase plan or
other plan or written compensation contract for the benefit of the Company's
employees or directors, (vi) any bridge financing, provided such financing does
not have an equity component valued (as determined by a national investment bank
mutually agreed upon by the Company and the holders of a majority of the
outstanding Common Shares and Repricing Rights (on an as exercised basis)) in
excess of 15% of the proceeds of such bridge financing or (vii) issuances of
securities under any rights (a) pursuant to that certain Securities Purchase
Agreement dated March 27, 1997 between the Company and Joint Energy Development
Investments L.P., or (b) pursuant to the Subordinated Revolving Credit Loan
Agreement, dated as of December 29, 1997, between the Company and Enron Capital
& Trade Resources Corp., as agent. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
5. REPRICING COMMON SHARES.
a. Certain Defined Terms. For purposes of this Agreement, the following
terms shall have the following meanings:
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(i) "REPRICING PRICE" means, as of any date, (A) during the
period beginning on and including the date which is 121 days after the Closing
Date and ending on and including the date which is 150 days after the Closing
Date, 124% of the Purchase Price, (B) during the period beginning on and
including the date which is 151 days after the Closing Date and ending on and
including the date which is 180 days after the Closing Date, 125% of the
Purchase Price, (C) during the period beginning on and including the date which
is 181 days after the Closing Date and ending on and including the date which is
210 days after the Closing Date, 126% of the Purchase Price, (D) during the
period beginning on and including the date which is 211 days after the Closing
Date and ending on and including the date which is 240 days after the Closing
Date, 127% of the Purchase Price and (E) after the date which is 240 days after
the Closing Date, 128% of the Purchase Price.
(ii) "MARKET PRICE" means, as of any date of determination,
the lowest Closing Bid Price during the 15 consecutive Trading Days immediately
preceding such date of determination. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, combination,
recapitalization, reclassification or other similar transaction during such
period.
(iii) "REPRICING RATE" means the number of shares of Common
Stock issuable upon exercise of each Repricing Right pursuant to Section 5(b)
determined according to the following formula; provided that if the result of
such formula is less than zero, then the result shall be deemed to be zero:
(Repricing Price - Market Price)
--------------------------------
Market Price
b. Repricing Right. Subject to the provisions of Sections 5(d) and 5(e)
below, at any time or times on or after the Closing Date, any holder of
Repricing Rights shall be entitled to exercise any whole number of Repricing
Rights for fully paid and nonassessable shares of Common Stock in accordance
with Section 5(c), at the Repricing Rate. The Company shall not issue any
fraction of a share of Common Stock upon any exercise of Repricing Rights. All
shares of Common Stock (including fractions thereof) issuable upon exercise of
more than one Repricing Right by a holder thereof shall be aggregated for
purposes of determining whether the exercise would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
c. Mechanics of Exercise of Repricing Right. A holder of Repricing
Rights shall exercise such rights in accordance with the following terms:
(i) Holder's Delivery Requirements. To exercise Repricing
Rights for full shares of Common Stock on any date (the "EXERCISE DATE"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m. New York City time, on such date, a copy of a
fully executed notice of exercise in the form attached hereto as Exhibit B (the
"EXERCISE NOTICE") to the Company, and (B) surrender to a common carrier, for
delivery to the Company as soon as practicable following such date, the
originally executed Exercise Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of an Exercise Notice, the Company shall promptly, but in no
event later than one Trading Day after receipt, send, via facsimile, a
confirmation of receipt of such Exercise Notice to such holder. Upon receipt by
the
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Company of the originally executed Exercise Notice, the Company or the transfer
agent for the Common Stock (the "TRANSFER AGENT") (as applicable) shall, two (2)
Trading Days following the date of receipt, (I) issue and surrender to a common
carrier for overnight delivery to the address specified in the Exercise Notice,
a certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (II)
credit such aggregate number of shares of Common Stock to which the holder shall
be entitled to the holder's or its designee's balance account with The
Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Market Price or the Repricing Price or the arithmetic
calculation of the Repricing Rate, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one Trading Day of receipt of such holder's Exercise Notice. If
such holder and the Company are unable to agree upon the determination of the
Market Price or the Repricing Price or arithmetic calculation of the Repricing
Rate within one Business Day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one
Trading Day submit via facsimile (A) the disputed determination of the Market
Price or Repricing Price to an independent, reputable investment bank, or (B)
the disputed arithmetic calculation of the Repricing Rate to its independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than two Trading
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon an exercise of Repricing Rights shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Exercise Date.
