EXHIBIT 10.3
SECURITIES PURCHASE AGREEMENT DATED MARCH 1, 2005 BETWEEN
GALAXY ENERGY CORPORATION AND THE BUYERS NAMED THEREIN
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 1,
2005, by and among Galaxy Energy Corporation, a Colorado corporation, with
headquarters located at ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"COMPANY"), and the investors listed on the SCHEDULE OF BUYERS attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and 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");
B. The Company has authorized senior subordinated convertible notes of
the Company (the "CONVERTIBLE NOTES"), which shall be convertible into shares of
the Company's common stock, par value $0.001 per share (the "COMMON STOCK") (the
shares of Common Stock issuable upon conversion of the Convertible Notes being
referred to herein as the "CONVERSION SHARES"), in accordance with the terms of
the Convertible Notes;
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement (I) Convertible Notes, substantially in the form attached as
EXHIBIT A, in an original aggregate principal amount of up to $8,000,000 and in
the respective principal amounts set forth opposite each Buyer's name on the
SCHEDULE OF BUYERS (such notes, together with any promissory notes or other
securities issued in exchange or substitution therefor or replacement thereof,
and as any of the same may be amended, restated, modified or supplemented and in
effect from time to time, the "NOTES"), and (II) warrants, substantially in the
form attached as EXHIBIT B, to acquire that number of shares of Common Stock
equal to the quotient of (i) 40% of the original principal amount of the Notes
purchased by such Buyer at the Closing, divided by (ii) the Warrant Exercise
Price (as defined in the Warrants (as defined below)) as of the Closing (the
"WARRANTS," and together with any warrants or other securities issued in
exchange or substitution therefor or replacement thereof (including any warrants
issued pursuant to Section 3 of the Warrants or any similar provisions of any
warrants issued in exchange or substitution therefor or replacement thereof),
and as any of the same may be amended, restated, modified or supplemented and in
effect from time to time, the "WARRANTS"; the shares of Common Stock issuable
upon exercise of the Warrants being referred to as the "WARRANT SHARES");
D. 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 as EXHIBIT C (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Subordination Agreement,
substantially in the form attached as EXHIBIT D (the "SUBORDINATION AGREEMENT"),
pursuant to which the rights and obligations of the parties with respect to the
holders of the Company's Senior Secured Convertible Notes are delineated.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
a. PURCHASE OF NOTES AND WARRANTS. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer and each Buyer severally agrees to purchase
from the Company Notes in the principal amount set forth opposite such Buyer's
name on the SCHEDULE OF BUYERS, along with the related Warrants with respect to
the number of Warrant Shares equal to the quotient of (i) 40% of the original
principal amount of the Notes purchased by such Buyer at the Closing divided by
(ii) the Warrant Exercise Price (as defined in the Warrants) as of the Closing
(the "CLOSING"). The purchase price (the "PURCHASE PRICE") of the Notes and the
related Warrants at the Closing shall be equal to $1.00 for each $1.00 of
principal amount of the Notes purchased (representing an aggregate Purchase
Price of up to $8,000,000 for the aggregate principal amount of up to $8,000,000
of Notes, along with the Warrants, to be purchased at the Closing). "BUSINESS
DAY" means any day other than Saturday, Sunday or other day on which commercial
banks in the City of Denver are authorized or required by law to remain closed.
b. THE CLOSING DATE. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m., Mountain Standard Time, on March 1, 2005,
subject to the satisfaction (or waiver) of all of the conditions to the Closing
set forth in Sections 6 and 7 (or such later date as is mutually agreed to by
the Company and the Buyers). The Closing shall occur on the Closing Date at the
offices of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other time, date and place as the Company and
the Buyers may collectively designate in writing.
c. FORM OF PAYMENT. On the Closing Date, (i) each Buyer shall pay
the Purchase Price to the Company for the Notes and the Warrants, if any, to be
issued and sold to such Buyer at such Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer, Notes (in the principal amounts as
such Buyer shall request) (the "NOTE Certificates") representing such principal
amount of the Notes that such Buyer is purchasing hereunder at such Closing,
along with, at the Closing, warrants representing the Warrants, duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
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a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the Notes and
the Warrants set forth opposite such Buyer's name on the SCHEDULE OF BUYERS,
(ii) upon conversion of such Notes, will acquire the Conversion Shares then
issuable, (iii) will acquire any other Warrants issued to such Buyer pursuant to
Section 3 of any Warrant and (iv) upon exercise of such Warrants or any such
other Warrants will acquire the Warrant Shares issuable upon exercise thereof
(the Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as 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, 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 the 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
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(l) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. TRANSFER OR RESALE. Such Buyer understands that, except as
provided in the Registration Rights Agreement: (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
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the Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended (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 ▇▇▇▇ ▇▇▇) 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. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities.
