SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 6, 2005,
by and among NATURAL GAS SYSTEMS, INC., a Nevada corporation (the "Company"),
and Rubicon Master Fund, a company organized under the laws of the Cayman
Islands (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.
B. The Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, One Million Two Hundred Thousand
(1.2 million) shares of common stock, $0.001 par value (the "Common Stock"), of
the Company (collectively, the "Securities").
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit A (as amended or modified
from time to time, the "Registration Rights Agreement"), pursuant to which the
Company has agreed to provide certain registration rights with respect to the
Securities under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
(a) Purchase of Securities.
(i) Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7 below, the Company shall issue and sell to the
Buyer, and the Buyer agrees to purchase the Securities from the Company on the
Closing Date (the "Closing").
(ii) Closing. The date and time of the Closing (the "Closing
Date") shall be 10:00 a.m., New York City time, on the date hereof (or such
later date as is mutually agreed to by the Company and the Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919
Third Avenue, New York, New York 10022.
(iii) Purchase Price. The aggregate purchase price for the
Securities to be purchased by the Buyer at the Closing (the "Purchase Price")
shall be US$3,000,000.
(b) Form of Payment. On the Closing Date, (i) the Buyer shall pay
its Purchase Price to the Company for the Securities to be issued and sold to
the Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company's written wire instructions, and (ii) the Company
shall deliver to the Buyer certificates with respect to the Securities which the
Buyer is then purchasing issued in the name of the Buyer or its lawful designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants that:
(a) No Public Sale or Distribution. The Buyer is (i) acquiring the
Securities for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, the 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. The Buyer is
acquiring the Securities hereunder in the ordinary course of its business. The
Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.
(b) Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. The 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
the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
(d) Information. The 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
that have been requested by the Buyer. The 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 the Buyer or
its advisors, if any, or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
herein. The Buyer understands that its investment in the Securities involves a
high degree of risk. The 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. Buyer has made the decision to
invest in the Securities solely on the basis of publicly available information
about the Company in the Company's filings with the Securities and Exchange
Commission (the "Public Information"). Buyer acknowledges that no officer,
director, broker-dealer, placement agent, finder or other person affiliated with
the Company has given Buyer any information or made any representations, oral or
written, other than as provided in the Public Information, on which Buyer has
exclusively relied upon in deciding to invest in the Securities, including
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without limitation, any information with respect to future operations of the
Company or the economic returns which may accrue as a result of the purchase of
the Securities.
(e) No Governmental Review. The Buyer understands that no United
States, federal, state or province 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. The 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) the Buyer shall have delivered to the
Company an opinion of counsel selected by the Buyer, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (C) the Buyer provides the Company with reasonable assurance
(including if reasonably requested by the Company, a legal opinion) that such
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act, as amended, (or a successor rule thereto)
(collectively, "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 (as defined in Section 3(s)) 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 the Securities under
the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
(g) Legends. The Buyer understands that until such time as the
resale of the Securities have been registered under the 1933 Act as contemplated
by the Registration Rights Agreement, the stock certificates representing the
Securities, except as set forth below, shall bear any legend as required by the
"blue sky" laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
SELECTED BY THE HOLDER, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR THAT THE SECURITIES
MAY BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
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SUBJECT TO APPLICABLE FEDERAL AND STATE SECURITIES LAWS, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance (including if reasonably requested by the
Company, a legal opinion) that the Securities can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A.
(h) Authorization; Validity; Enforcement. This Agreement and the
Registration Rights Agreement to which the Buyer is a party have been duly and
validly authorized, executed and delivered on behalf of the Buyer and shall
constitute the legal, valid and binding obligations of the Buyer enforceable
against the Buyer in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(i) Residency. The Buyer is a resident of the Cayman Islands.