(v) Company's Failure to Timely Deliver Repricing Common
Shares. If within three (3) Trading Days after the Company's receipt of the
Exercise Notice the Company shall fail to issue a certificate (which shall be
free of all restrictive legends other than those required by Section 4(h)) for
the number of shares of Common Stock to which a holder is entitled or to credit
the holder's balance account with The Depository Trust Company for such number
of shares of Common Stock to which the holder is entitled upon such holder's
exercise of the Repricing Rights, in addition to all other available remedies
which such holder may pursue hereunder (including indemnification pursuant to
Section 9 hereof), the Company shall pay additional damages to such holder on
each date after such third (3rd) Trading Day that such exercise is not timely
effected in an amount equal to 0.5% of the product of (A) the sum of the number
of shares of Common Stock not issued to the holder on a timely basis pursuant to
Section 5(c)(ii) and to which such holder is entitled and (B) the Closing Bid
Price of the Common Stock on the last possible date which the Company could have
issued such Common Stock to such holder without violating Section 5(c)(ii). In
addition, if the Buyer to whom the Company has failed to timely deliver the
shares is forced to purchase (a "BUY-IN") other outstanding shares of Common
Stock of the Company in order to cover a sale order by such Buyer, then the
Company will be required to pay to such Buyer the positive difference between
the price at which the Buyer bought its covering shares (inclusive of brokerage
commissions, if any) and the sale price in respect of the shares sold by it.
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d. Exercise Restrictions. In addition to the termination provisions set
forth in Section 5(e), the right of a holder of Repricing Rights to exercise
such Repricing Rights to this Section 5 shall be limited as set forth below.
(i) Without the prior consent of the Company, a holder of
Repricing Rights shall not be entitled to exercise an aggregate number of
Repricing Rights from the Closing Date through the date of this determination in
excess of the number of Repricing Rights which when divided by the number of
Repricing Rights purchased by such holder would exceed (i) 0.00 for the period
beginning on the Closing Date and ending on and including the date which is 120
days thereafter, (ii) 0.25 for the period beginning on the date which is 121
days after the Closing Date and ending on and including the date which is 150
days after the Closing Date, (iii) 0.50 for the period beginning on and
including the date which is 151 days after the Closing Date and ending on and
including the date which is 180 days after the Closing Date, (iv) 0.75 for the
period beginning on the date which is 181 days after the Closing Date and ending
on and including the date which is 210 days after the Closing Date, and (v) 1.00
for the period beginning on and including the date which is 211 days after the
Closing Date. All such periods shall be considered on a cumulative basis.
Notwithstanding the foregoing, the exercise restriction set forth in this
Section 5(d) shall cease to apply if an event constituting a Major Transaction
or a Triggering Event (as defined in Section 7 below) shall have occurred or
been publicly announced or if a Registration Statement shall not have been
declared effective by the 120th day after the Closing Date.
(ii) Notwithstanding anything to the contrary in this
Agreement, in no event shall any holder of Repricing Rights be entitled to
exercise Repricing Rights in excess of that number of Repricing Rights which,
upon giving effect to such exercise, would cause the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates to exceed
4.99% of the outstanding shares of the Common Stock following such exercise. For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of the Repricing Rights
with respect to which the determination of the foregoing sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, unexercised Repricing Rights beneficially
owned by the holder and its affiliates, and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 5(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. A holder may, as to itself only, waive the foregoing
limitations by written notice to the Company upon not less than 61 days prior
notice (with such waiver taking effect only upon the expiration of such 61 day
notice period).
(iii) Notwithstanding anything to the contrary in this
Agreement, in no event shall any holder of Repricing Rights be entitled to
exercise Repricing Rights in excess of that number of Repricing Rights which,
upon giving effect to such exercise, would cause the aggregate number of shares
of Common Stock beneficially owned by the holder and its affiliates to exceed
9.99% of the outstanding shares of the Common Stock following such exercise. For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of the Repricing Rights
with respect to which the determination of the foregoing sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, unexercised
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Repricing Rights beneficially owned by the holder and its affiliates, and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 5(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. A holder may, as to itself only, waive the
foregoing limitations by written notice to the Company upon not less than 61
days prior notice (with such waiver taking effect only upon the expiration of
such 61 day notice period).
e. Termination of Repricing Rights. Notwithstanding anything to the
contrary herein, the right of a holder of Repricing Rights to exercise such
Repricing Right shall terminate automatically and such holder shall have no
further rights with respect to such Repricing Right (provided that the Company
has complied with its obligations set forth in this Section 5 and Section 7)
upon the earlier of the following:
(i) The date of the sale of the Common Share with respect to
which such Repricing Right was acquired at any time prior to the date which is
120 days after the Closing Date;
(ii) The date of the sale of the Common Share with respect to
which such Repricing Right was acquired at any time on or after the date which
is 120 days after the Closing Date at a price equal to or greater than the
Repricing Price in effect on the date of such sale;
(iii) The date immediately following the date which is one
year after the date of the sale of the Common Share with respect to which such
Repricing Right was acquired; and
(iv) The date on which a holder of such Repricing Rights
delivers written notice to the Company pursuant to Section 6(c) of such holder's
election to terminate Repricing Rights selected by the Company for repurchase in
lieu of the Company repurchasing such holder's related Common Shares.
f. Taxes. The Company shall pay any and all transfer taxes which may be
imposed with respect to the issuance and delivery of shares of Common Stock upon
the exercise of the Repricing Rights.