g. LEGENDS. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
sale of the Conversion Shares and the Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion 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 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 APPLICABLE STATE SECURITIES
LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for resale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration
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under the 1933 Act, (iii) such holder provides the Company with reasonable
assurances that the Securities can be sold pursuant to Rule 144(k), or (iv) such
holder provides the Company reasonable assurances that the Securities have been
or are being sold pursuant to Rule 144.
h. AUTHORIZATION; ENFORCEMENT; VALIDITY. Such Buyer is a validly
existing corporation, partnership, limited liability company or other entity and
has the requisite corporate, partnership, limited liability or other
organizational power and authority to purchase the Securities pursuant to this
Agreement. This Agreement and the Registration Rights Agreement have been duly
and validly authorized, executed and delivered on behalf of such Buyer and are
valid and binding agreements of such Buyer enforceable against such Buyer in
accordance with their respective terms.
i. RESIDENCY. Such Buyer is a resident of that jurisdiction
specified below its address on the SCHEDULE OF BUYERS.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. ORGANIZATION AND QUALIFICATION. Set forth in SCHEDULE 3(A) is
a true and correct list of the entities in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest, as well
as a list designating each of the Company's Subsidiaries (as defined below).
Each of 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 as of the date hereof or at any
time hereafter) is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to own its properties and to carry
on its 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
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, financial condition or prospects of the
Company and its Subsidiaries 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 under the Transaction Documents (as defined below). The Company
has no Subsidiaries except as designated in SCHEDULE 3(A). Except as set forth
in SCHEDULE 3(A), the Company holds all right, title and interest in and to 100%
of the capital stock, equity or similar interest of each of its Subsidiaries, in
each case, free and clear of any Liens (as defined below), including any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of free and clear ownership by a current holder, and no such
Subsidiary owns capital stock or holds an equity or similar interest in any
other Person. "LIEN" means, with respect to any asset, any mortgage, lien,
pledge, hypothecation, violation, charge, lease, license, adverse claim,
restrictive covenant, condition, restriction, exception,
5
security interest or encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a security interest or
third party right in respect of such asset.
b. AUTHORIZATION; ENFORCEMENT; VALIDITY. Each of the Company and
its applicable Subsidiaries has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5), the Notes, the Warrants, and each of the other agreements to which
it is a party or by which it is bound and which is entered into by the parties
hereto in connection with the transactions contemplated hereby and thereby
(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, if applicable, its Subsidiaries and
the consummation by the Company and its Subsidiaries of the transactions
contemplated hereby and thereby, including the issuance of the Notes and the
Warrants and the reservation for issuance and the issuance of the Conversion
Shares and Warrant Shares issuable upon conversion or exercise thereof, 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
shareholders. This Agreement and the other Transaction Documents dated of even
date herewith have been duly executed and delivered by the Company and, if
applicable, its Subsidiaries and constitute the valid and binding obligations of
such parties enforceable against such parties in accordance with their terms. As
of the Closing, the Transaction Documents dated after the date hereof and on or
prior to the date of the Closing shall have been duly executed and delivered by
such parties and shall constitute the valid and binding obligations of the
Company and, if applicable, its Subsidiaries enforceable against such parties in
accordance with their terms.
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 400,000,000 shares of Common Stock, of
which as of the date hereof 60,752,703 shares are issued and outstanding,
6,500,000 shares are reserved for issuance pursuant to the Company's stock
option, restricted stock and stock purchase plans and 21,833,033 shares are
issuable and reserved for issuance pursuant to securities (other than the Notes
and the Warrants) exercisable or exchangeable for, or convertible into, shares
of Common Stock and (ii) 25,000,000 shares of preferred stock, $0.001 par value,
of which as of the date hereof, none of which is issued or outstanding. All of
such outstanding or issuable shares have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in SCHEDULE
3(C), (A) no shares of the capital stock of the Company or any of its
Subsidiaries are subject to preemptive rights or any other similar rights or any
Liens suffered or permitted by the Company or any of its Subsidiaries; (B) 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 for, 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 or exercisable for, any shares of capital stock of the Company
or any of its Subsidiaries; (C) there are no agreements or arrangements under
which the Company or any
6
of its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except the Registration Rights Agreement); (D) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
that 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; (E) there are no securities or instruments containing
anti-dilution or similar provisions that will or may be triggered by the
issuance of the Securities; and (F) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement. The Company has furnished to each Buyer true and correct copies of
the Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "ARTICLES 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, Common Stock,
and the material rights of the holders thereof in respect thereto.