(j) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Buyer and the consummation by the Buyer of the
transactions contemplated hereby and thereby (including, without limitation, the
purchase of the Securities) will not result in a violation of any constituent
document of the Buyer or any of its subsidiaries,
(k) Prohibited Transactions. Prior to the earlier of (i) the time
that the press release referred to in Section 4(i) hereof has been issued and
(ii) the fifth Business Day following the Closing Date, neither Buyer nor its
affiliates will engage, directly or indirectly, effect or agree to effect any
short sale, whether or not against the box, establish any "put equivalent
position" (as defined in Rule 16a-1(h) under the 1934 Act) with respect to the
Common Stock, grant any other right (including, without limitation, any put or
call option) with respect to the Common Stock or with respect to any security
that includes, relates to or derived any significant part of its value from the
Common Stock or otherwise seek to hedge its position in the Securities.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer 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 a controlling interest of capital
stock or holds an equity or similar interest) are entities duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are formed, and have the requisite power and authorization to own their
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properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign entity to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, "Material Adverse Effect" means any material adverse effect on the
business, properties, assets, operations, results of operations, or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby and the other Transaction Documents
(as defined below) or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents. The Company has no
Subsidiaries except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents") and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Securities, have
been duly authorized by the Company's Board of Directors and (other than
securities filings, including the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement) no further filing, consent, or authorization is required by
the Company, its Board of Directors or its stockholders. This Agreement and the
other Transaction Documents have been duly executed and delivered by the
Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Securities are duly
authorized and are free from all taxes, liens and charges with respect to the
issue thereof. The offer and issuance by the Company of the Securities is exempt
from registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Securities) will not (i) result in a violation of any
certificate of incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of its
Subsidiaries, any capital stock of the Company or any of its Subsidiaries or
bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
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(including federal and state securities laws and regulations and the rules and
regulations of the OTC Bulletin Board or "pink sheets" (the "Principal Market"))
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, in each
case as would not have a Material Adverse Effect.
(e) Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing (other than securities filings,
including filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement) or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances which might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence. The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts that
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company, (ii) an "affiliate" of the Company (as defined in
Rule 144) or (iii) to the knowledge of the Company, a "beneficial owner" of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended (the "1934 Act")). The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to the Buyer's purchase of the Securities. The Company further
represents to the Buyer that the decision of the Company and each of the
Subsidiaries to enter into the Transaction Documents, as applicable, has been
based solely on the independent evaluation by the Company, its Subsidiaries and
their representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by the Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold the
Buyer harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney's fees and out-of-pocket expenses) arising in
connection with any such claim.
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(h) No Integrated Offering. None of the Company, its Subsidiaries,
any of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act (other than as disclosed in Schedule 3(r)
hereto) or cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of any exchange or automated quotation system on which any of
the securities of the Company are listed or designated.
(i) Application of Takeover Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the jurisdiction of its formation or otherwise which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
(j) [Intentionally omitted]
(k) SEC Documents; Financial Statements. Other than as disclosed on
Schedule 3(k) hereto, since May 26, 2004 , the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act and no such
disclosure has been made on a confidential basis that remains subject to
confidentiality (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements, notes and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Buyer or its respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR systems. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
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(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided in writing by or on behalf of the
Company to the Buyer 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.
(l) Absence of Certain Changes. Except as disclosed in Schedule
3(l), since December 31, 2004, there has been no material adverse change and no
material adverse development in the business, properties, operations, condition
(financial or otherwise) or results of operations of the Company or its
Subsidiaries, taken as whole, other than continuing losses. Since December 31,
2004, except as disclosed on Exhibit 3(l), the Company has not (i) declared or
paid any dividends, (ii) sold any assets, individually or in the aggregate, in
excess of $100,000 outside of the ordinary course of business, (iii) had capital
expenditures, individually, in excess of $50,000 or (iv) waived any material
rights with respect to any Indebtedness or other rights in excess of $100,000
owed to it. The Company has not taken any steps to seek protection pursuant to
any bankruptcy law nor does the Company have any knowledge that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual knowledge of
any fact that would reasonably lead a creditor to do so. The Company is not as
of the date hereof, and after giving effect to the transaction contemplated
hereby, will not be, Insolvent. "Insolvent" is defined to be the condition
wherein (A) the sum of (1) current assets, (2) tangible net assets other than
oil and gas reserves, (3) other tangible or financial assets, (4) book value of
nonproved oil and gas properties, and (5) the net present value at a ten percent
discount rate of the future pretax cash flows from the proved reserves of the
Company as determined under SEC rules; is less than the sum of (6) current
liabilities, (7) long term debt, (8) future obligations under capitalized
leases, and (9) other obligations such as indebtedness for borrowed money,
deferred purchase prices, letters of credit and the like net of set aside funds
and direct contingent obligations (without duplication); or (B) the Company is
unable to pay its uncontested debts and liabilities within thirty days of the
time that they come absolute and matured in a material amount.