g. Company's Right to Repurchase in Lieu of Issuing Repricing Common
Shares. (i) Notwithstanding anything herein to the contrary, but subject to
Section 5(g)(v), at any time after the Closing Date on which a Repricing Right
is acquired, the Company may elect to repurchase Repricing Rights exercised in
lieu of issuing shares of Common Stock upon such exercise, provided that the
average of the Closing Bid Prices on the five consecutive Trading Days
immediately preceding the Exercise Date is not greater than $5.30 (subject to
adjustment for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and other similar events) (a "COMPANY REPURCHASE IN LIEU OF
EXERCISE"). If the Company is unable to repurchase all of the Repricing Rights
submitted for exercise on a given date, the Company shall repurchase that number
of Repricing Rights, from each holder of Repricing Rights submitted for exercise
on such date, equal to such holder's pro-rata amount (based on the number of
Repricing Rights held by such holder relative to the number of Repricing Rights
outstanding) of all Repricing Rights submitted for exercise on such date.
(ii) Repurchase Price of Company Repurchase in Lieu of
Exercise. The "REPURCHASE PRICE OF COMPANY REPURCHASE IN LIEU OF EXERCISE" shall
be an amount per Repricing Right equal to
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the product of (A) the Repricing Rate of the Repricing Right on the Exercise
Date and (B) the last reported sale price of the Common Stock (as reported by
Bloomberg) on the Exercise Date.
(iii) Mechanics of Company Repurchase in Lieu of Exercise. The
Company shall exercise its right to repurchase by delivering written notice by
facsimile and overnight courier ("NOTICE OF COMPANY REPURCHASE IN LIEU OF
EXERCISE") to (A) each holder of the Repricing Rights and (ii) the Transfer
Agent. Such Notice of Company Repurchase in Lieu of Exercise shall confirm the
time period during which the Company may effect Company Repurchase in Lieu of
Exercise, which period shall begin on and include the date which is five
Business Days after the date of receipt by all of the holders' of the Notice of
Repurchase in Lieu of Exercise and shall end on and include the date which is 30
calendar days after the fifth Business Day following the date of receipt by all
of the holders of the Notice of Repurchase in Lieu of Exercise (the "REPURCHASE
IN LIEU OF EXERCISE PERIOD"). The Company may terminate a Repurchase in Lieu of
Exercise Period at any time with respect to Repricing Rights which have not been
submitted for exercise by delivering written notice of such termination to each
holder of Repricing Rights by facsimile and overnight courier at least five days
Business Days prior to the date of such termination. Any Repricing Rights
submitted for exercise after the termination of the Repurchase in Lieu of
Exercise Period shall be exercised in accordance with this Section 5.
(iv) Payment of Repurchase Price. The Company shall pay the
applicable Repurchase Price of Company Repurchase in Lieu of Exercise to the
holder of the Repricing Right being repurchased in cash within five Business
Days after the Exercise Date. If the Company shall fail to pay the applicable
Repurchase Price of Company Repurchase in Lieu of Exercise to such holder on a
timely basis as described in this Section 5(g)(iv), in addition to any remedy
such holder of Repricing Rights may have under this Agreement, such unpaid
amount shall bear interest at the rate of the lesser of 2.0% per month or the
maximum rate permitted by law, pro rated for partial months, until paid in full.
Until the Company pays such unpaid applicable Repurchase Price of Company
Repurchase in Lieu of Exercise in full to each holder, each holder of Repricing
Rights submitted for exercise pursuant to this Section 5(g) and for which the
applicable Repurchase Price of Company Repurchase in Lieu of Exercise has not
been paid, shall have the option (the "VOID COMPANY REPURCHASE OPTION") to, in
lieu of repurchase, to void such exercise of Repricing Rights for which the
applicable Repurchase Price of Company Repurchase in Lieu of Exercise has not
been paid, by sending written notice thereof to the Company via facsimile (the
"VOID COMPANY REPURCHASE NOTICE"). Upon the Company's receipt of such Void
Company Repurchase Notice(s) prior to payment of the full applicable repurchase
price to each holder, (x) the Company's Repurchase in Lieu of Exercise shall be
null and void with respect to those Repricing Rights submitted for exercise and
for which the applicable repurchase price has not been paid and (y) the holder
of such Repricing Rights shall the rights of unexercised Repricing Rights as set
forth in this Section 5. If the Company fails to timely effect a Company
Repurchase in Lieu of Exercise in accordance with this Section 5(g), the Company
shall not be allowed to submit another Notice of Company Repurchase in Lieu of
Exercise without the prior written consent of the holders of at least two-thirds
(2/3) of the Repricing Rights then outstanding.
(v) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Repurchase in Lieu of Exercise pursuant to Section 5(g)(ii) above and begin the
repurchase procedure under this Section 5(g), unless it has:
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(A) the full amount of the Repurchase Price of
Company Repurchase in Lieu of Exercise in cash, available in a demand
or other immediately available account in a bank or similar financial
institution;
(B) credit facilities, with a bank or similar
financial institutions that are immediately available and unrestricted
for use in repurchasing the Repricing Rights, in the full amount of the
Repurchase Price of Company Repurchase in Lieu of Exercise;
(C) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
repurchase any Repricing Right that is not exercised prior to a Company
Repurchase in Lieu of Exercise; or
(D) a combination of the items set forth in the
preceding clauses (A), (B) and (C), aggregating the full amount of the
Repurchase Price of Company Repurchase in Lieu of Exercise.