d. ISSUANCE OF SECURITIES. The Notes are duly authorized and,
upon issuance in accordance with the terms hereof, shall be (i) free from all
taxes and Liens with respect to the issuance thereof and (ii) entitled to the
rights set forth in the Notes. At least 11,063,829 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 conversion
of the Notes and upon exercise of the Warrants. Upon conversion or exercise in
accordance with the Notes or the Warrants, as the case may be, the Conversion
Shares and the Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes and Liens 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 and applicable state securities laws.
e. NO CONFLICTS. The execution and delivery of the Transaction
Documents by the Company and, if applicable, its Subsidiaries, the performance
by such parties of their obligations thereunder and the consummation by such
parties of the transactions contemplated thereby (including the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares) will not
(i) result in a violation of the Articles of Incorporation or the Bylaws or the
organizational documents of any Subsidiary; (ii) conflict with, or constitute a
breach or default (or an event which, with the giving of notice or lapse of time
or both, constitutes or would constitute a breach or default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
other remedy with respect to, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party; (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) 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. Neither the Company nor any of its
Subsidiaries is in violation of any term of its articles of incorporation (or
other organizational charter) or bylaws (or operating agreement), as applicable.
Neither the Company nor any of its Subsidiaries is in violation of any term of
or in default under any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries. The business of the
7
Company and its Subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance or regulation of any governmental entity.
Except as specifically contemplated by this Agreement, including the filings and
listings described in Section 4(b) and Section 4(g), and as required under the
1933 Act, none of the Company and its Subsidiaries is 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. All consents, authorizations, orders, filings and registrations that
the Company or any of its Subsidiaries is required to obtain as described in the
preceding sentence have been obtained or effected on or prior to the date
hereof. Neither the Company nor any of its Subsidiaries is in violation of any
applicable provision of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as amended, and the
rules and regulations thereunder (collectively, "▇▇▇▇▇▇▇▇-▇▇▇▇▇"). The Company
and its Subsidiaries are unaware of any facts or circumstances that might give
rise to any of the foregoing.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since November 30, 2002,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof (including all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein) being
hereinafter referred to as the "SEC DOCUMENTS"). A complete and accurate list of
the SEC Documents is set forth on SCHEDULE 3(F), and the Company has made
available to the Buyers or their respective representatives true and complete
copies of the SEC Documents. Except as set forth in SCHEDULE 3(F), each of the
SEC Documents was filed with the SEC within the time frames prescribed by the
SEC for the filing of such SEC Documents such that each filing was timely filed
with the SEC. None of the late filings set forth in SCHEDULE 3(F) will adversely
affect the Company's ability to use SEC Form S-3 for registration of securities
after the date hereof. 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.