(m) No Undisclosed Events, Liabilities, Developments or
Circumstances. As of the date hereof, no material event, liability, development
or circumstance has occurred or exists, or is reasonably expected to occur with
respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under applicable securities laws on a
registration statement on Form SB-2 filed with the SEC relating to an issuance
and sale by the Company of its Common Stock and which has not been publicly
announced, except as disclosed in Schedule 3(l) hereto.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company is
not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that would
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reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Since December 31, 2004, (i) the Common Stock
has been designated for quotation on the Principal Market, (ii) trading in the
Common Stock has not been suspended by the SEC, the Principal Market and (iii)
the Company has received no communication, written or oral, from the SEC, the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, 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.
(o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
(p) Sarbanes-Oxley Act.
(i) The Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective for the
Company as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective for the Company as of the
date hereof, except where such noncompliance would not have, individually or in
the aggregate, a Material Adverse Effect.
(ii) Neither the chief executive officer nor the chief
financial officer of the Company shall have failed to provide, with respect to
any SEC Document filed (or required to be filed) with the SEC on or after the
date of this Agreement, any necessary certification in the form required under
(i) Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Exchange Act, as
applicable, and (ii) Rule 13a-14(b) promulgated under the Exchange Act and 18
U.S.C. ss. 1350.
(iii) The Company expects to implement such programs and shall
take such steps reasonably necessary to provide for its future compliance (not
later than the relevant statutory and regulatory deadline therefore) with all
provisions of Section 404 of the Sarbanes-Oxley Act that shall become applicable
to the Company and has not received, orally or in writing, any notification that
its auditors believe that management will not likely be able to complete its
assessment before the applicable reporting deadline, or if completed, that it
will not likely be completed in sufficient time for the auditor to complete its
assessment.
(q) Transactions With Affiliates. Other than as disclosed on
Schedule 3(r) or Schedule 3(q), none of the officers, directors or employees of
the Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
9
or directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common Stock,
of which as of the date hereof, 23,549,606 are issued and outstanding, 4,000,000
shares are reserved for issuance pursuant to the Company's stock option and
purchase plans and 1,932,467 shares are reserved for issuance pursuant to
securities (other than the Securities and stock options) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii) 5,000,000
shares of preferred stock, $0.001 par value, of which as of the date hereof none
of which is issued and outstanding or 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(r): (i) none of
the Company's share capital is subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness (as defined in Section 3(s)) of
the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
its Subsidiaries' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished to the Buyer true, correct and complete copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
10
(the "Certificate of Incorporation"), and the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws"), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock and
the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as disclosed in
Schedule 3(s) and except for trade debt incurred in the ordinary course of
business, neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument would result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. Schedule 3(s) provides a description of the material terms of
any such outstanding Indebtedness. For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services including, without limitation,
"capital leases" in accordance with U.S. generally accepted accounting
principals (other than trade payables entered into in the ordinary course of
business), (C) all reimbursement or payment obligations with respect to letters
of credit, surety bonds and other similar instruments, (D) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above, provided that such amounts in (A)
through (G) collectively exceed $100,000 (y) "Contingent Obligation" means, as
to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(t) Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
11
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors, except as would not have a
Material Adverse Effect.
(u) Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(v) Employee Relations. (i) Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union. The Company and its Subsidiaries believe that their relations
with their employees are good. No executive officer of the Company (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. No executive officer of the Company, to the knowledge of the
Company, is in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant to which the Company is a party, and the continued employment of each
such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with
all federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
(w) Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and any of its Subsidiaries, or as disclosed on Schedule
3(w) or Schedule 3(s). Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.
(x) Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, service marks,
and all applications and registrations therefor, trade names, patents, patent
rights, copyrights, original works of authorship, inventions, licenses,
12
approvals, governmental authorizations, trade secrets and other intellectual
property rights ("Intellectual Property Rights") necessary to conduct their
respective businesses as now conducted. Except as set forth in Schedule 3(x),
none of the Company's Intellectual Property Rights have expired or terminated,
or are expected to expire or terminate, within three years from the date of this
Agreement. The Company does not have any knowledge of any material infringement
by the Company or its Subsidiaries of Intellectual Property Rights of others.