6. COMPANY'S RIGHT TO REPURCHASE AT ITS ELECTION.
a. Repurchase Rights. Notwithstanding anything herein to the contrary
but subject to Sections 6(d) and 6(e) and the last sentence of Section 6(c)
below, the Company shall have the right, in its sole discretion, to repurchase
("REPURCHASE AT THE COMPANY'S ELECTION"), from time to time, any or all of the
Common Shares and the Repricing Rights associated with such Common Shares at the
Repurchase Price at the Company's Election (as defined below). If the Company
elects to repurchase some, but not all, of the Common Shares and the associated
Repricing Rights, the Company shall repurchase an amount from each holder equal
to such holder's pro-rata amount (based on the number of Common Shares with
associated Repricing Rights held by such holder relative to the number of Common
Shares with associated Repricing Rights outstanding) of all Common Shares and
associated Repricing Rights being repurchased. Notwithstanding the foregoing,
the Company shall be entitled to repurchase Common Shares and the associated
Repricing Rights pursuant to this Section 6 only as single units. Accordingly,
the Company shall not be entitled to repurchase any Common Share pursuant to
this Section 6 if the associated Repricing Right has been exercised and shall
not be entitled to repurchase any Repricing Right pursuant to this Section 6 if
the associated Common Share has been sold.
b. Repurchase Price at the Company's Election. The "REPURCHASE PRICE AT
THE COMPANY'S ELECTION" shall be an amount per Common Share and associated
Repricing Right equal to (i) with respect to any Date of Repurchase at the
Company's Election prior to the date which is 120 days after the Closing Date,
124% of the Purchase Price and (ii) with respect to any Date of Repurchase at
the Company's Election on or after the date which is 120 days after the Closing
Date, 128% of the Purchase Price.
c. Mechanics of Repurchase at the Company's Election. The Company shall
effect each such repurchase no sooner than 10 Trading Days nor later than 20
Trading Days after delivering written notice of its Repurchase at the Company's
Election via facsimile and overnight courier ("NOTICE OF REPURCHASE AT THE
COMPANY'S ELECTION") to (i) each holder of the Common Shares and the associated
Repricing Rights and (ii) the Transfer Agent. Such Notice of Repurchase at the
Company's Election shall indicate (A) the number of Common Shares and associated
Repricing Rights that have been selected for repurchase, (B) the date that such
repurchase is to become effective (the "DATE OF REPURCHASE AT THE COMPANY'S
ELECTION") and (C) the applicable Repurchase Price at the Company's Election.
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Notwithstanding the above, any holder may sell any Common Shares and exercise
any Repricing Rights that such holder is otherwise entitled to exercise for
shares of Common Stock pursuant to Section 5 above, on or prior to the date
immediately preceding the Date of Repurchase at the Company's Election,
including Common Shares and Repricing Rights that have been selected for
Repurchase at the Company's Election pursuant to this Section 6. Notwithstanding
anything to the contrary in this Section 6, any holder of Common Shares and
Repricing Rights selected for repurchase by the Company may elect, at such
holder's sole discretion, at any time prior to the Date of Repurchase at the
Company's Election, to terminate such holder's Repricing Rights selected for
repurchase by the Company in lieu of the Company having the right to repurchase
such holder's related Common Shares, by delivering written notice of such
election to the Company.
d. Payment of Repurchase Price. Each holder submitting Common Shares
being repurchased under this Section 6 shall send such holder's Stock
Certificates so repurchased to the Company within five (5) Business Days after
the Date of Repurchase at the Company's Election, and the Company shall pay the
applicable Repurchase Price at the Company's Election to that holder in cash
within three Business Days after such holder's Stock Certificates are so
delivered to the Company. If the Company shall fail to pay the applicable
Repurchase Price at the Company's Election to such holder on a timely basis as
described in this Section 6(d), in addition to any remedy such holder of Common
Shares may have under this Agreement, such unpaid amount shall either (a) bear
interest at lesser of (i) the rate of 2.0% per month or (ii) the highest lawful
rate (prorated for partial months) until paid in full or (b) demand the return
of such holder's Stock Certificates.
e. Company Must Have Immediately Available Funds or Credit Facilities.