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. As of their respective dates, the consolidated financial statements
of the Company and its Subsidiaries 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
consolidated 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 and its 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 audit adjustments). None
of the Company or any of its Subsidiaries, or any of their respective officers,
directors or affiliates (as defined below) or, to the Company's knowledge, any
shareholder of the
8
Company has made any other filing with the SEC, issued any press release or made
any other public statement or communication on behalf of the Company or any of
its Subsidiaries or otherwise relating to the Company or any of its subsidiaries
that contains any untrue statement of a material fact or omits any statement of
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they are or were made, not misleading or has
provided any other information to the Buyers, including information referred to
in Section 2(d), that 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 circumstances under which they are or were made, not
misleading. None of the Company, any of its Subsidiaries and any of their
respective officers, directors, employees or agents has provided the Buyers with
any material, nonpublic information. The Company is not required to file and
will not be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date hereof and to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound that
has not been previously filed as an exhibit (including by way of incorporation
by reference) to its reports filed or made with the SEC under the 1934 Act. The
firm of ▇▇▇▇▇▇▇ Wasoff, P.C., which has expressed its opinion with respect to
the consolidated financial statements included in the Company's annual report on
Form 10-KSB for the fiscal year ended November 30, 2003 (the "AUDIT OPINION"),
is independent of the Company pursuant to the standards set forth in Rule 2-01
of Regulation S-X promulgated by the SEC, and such firm was otherwise qualified
to render the Audit Opinion under applicable law and the rules and regulation of
the SEC. There is no transaction, arrangement or other relationship between the
Company and an unconsolidated or other off-balance-sheet entity that is required
to be disclosed by the Company in its reports pursuant to the 1934 Act that has
not been so disclosed in the SEC Documents. None of the Company or any of its
Subsidiaries, or any of their respective officers, directors or affiliates or,
to the Company's knowledge, any shareholder of the Company is in any way
affiliated with or has ever contributed or paid money to North American
Consultants or has, directly or indirectly, provided any information to,
participated in the preparation of any article contained in, or otherwise
contributed or paid any money to, the Small Cap Stock Advisor.
g. ABSENCE OF CERTAIN CHANGES. Since November 30, 2003, there has
been no 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 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 transactions contemplated hereby, will not be Insolvent (as
defined below). For purposes of this Section 3(g), "INSOLVENT" means (i) the
present fair saleable value of the Company's assets is less than the amount
required to pay the Company's total indebtedness, contingent or otherwise, (ii)
the Company is unable to pay its debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured, (iii)
the Company intends to incur, prior to August 31, 2006, or believes that it will
incur, prior to August 31, 2006, debts that would be beyond its ability to pay
as such debts mature or (iv) the Company has unreasonably small capital with
which to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted. Except as disclosed in SCHEDULE 3(G),
since November 30, 2003, the Company has not declared or paid any dividends or
9
sold any assets outside of the ordinary course of business or had capital
expenditures, individually or in the aggregate, in excess of $100,000.
h. ABSENCE OF LITIGATION. Except as set forth on SCHEDULE 3(H),
(i) 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
Subsidiaries or any of the Company's or the Subsidiaries' officers or directors
in their capacities as such, and (ii) to the knowledge of the Company, none of
the directors or officers of the Company has been involved in securities related
litigation during the past five years. None of the matters described in SCHEDULE
3(H), regardless of their outcome, will have a Material Adverse Effect.
i. ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF NOTES AND
WARRANTS. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of an arm's length purchaser with respect to the Company
in connection with the Transaction Documents and the transactions contemplated
hereby and 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 hereby and 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 hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except for the issuance of the Notes and Warrants contemplated by
this Agreement, no event, liability, development or circumstance has occurred or
exists, or is contemplated 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 S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
that has not been publicly disclosed.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged or will
engage in any form of general solicitation or general advertising (within the
meaning of Regulation D under the ▇▇▇▇ ▇▇▇) in connection with the offer or sale
of the Securities.
l. 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 the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable
10
shareholder approval provisions, nor will the Company or any of its Subsidiaries
take any action or steps 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.
m. DILUTIVE EFFECT. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other shareholders of the
Company.
n. EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any labor union dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union that relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the ▇▇▇▇ ▇▇▇) 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, to
the best knowledge of the Company and its Subsidiaries, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance would not result,
either individually or in the aggregate, in a Material Adverse Effect.
o. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service ▇▇▇▇ registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. None of the Company's
trademarks, trade names, service marks, service ▇▇▇▇ registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and 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 names, service marks, service ▇▇▇▇ registrations, service
names, patents, patent rights, copyrights, inventions, licenses, trade secrets
or other intellectual property rights of others, or of any development of
similar or identical trade secrets or technical information by
11
others. 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 its trademarks, trade names, service marks, service ▇▇▇▇
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets, or infringement of other intellectual property rights.