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or its
Subsidiaries regarding its Intellectual Property Rights, except as would have a
Material Adverse Effect. The Company is unaware of any facts or circumstances
that would reasonably be expected to give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "Environmental Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(z) Subsidiary Rights. Except as set forth in Schedule 3(w), the
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.
(aa) Tax Status. The Company and each of its Subsidiaries (i) has
made or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. No liens have been filed and no material claims are
being asserted by or against the Company or any of its Subsidiaries with respect
to any taxes (other than liens for taxes not yet due and payable). Neither the
Company nor it Subsidiaries has received notice of assessment or proposed
assessment of any material amount of taxes claimed to be owed by it or any other
13
Person on its behalf. Neither the Company nor its Subsidiaries is a party to any
tax sharing or tax indemnity agreement or any other agreement of a similar
nature that remains in effect. Each of the Company and its Subsidiaries has
complied in all material respects with all applicable legal requirements
relating to the payment and withholding of taxes and, within the time and in the
manner prescribed by law, has withheld from wages, fees and other payments and
paid over to the proper governmental or regulatory authorities all amounts
required.
(bb) 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
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference.
(cc) Form SB-2 Eligibility. The Company is eligible to register the
Securities for resale by the Buyer using Form SB-2 promulgated under the 1933
Act.
(dd) Manipulation of Price. The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, or (ii) sold, bid for, purchased, or paid any
compensation for soliciting purchases of, any of the Securities.
(ee) Acknowledgement Regarding Buyer's Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, but subject
to compliance by the Buyer with applicable law, it is understood and
acknowledged by the Company (i) that the Buyer has not been asked to agree, nor
has the Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) that past
or future open market or other transactions by the Buyer, including, without
limitation, short sales or "derivative" transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company's publicly-traded securities; (iii) that the
Buyer, and counter parties in "derivative" transactions to which the Buyer is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iv) that the Buyer shall not be deemed to have any
affiliation with or control over any arm's length counter-party in any
"derivative" transaction. The Company further understands and acknowledges that
(a) the Buyer may engage in legally permissible hedging activities at various
times during the period that the Securities are outstanding and (b) such hedging
activities (if any) could reduce the value of the existing stockholders' equity
interests in the Company at and after the time that the hedging activities are
being conducted.
14
(ff) Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided the Buyer or its agents or counsel with
any information that constitutes material, nonpublic information. The Company
understands and confirms that the Buyer will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Buyer in writing regarding the Company, its business
and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company is true and correct and does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
press release issued by the Company since May 27, 2004 did not at the time of
release contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
(b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Buyer promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for or to qualify the Securities for
sale to the Buyer at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Buyer on or prior to the Closing Date. The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Securities
(the "Reporting Period"), the Company shall timely file all reports required to
be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination.
(d) Use of Proceeds. The Company will not use the proceeds from the
sale of the Securities primarily for the redemption or repurchase of any equity
securities or for the repayment of any outstanding indebtedness of the Company
or its Subsidiaries, other than ordinary course trade payables.
15
(e) Financial Information. The Company agrees to send the following
to each Investor during the Reporting Period (i) unless the following are filed
with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-K or 10-KSB, any interim reports or any
consolidated balance sheets, income statements, stockholders' equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, 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.
(f) Listing. The Company shall reasonable efforts to promptly secure
the listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is then listed (subject to official
notice of issuance) and shall maintain such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stocks' authorization for
quotation on the Principal Market. Neither the Company nor any of its
Subsidiaries shall take any action that would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
(g) Fees. The Company shall reimburse the Buyer or its designee(s)
for all reasonable costs and expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all reasonable
legal fees and disbursements in connection therewith, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence in connection therewith) in an amount not to exceed $10,000, which
amount shall be withheld by the Buyer from its Purchase Price at the Closing.
The Company shall be responsible for the payment of any placement agent's fees,
financial advisory fees, or broker's commissions (other than for Persons engaged
by the Buyer) relating to or arising out of the transactions contemplated
hereby. The Company shall pay, and hold the Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorney's
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyer.