The Company shall not be entitled to send any Notice of Repurchase at the
Company's Election pursuant to Section 6(c) above and begin the repurchase
procedure under this Section 6, unless it has:
(i) the full amount of the Repurchase Price at the Company's
Election in cash, available in a demand or other immediately available account
in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
repurchasing the Common Shares and associated Repricing Rights, in the full
amount of the Repurchase Price at the Company's Election;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to repurchase
any Common Shares and associated Repricing Rights that have not been sold or
exercised, respectively, prior to a Repurchase at the Company's Election; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Repurchase Price
at the Company's Election.
f. Certain Conditions During Notice Period. The Company shall not be
entitled to repurchase the Common Shares and associated Repricing Rights on a
Date of Repurchase at the Election of the Company, unless each of the following
conditions are satisfied as of the date of the Notice of Repurchase at the
Company's Election and on each day from such date until and including the later
of the Date of Repurchase at the Company's Election and the date on which the
Company pays the applicable Repurchase Price:
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(i) If required by the rules and regulations of the Nasdaq
SmallCap Market or any Subsequent Market, the Company's stockholders shall have
approved the issuance of the Securities on or prior to the date of the Notice of
Repurchase at the Company's Election;
(ii) The Registration Statement shall be effective and
available for the sale of no less than 125% of the sum of (A) the number of
Repricing Common Shares then issuable upon exercise of all outstanding Repricing
Rights, (B) the number of Warrant Shares then issuable upon exercise of all
outstanding Warrants and (C) the number of Common Shares, Repricing Common
Shares and Warrant Shares that are then held by the Buyers;
(iii) The Common Stock is listed for trading on The Nasdaq
SmallCap or on a Subsequent Market and is not then suspended from trading
thereon;
(iv) During the period beginning on and including the Closing
Date and ending on and including the Date of Repurchase at the Company's
Election, no event constituting a Major Transaction, including an agreement to
consummate a Major Transaction, shall have occurred nor shall any pending event
which would constitute a Major Transaction have been publicly disclosed;
(v) During the period beginning on the Closing Date and ending
on and including the Date of Repurchase at the Company's Election, the Company
shall have delivered Repricing Common Shares on a timely basis in accordance
with Section 5 and the Company shall have delivered Warrant Shares upon exercise
of the Warrants to the Buyers on a timely basis as set forth in Sections 2(a)
and 2(b) of the Warrants and otherwise the Company shall have been in compliance
with and shall not have breached in any material respect the provisions of this
Agreement, the Warrants, the Registration Rights Agreement or the Irrevocable
Transfer Agent Instructions; and
(vi) A Repurchase at the Company's Election shall not have
occurred previously.
7. REPURCHASE AT OPTION OF HOLDERS.
a. Repurchase Option Upon Major Transaction or Triggering Event. In
addition to all other rights of the holders of the Securities contained herein,
simultaneous with or after the occurrence of a Major Transaction (as defined
below) or a Triggering Event (as defined below), each holder of Common Shares or
Repricing Rights shall have the right, at such holder's option, to require the
Company to repurchase all or a portion of such holder's Common Shares or
Repricing Rights at a price equal to (i) for each Common Share with an
associated Repricing Right, the greater of (A) 130% of the Purchase Price and
(B) the sum of (I) the Purchase Price and (II) the product of (x) the Repricing
Rate of the Repricing Right on the date of such holder's delivery of a notice of
repurchase and (y) the last reported sale price of the Common Stock (as reported
by Bloomberg) on the date of such holder's delivery of a notice of repurchase,
(ii) for each Repricing Right without the associated Common Share, the product
of (x) the Repricing Rate of the Repricing Right on the date such holder's
delivery of a notice of repurchase and (y) the last reported sale price of the
Common Stock (as reported by Bloomberg) on the date of such holder's delivery of
a notice of repurchase and (iii) for each Common Share without an associated
Repricing Right, 130% of the Purchase Price (the "REPURCHASE PRICE").
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b. "Major Transaction". A "MAJOR TRANSACTION" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Company with or into another person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such surviving entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 40% of the outstanding shares of Common
Stock.
c. "Triggering Event". A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the 210th day after the Closing Date;
(ii) during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Securities for
sale of the Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of ten Trading Days in
aggregate (excluding any "blackout" periods permitted by the terms of the
Registration Rights Agreement);
(iii) suspension from listing or delisting of the Common Stock
from The Nasdaq SmallCap Market or on any Subsequent Market for a period of five
consecutive days, unless such delisting is due to the Company having the Common
Stock relisted on a Subsequent Market within such five day period;
(iv) the Company's notice to any holder of Repricing Rights,
including by way of public announcement, at any time, of its intention not to
comply or inability to comply with proper requests for exercise of any Repricing
Rights into shares of Common Stock;
(v) the Company's failure to deliver Repricing Common Shares
within ten days of an Exercise Date or to pay the amount due in respect of a
Buy-In within ten days after notice of such Buy-In is delivered to the Company;
(vi) the Company is not required to issue any Repricing Common
Shares due to the provisions of Section 10(m) or the Company is otherwise unable
to issue Repricing Common Shares upon delivery of an Exercise Notice for any
reason;
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(vii) if the Company is required to obtain stockholder
approval of the issuance of the Securities pursuant to Section 4(i) and the
holders of the Securities shall not have otherwise declared another applicable
Triggering Event under this Section 7(c) with respect to such occurrence, the
Company's stockholders fail to approve the issuance of the Repricing Common
Shares within 135 days of a Stockholder Approval Trigger Date;
(viii) the Company breaches any representation, warranty,
covenant or other material term or condition of any Transaction Document or the
Irrevocable Transfer Agent Instructions or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby or hereby, and such breach, if curable, continues for a
period of at least ten days after written notice thereof to the Company; or
(ix) the commencement by or against the Company or a
Subsidiary of voluntary or involuntary (which involuntary proceeding is not
dismissed within 30 days of the filing thereof) case or proceeding under any
applicable Federal or state bankruptcy, insolvency, reorganization or other
similar proceeding.
d. Mechanics of Repurchase at Option of Buyer Upon Major Transaction.