The Company and its Subsidiaries do not have any knowledge of any facts or
circumstances that might give rise to any of the foregoing. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
p. ENVIRONMENTAL LAWS. Except as set forth in SCHEDULE 3(H), the
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as defined below), (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. The term "ENVIRONMENTAL
LAWS" means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata), including laws relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes 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.
q. TITLE. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except such as are described in SCHEDULE 3(Q). Any real property and
facilities held under lease by the Company and the Subsidiaries are held under
valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
r. 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.
s. REGULATORY PERMITS. The Company and its Subsidiaries possess
all certificates, authorizations, approvals, licenses and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses
12
("PERMITS"), and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
Permit. Without limiting the foregoing, except as set forth on SCHEDULE 3(S),
the Company and its Subsidiaries possess all Permits necessary to produce,
extract, transport and sell the oil, gas and other minerals under its real
property leases.
t. INTERNAL ACCOUNTING CONTROLS; DISCLOSURE CONTROLS AND
PROCEDURES. 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 liability 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 differences. The Company has timely filed and made available to
the Buyers all certifications and statements required by (x) Rule 13a-14 or Rule
15d-14 under the 1934 Act or (y) 18 U.S.C. Section 1350 (Section 906 of
▇▇▇▇▇▇▇▇-▇▇▇▇▇) with respect to any Company SEC Documents. The Company maintains
disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under
the 1934 Act; such controls and procedures are effective to ensure that all
material information concerning the Company and its Subsidiaries is made known
on a timely basis to the individuals responsible for the preparation of the
Company's SEC filings and other public disclosure documents.
u. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement that in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
v. 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
(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), except as set forth on SCHEDULE 3(V) (the
exceptions set forth on such Schedule 3(v) being referred to as the "TAX
EXCEPTIONS"), (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 for which the Company has made appropriate reserves on its books, and (iii)
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 (referred to in clause (i) above) apply. None of the Tax Exceptions
will have a Material Adverse Effect. Except as set forth in SCHEDULE 3(V), there
are no unpaid taxes in any material amount claimed to be due by the
13
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
w. TRANSACTIONS WITH AFFILIATES. Except as set forth in SCHEDULE
3(W), and other than the grant of stock options disclosed in SCHEDULE 3(C), no
Related Party (as defined below) of the Company or any of its Subsidiaries, or
any of their respective affiliates, is presently, or has been within the past
two years, a party to any transaction, contract, agreement, instrument,
commitments, understandings or other arrangement or relationship with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), whether for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
requiring payments or consideration to or from any such Related Party. Except as
set forth in SCHEDULE 3(W), no Related Party of the Company or any of its
Subsidiaries, or any of their respective affiliates, has any direct or indirect
ownership interest in any person in which the Company or any of its Subsidiaries
has any direct or indirect ownership interest or with which the Company or any
of its Subsidiaries competes or has a business relationship.
x. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board
of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Articles of Incorporation or the laws
of Colorado that is or could become applicable to the Buyers as a result of the
transactions contemplated by this Agreement, including the Company's issuance of
the Securities and the Buyers' ownership of the Securities.
y. 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.
z. 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, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
aa. NO OTHER AGREEMENTS. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
bb. OUTSTANDING INDEBTEDNESS; LIENS. Payments of principal and
other payments due under the Notes will, upon issuance in connection with the
Closing, rank senior to all other Indebtedness (as defined in the Notes) and
trade account payables of the Company or any of its Subsidiaries, except for
secured debt and existing senior debt, as more specifically
14
delineated in the Subordination Agreement. Except as set forth on SCHEDULE
3(BB), (I) neither the Company nor any of its Subsidiaries has any outstanding
Indebtedness or trade payables and (II) there are no Liens on any of the assets
of the Company and its Subsidiaries, or financing statements securing
obligations of any amounts, either individually or in the aggregate, filed in
connection with, the Company or any of its Subsidiaries or any of their
respective assets.
4. COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts to timely
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 each Buyer promptly after such filing. The Company shall, on or
before each of the Closing Dates, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
c. REPORTING STATUS. Until the later of (i) the date that is one
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto) and (ii) the date on which no Notes or Warrants
remain outstanding (the "REPORTING PERIOD"), the Company shall file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination.
d. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Notes and Warrants to acquire an interest in certain oil and gas
leases covering acreage in the Piceance Basin, Colorado, and for the Company's
drilling operations, as more specifically described and in the amounts indicated
in SCHEDULE 4(D). The Company shall not use the proceeds from the sale of the
Notes and Warrants in violation of any applicable law.