(h) Pledge of Securities. The Company acknowledges and agrees that,
subject to all applicable securities laws, the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. Subject to all applicable securities laws, the pledge
of Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
16
Securities to such pledgee. Subject to applicable securities laws, the Company
hereby agrees to execute and deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by an Investor.
(i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York Time, on the second Business Day following the
Closing, the Company shall issue a press release describing the terms of the
transactions contemplated by the Transaction Documents. On or before 8:30 a.m.,
New York Time, on the third Business Day following the Closing, the Company
shall file a Form 8-K in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
and the Registration Rights Agreement) as exhibits to such filing (including all
attachments, the "8-K Filing"). As of the date of the filing of the Form 8-K,
the Buyer shall not be in possession of any material, nonpublic information
received from the Company, any of its Subsidiaries or any of its respective
officers, directors, employees or agents, that is not disclosed in the 8-K
Filing. The Company shall not, and shall cause each of its Subsidiaries and its
and each of their respective officers, directors, employees and agents, not to,
provide the Buyer with any material, nonpublic information regarding the Company
or any of its Subsidiaries from and after the filing of the 8-K Filing with the
SEC without the express written consent of the Buyer. In the event of a breach
of the foregoing covenant by the Company, any of its Subsidiaries, or any of its
or their respective officers, directors, employees and agents, in addition to
any other remedy provided herein or in the Transaction Documents, the Company
agrees to file a current report on Form 8-K that contains the material details
of such non-public disclosure (and to provide Buyer with a reasonable
opportunity to review and comment upon such filing prior to its filing with the
SEC and to incorporate such comments therein as the Company deems reasonably
necessary). Subject to the foregoing, neither the Company nor the Buyer shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of the Buyer, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) the Buyer shall be consulted by the Company in connection with and given an
opportunity to review and comment on any such press release or other public
disclosure prior to its release). Notwithstanding the foregoing, the Company
shall not publicly disclose the name of the Buyer, or include the name of the
Buyer in any filing with the SEC or any regulatory agency or the Principal
Market, without the prior written consent of the Buyer, except (i) for
disclosure thereof in the 8-K Filing or Registration Statement or (ii) as
required by law or Principal Market regulations or any order of any court or
other governmental agency, in which case the Company shall provide the Buyer
with prior notice of such disclosure.
(j) [Intentionally omitted].
(k) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
(l) Integration. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
17
referred to in Section 3(h) that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.
5. [Intentionally omitted]
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
(a) Closing Date. The obligation of the Company hereunder to issue
and sell the Securities to the Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
the Buyer with prior written notice thereof:
(i) The Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
(ii) The Buyer shall have delivered to the Company the
Purchase Price, less the amounts withheld pursuant to Section 4(g), for the
Securities and being purchased by the Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.
(iii) The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
(a) Closing Date. The obligation of the Buyer hereunder to purchase
the Securities at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company and, to the extent it is a party thereto, each
of it Subsidiaries, shall have executed and delivered to the Buyer (i) each of
the Transaction Documents and (ii) the Securities (in such denominations as the
Buyer shall request) being purchased by the Buyer at the Closing pursuant to
this Agreement.
(ii) The Buyer shall have received the opinions of Troy &
Gould, the Company's outside counsel, dated as of the Closing Date, in
substantially the form of Exhibit B attached hereto.
(iii) The Company shall have delivered to the Buyer a
certificate evidencing the formation and good standing of the Company and each
of its Subsidiaries in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within 10 days of the Closing Date.
18
(iv) The Company shall have delivered to the Buyer a
certificate evidencing the Company's qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within 10 days
of the Closing Date.
(v) The Company shall have delivered to the Buyer a certified
copy of the Certificate of Incorporation as certified by such entity's
jurisdiction of formation within ten (10) days of the Closing Date.
(vi) The Company shall have delivered to the Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company's Board of Directors in a form reasonably acceptable to the
Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in
effect at the Closing, in the form attached hereto as Exhibit C.
(vii) The representations and warranties of the Company shall
be true and correct in all material respects (except for the representations and
warranties that are qualified by materiality, which shall be true and correct in
all respects) as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, in the form attached hereto as Exhibit D.