No sooner than 15 days nor later than 10 days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier (a "NOTICE OF MAJOR TRANSACTION") to each holder of Common
Shares, the Repricing Common Shares and the Repricing Rights. At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least 10 days prior to a Major Transaction, at
any time on or after the date which is 10 days prior to a Major Transaction),
any holder of the Securities then outstanding may require the Company to
repurchase all or a portion of the holder's Common Shares, Repricing Common
Shares or Repricing Rights then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "NOTICE OF REPURCHASE AT OPTION OF BUYER
UPON MAJOR TRANSACTION") to the Company, which Notice of Repurchase at Option of
Buyer Upon Major Transaction shall indicate (i) the number of such securities
that such holder is submitting for repurchase, and (ii) the applicable
Repurchase Price, as calculated pursuant to Section 7(a).
e. Mechanics of Repurchase at Option of Buyer Upon Triggering Event.
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (a "NOTICE OF
TRIGGERING EVENT") to each holder of Common Shares, Repricing Common Shares or
Repricing Rights. At any time after the earlier of a holder's receipt of a
Notice of Triggering Event and such holder becoming aware of a Triggering Event,
but in no event later than fifteen (15) Business Days after a holder's receipt
of a Notice of Triggering Event, any holder of such securities then outstanding
may require the Company to repurchase all or a portion of the holder's Common
Shares, Repricing Common Shares or Repricing Rights then outstanding by
delivering written notice thereof via facsimile and overnight courier (a "NOTICE
OF REPURCHASE AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which
Notice of Repurchase at Option of Buyer Upon Triggering Event shall indicate (i)
the number of such securities that such holder is submitting for repurchase, and
(ii) the applicable Repurchase Price, as calculated pursuant to Section 7(a).
f. Payment of Repurchase Price. Upon the Company's receipt of a
Notice(s) of Repurchase at Option of Buyer Upon Triggering Event or a Notice(s)
of Repurchase at Option of Buyer Upon Major Transaction from any holder of
Common Shares, Repricing Common Shares or Repricing Rights, the
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Company shall immediately notify each holder of Common Shares, Repricing Common
Shares or Repricing Rights by facsimile of the Company's receipt of such
Notice(s) of Repurchase at Option of Buyer Upon Triggering Event or Notice(s) of
Repurchase at Option of Buyer Upon Major Transaction and each holder which has
sent such a notice shall promptly submit to the Company such holder's Stock
Certificates which such holder has elected to have repurchased. The Company
shall deliver the applicable Repurchase Price, in the case of a repurchase
pursuant to Section 7(e), to such holder within five (5) Business Days after the
Company's receipt of a Notice of Repurchase at Option of Buyer Upon Triggering
Event and, in the case of a repurchase pursuant to Section 7(d), the Company
shall deliver the applicable Repurchase Price immediately prior to the
consummation of the Major Transaction; provided that a holder's Stock
Certificates, if Common Shares are being repurchased, shall have been so
delivered to the Company; provided further that if the Company is unable to
repurchase all of the Common Shares or the Repricing Rights to be repurchased,
the Company shall repurchase an amount from each holder of such securities being
repurchased equal to such holder's pro-rata amount (based on the number of such
securities held by such holder relative to the total number of such securities
outstanding) of all such securities being repurchased. If the Company shall fail
to repurchase all of the Common Shares or the Repricing Rights submitted for
repurchase, in addition to any remedy such holder of such securities may have
under this Agreement, the Warrants and the Registration Rights Agreement, the
applicable Repurchase Price payable in respect of such unrepurchased Common
Shares or Repricing Rights, as the case may be, shall bear interest at the
lesser of (i) rate of 2.0% per month or (ii) the highest lawful rate (prorated
for partial months) until paid in full. Until the Company pays such unpaid
applicable Repurchase Price in full to a holder of Common Shares or Repricing
Rights submitted for repurchase, such holder shall have the option (the "VOID
OPTIONAL REPURCHASE OPTION") to, in lieu of repurchase, require the Company to
promptly return to such holder(s) all of such securities that were submitted for
repurchase by such holder(s) under this Section 7 and for which the applicable
Repurchase Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REPURCHASE NOTICE"). Upon the
Company's receipt of such Void Optional Repurchase Notice(s) prior to payment of
the full applicable Repurchase Price to such holder, (i) the Notice(s) of
Repurchase at Option of Buyer Upon Triggering Event or the Notice(s) of
Repurchase at Option of Buyer Upon Major Transaction, as the case may be, shall
be null and void with respect to those securities submitted for repurchase and
for which the applicable Repurchase Price has not been paid and (ii) the Company
shall immediately return any Common Shares submitted to the Company by each
holder for repurchase under this Section 7 and for which the applicable
Repurchase Price has not been paid.
8. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent,
and any subsequent transfer agent, to issue certificates, registered in the name
of each Buyer or its respective nominee(s), for the Repricing Common Shares and
the Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company upon exercise of the Warrants or the Repricing Right, as the case
may be (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of
the Common Shares, the Repricing Common Shares and the Warrant Shares for sale
under the 1933 Act, all such certificates shall bear the restrictive legend
specified in Section 4(h) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section , and stop transfer instructions to give effect to Section 2(f)
(in the case of the Common Shares, the Repricing Common Shares and the Warrant
Shares, prior to registration of the Common Shares, the Repricing Common Shares
and the Warrant Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Securities shall otherwise be freely transferable on
the books and records of the Company as and to
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the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way each Buyer's obligations and
agreements set forth herein to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. Unless otherwise directed
by a Buyer, within five Business Days after the Registration Statement has been
declared effective by the SEC, the Company shall cause its transfer agent to
deliver one or more certificates to each Buyer representing the Common Shares,
the Repricing Common Shares and the Warrant Shares, if any, held by such Buyer
against delivery of the certificates then held by such Buyer, which certificates
shall be in such name and in such denominations as specified by such Buyer and
shall not bear any legends, and all other shares of Common Stock issuable in
respect of the Securities during such time as a Registration Statement is
effective shall be issued free of all restrictive legends. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 8 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 8, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
9. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
officers, directors, employees and direct or indirect investors and any of the
forgoing person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "INDEMNITEES") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), as incurred by any Indemnitee as a result of,
or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance, breach or enforcement of the Transaction
Documents, (d) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities, or
(e) the status of such Buyer or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
10. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of
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conflict of laws. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and the Transaction Documents (inclusive of the schedules and
exhibits thereto) contain the entire understanding of the parties with respect
to the matters covered herein and therein. This Agreement shall not alter or
supplement any rights or obligations of the Company or the Buyers under any
other agreements to which they may both be party, including the Securities
Purchase Agreement, dated as of July 8, 1998 (as amended through the date
hereof), among the Company and one or more of the Buyers. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least one-half (1/2) of the Securities (determined
on an as exercised into Common Stock basis at the time of such determination)
held by holders or former holders of the Common Shares then outstanding, and no
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. Notwithstanding the provisions of
the immediately preceding sentence or anything to the contrary contained in this
Agreement, the provisions of Sections 5(d)(ii) and (iii) may not be amended. No
permitted amendment hereunder shall be effective to the extent that it applies
to less than all of the holders of the Securities then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of the Common Shares, as the case may be.
f. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been
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delivered (i) upon receipt, when
delivered personally; (ii) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:00 p.m. (New York City time) on a Business
Day, (iii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 6:00 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date; or (iv) upon
receipt, when delivered by a reputable overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company: Queen Sand Resources, Inc.
3500 Oak Lawn, Suite 380, LB#31
Dallas, Texas 75219
Telephone: 214-521-9955
Facsimile: 214-521-9960
Attention: President
and
Queen Sand Resources, Inc.
30 Metcalfe Street, Suite 620
Ottawa, Ontario, Canada K1P 5L4
Telephone: 613-230-7211
Facsimile: 613-230-6055
Attention: President
With a copy to:
Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, Texas 75202
Telephone: 214-651-5553
Facsimile: 214-651-5940
Attention: William L. Boeing, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
Each party shall provide five days' prior written notice to the other
party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least two-thirds (2/3) of the Common Shares,
Repricing Common Shares, Warrants, Warrant Shares and Repricing Rights
(determined on an as exercised into Common Stock basis at the time of such
determination) held by holders or former holders of the Common Shares then
outstanding, including by merger or consolidation. A Buyer may not assign some
or all of its rights
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hereunder without the consent of the Company; provided, however, that a Buyer
may assign some on all of its rights hereunder to an affiliate or a fund under
its common management, but any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption.
h. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations, warranties, covenants and agreements
of the parties hereto, shall survive the Closings and issuances of the Repricing
Common Shares. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this the Transaction Documents and the consummation
of the transactions contemplated thereby.
l. Placement Agents. The Company acknowledges that it has engaged Jesup
& Lamont Securities Corporation and Wellington Capital Corporation as placement
agents in connection with the sale of the Securities, which placement agents may
have formally or informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any placement agent's fees or brokers
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold each Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses), as incurred, arising in connection with any such claim.
m. Limitation on Number of Common Shares. Notwithstanding any other
provision herein, the Company shall not be obligated to issue any shares of
Common Stock upon exercise of the Repricing Rights if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon exercise of the Repricing Rights (the "EXCHANGE CAP")
without breaching the Company's obligations under the rules or regulations of
The Nasdaq Stock Market, Inc. (taking into account the number of Common Shares
issued on the Closing Date, the Repricing Rights, Repricing Common Shares
previously issued, Warrants and Warrant Shares previously issued), except that
such limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by applicable rules and regulations of
The Nasdaq Stock Market, Inc. for issuances of Common Stock in excess of such
amount or (ii) obtains a written opinion from outside counsel to the Company
that such approval is not required, which opinion shall be reasonably
satisfactory to the holders of a majority of the Repricing Rights then
outstanding. Until such approval or written opinion is obtained, no holder of
Repricing Rights shall be issued, upon exercise of Repricing Rights, shares of
Common Stock
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in an amount greater than the product of (i) the Exchange Cap amount multiplied
by (ii) a fraction, the numerator of which is the number of Repricing Rights
initially acquired by such Buyer pursuant to this Agreement and the denominator
of which is the aggregate amount of all the Repricing Rights acquired by all
Buyers pursuant to this Agreement (the "CAP ALLOCATION AMOUNT"). In the event
that any Buyer shall sell or otherwise transfer any of such Buyer's Repricing
Rights, the transferee shall be allocated a pro rata portion of such Buyer's Cap
Allocation Amount. In the event that any holder of Repricing Rights shall
exercise all of such holder's Repricing Rights into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder pursuant to the
exercise of Repricing Rights shall be allocated to the respective Cap Allocation
Amounts of the remaining holders of Repricing Rights on a pro rata basis in
proportion to the number of Repricing Rights then held by each such holder.
Nothing contained in this Section shall relieve any obligations of the Company
pursuant to Section 4(i) and 7(c)(vii).
n. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of Common Shares, Repricing
Common Shares or Repricing Rights shall have all rights and remedies set forth
in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers pursuant to the Transaction Documents or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any 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.
* * * * * *
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31
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
QUEEN SAND RESOURCES, INC.
By:
---------------------------------
Name:
---------------------------
Its:
---------------------------
SOVEREIGN PARTNERS, L.P.
By: Thomson Kernaghan & Co., Ltd.
As Agent
By:
--------------------------
Name:
---------------------
Title:
--------------------
DOMINION CAPITAL FUND LTD.
By: Thomson Kernaghan & Co., Ltd.
As Agent
By:
--------------------------
Name:
---------------------
Title:
--------------------
32
SCHEDULE OF BUYERS
PURCHASE PRICE OF
INVESTOR NAME ADDRESS COMMON SHARES
- --------------------------- --------------------------------- -----------------------
Sovereign Partners L.P. c/o Thomson Kernaghan & Co. $1,250,000
365 Bay Street
Toronto, Ontario
Canada M5H 2V2
Attn: Mark Valentine
Facsimile: (416) 860-6140
Krieger & Prager
319 Fifth Avenue, 3rd Floor
New York, New York 10016
Attn: Samuel M. Krieger
Facsimile: (212) 213-2077
Dominion Capital Fund Ltd. c/o Thomson Kernaghan & Co. $1,250,000
365 Bay Street
Toronto, Ontario
Canada M5H 2V2
Attn: Mark Valentine
Facsimile: (416) 860-6140
Krieger & Prager
319 Fifth Avenue, 3rd Floor
New York, New York 10016
Attn: Samuel M. Krieger
Facsimile: (212) 213-2077
LIST OF SCHEDULES
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(o) Liens
SCHEDULE 3(u) Certain Transactions
LIST OF EXHIBITS
EXHIBIT A Form of Irrevocable Transfer Agent Instructions
EXHIBIT B Form of Exercise Notice
EXHIBIT C Form of Warrant
EXHIBIT D Form of Registration Rights Agreement
33
EXHIBIT B
QUEEN SAND RESOURCES, INC.
REPRICING RIGHT EXERCISE NOTICE
Reference is made to the Securities Purchase Agreement, dated as of November 10,
1998, by and among Queen Sand Resources, Inc. (the "COMPANY") and the buyers
named therein (the "SECURITIES PURCHASE AGREEMENT"). In accordance with and
pursuant to the Securities Purchase Agreement, the undersigned hereby elects to
exercise the number of Repricing Rights (as defined in the Securities Purchase
Agreement) of the Company, indicated below for shares of Common Stock, par value
$.0015 per share (the "COMMON STOCK"), of the Company, by tendering this
Repricing Right Exercise Notice. Capitalized terms used and not otherwise
defined in this Notice that are defined in the Securities Purchase Agreement
shall have the respective meanings set forth in the Securities Purchase
Agreement.
Date of Exercise:
----------------------------------
Number of Repricing Rights to be exercised:
----------------------------------
PLEASE CONFIRM THE FOLLOWING INFORMATION:
Repricing Price:
----------------------------------
Market Price:
----------------------------------
Number of shares of Common Stock
to be issued:
----------------------------------
PLEASE ISSUE THE COMMON STOCK FOR WHICH THE REPRICING RIGHTS ARE BEING EXERCISED
IN THE FOLLOWING NAME AND TO THE FOLLOWING ADDRESS:
Issue to:
----------------------------------
----------------------------------
----------------------------------
Facsimile Number:
----------------------------------
Authorization:
----------------------------------
By:
----------------------------
Title:
--------------------------
Dated:
----------------------------------
Account Number:
(if electronic book entry transfer):
----------------------------------
Transaction Code Number
(if electronic book entry transfer):
----------------------------------