(viii) The Company shall have delivered to the Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.
(ix) The Common Stock (I) shall be designated for quotation or
listed on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC, the Principal Market from trading on the Principal
Market nor shall suspension by the SEC, the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the SEC, the
Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.
(x) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities.
(xi) The Company shall have delivered to the Buyer such other
documents relating to the transactions contemplated by this Agreement as the
Buyer or its counsel may reasonably request.
19
8. TERMINATION. In the event that the Closing shall not have occurred on
or before five (5) Business Days from the date hereof due to the Company's or
the Buyer's failure to satisfy the conditions set forth in Sections 6 and 7
above (and the non-breaching party's failure to waive such unsatisfied
condition(s)), the non-breaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party; provided, however, if
this Agreement is terminated pursuant to this Section 8, the Company shall
remain obligated to reimburse the non-breaching Buyer for the amounts described
in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of California,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
California, except for the mandatorily applicable provisions of Nevada law. Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in Los Angeles, California, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(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.
20
(e) Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyer, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the aggregate number of
Registrable Securities issued and issuable hereunder, and any amendment to this
Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on the Buyer and holders of Securities, as applicable. No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding. No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration also is offered to
all of the parties to the Transaction Documents and holders of Securities. The
Company has not, directly or indirectly, made any agreements with the Buyer
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) five Business Days after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Natural Gas Systems, Inc.
820 Gessner, Suite 1340
Houston, Texas 77024
Tel: 713-935-0122
Fax: 713-935-0199
Attention: Robert S. Herlin, President
Copy to:
Troy & Gould Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
Telephone: (310) 789-1255
Facsimile: (310) 201-4746
Attention: Lawrence Schnapp, Esq.
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If to a Buyer, to:
Rubicon Master Fund
c/o Rubicon Fund Management LLP
103 Mount St.London W1K2TJ
United Kingdom
Facsimile No.: +44 207-074 4280
Telephone No.: +44 207 074 4299
Attn: William Callanan
with a copy (for informational purposes only) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Peter Halasz, Esq.
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively;
provided however that the foregoing clause (B) shall only be valid if such
communication contained in the facsimile is delivered by an overnight courier
service within 24 hours of the transmission of facsimile.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Buyer. The Buyer may assign some or all of its rights hereunder
without the consent of the Company, in which event such assignee shall be deemed
to be a Buyer hereunder with respect to such assigned rights.
(h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(i) Survival. Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 shall survive for 18 months following the Closing, and the
agreements and covenants set forth in Sections 4 and 9 shall survive the
Closing. The Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
22
(j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(k) Indemnification. Indemnification. In consideration of the
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 the Buyer and each other holder of the Securities and all of
their stockholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in any Transaction Documents, (b) any breach of any covenant, agreement
or obligation of the Company contained in any Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of any Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by the Buyer pursuant to Section (i) or (iv) the status of the
Buyer or holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents; provided that
indemnification pursuant to clauses (iii), or (iv) above shall not be available
to the extent arising from such Buyer's bad faith, fraud or willful misconduct.
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 that is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
(l) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
(m) Remedies. The Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
23
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyer. The Company
therefore agrees that the Buyer shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyer hereunder or pursuant to any of the other
Transaction Documents or the Buyer enforce or exercises its 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, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
[Signature Page Follows]
24
IN WITNESS WHEREOF, the Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
NATURAL GAS SYSTEMS, INC.
By:
--------------------------
Name: Robert S. Herlin
Title: CEO and President
[Signature Page to Securities Purchase Agreement]
IN WITNESS WHEREOF, the Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYER:
RUBICON MASTER FUND
By: Rubicon Fund Management, LLP,
its Investment Manager
By:
----------------------------------
Name:
Title:
[Signature Page to Securities Purchase Agreement]
EXHIBITS
Exhibit A Registration Rights Agreement
Exhibit B Form of Outside Company Counsel Opinion
Exhibit C Form of Secretary's Certificate
Exhibit D Form of Officer's Certificate
Schedule 3(a) Subsidiaries
Schedule 3(l) Material Changes
Schedule 3(q) Transactions with Affiliates
Schedule 3(r) Securities
Schedule 3(s) Indebtedness
Schedule 3(t) Litigation
Schedule 3(w) Title