e. FINANCIAL INFORMATION. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) within one (1) day after the filing
thereof with the SEC, a copy of its Annual Reports on Form 10-KSB or Form 10-K,
its Quarterly Reports on Form 10-QSB or 10-Q, 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, unless the foregoing are filed with the SEC through
▇▇▇▇▇ and are immediately available to the public through ▇▇▇▇▇; (ii) on the
same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries,
15
except to the extent such release is available through Bloomberg Financial
Markets (or any successor thereto) contemporaneously with such issuance; and
(iii) copies of any notices and other information made available or given to
the shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders.
f. 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 Conversion Shares upon conversion of all
outstanding Notes (without regard to any limitations on conversions) and 150% of
the number of shares of Common Stock needed to provide for the issuance of the
Warrant Shares upon exercise of all outstanding Warrants (without regard to any
limitations on exercises).
g. LISTING. The Company shall take all actions necessary to
remain eligible for quotation of its securities on The NASDAQ Stock Market's OTC
Bulletin Board and to cause all of the Registrable Securities (as defined in the
Registration Rights Agreement) covered by a Registration Statement to be quoted
thereon, unless listed on The New York Stock Exchange ("NYSE"), The American
Stock Exchange ("AMEX"), the NASDAQ National Market ("NASDAQ") or the NASDAQ
Small CapMarket ("NASDAQ SMALLCAP") (each, a "NATIONAL MARKET"). The Company
shall use its reasonable best efforts to (i) secure the listing of all of the
Registrable Securities on a National Market as promptly as practicable; and (ii)
following such listing maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. Following
such listing, 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 from the National Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(g).
h. EXPENSES. Subject to Section 9(k) below, at the Closing, the
Company agrees to reimburse the Buyers for their legal and due diligence
expenses up to an aggregate maximum amount of $25,000.00.
i. DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION.
Contemporaneous with or prior to the earlier of (i) the Company's first public
announcement of the transactions contemplated hereby and (ii) 8:00 a.m. (Denver
Time) on the second (2nd) Business Day following the Closing Date, the Company
shall file a Form 8-K with the SEC describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such Form
8-K this Agreement (including the schedules hereto), the Form of Note, the
Registration Rights Agreement, and the Form of Warrant, in the form required by
the 1934 Act (the "ANNOUNCING FORM 8-K"). The Company shall not make any public
announcement regarding the transactions contemplated hereby prior to the
Closing. From and after the filing of the Announcing Form 8-K with the SEC, no
Buyer shall be in possession of any material nonpublic information received from
the Company, any of its Subsidiaries or any of their respective officers,
directors, employees or agents. The Company shall not, and shall cause each of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Buyer with any material nonpublic
information regarding the
16
Company or any of its Subsidiaries from and after the filing of the Announcing
Form 8-K with the SEC without the express prior written consent of such Buyer.
In the event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents. No Buyer shall have any liability to the Company, its Subsidiaries,
or any of its or their respective officers, directors, employees, shareholders
or agents for any such disclosure. Subject to the foregoing, neither the Company
nor any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby or disclosing the name of any
Buyer; provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the Announcing
Form 8-K and contemporaneously therewith and (ii) as is required by applicable
law and regulations (provided that 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).
j. TRANSACTIONS WITH AFFILIATES. So long as any Note or Warrants
are outstanding, the Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement any transaction, contract,
agreement, instrument, commitment, understanding or other arrangement with any
of its or any Subsidiary's officers, directors, persons who were officers or
directors at any time during the previous two years, shareholders, or affiliates
of the Company or any of its Subsidiaries, or with any individual related by
blood, marriage or adoption to any such individual or with any entity in which
any such entity or individual owns a beneficial interest (each a "RELATED
PARTY"), except for (a) customary employment arrangements and benefit programs
on reasonable terms, or (b) any transaction, contract, agreement, instrument,
commitment, understanding or other arrangement on an arms-length basis on terms
no less favorable than terms that would have been obtainable from a person other
than such Related Party, and that is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary shall not be a disinterested director
with respect to any such transaction, contract, agreement, instrument,
commitment, understanding or other arrangement. "AFFILIATE" for purposes hereof
means, with respect to any person or entity, another person or entity that,
directly or indirectly, (i) has an equity interest in that person or entity,
(ii) has a common ownership with that person or entity, (iii) controls that
person or entity, (iv) is controlled by that person or entity or (v) shares
common control with that person or entity. "CONTROL" or "CONTROLS" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
k. CORPORATE EXISTENCE; REAL PROPERTY LEASES. From the date of
this Agreement and for so long as any of the Notes or Warrants is outstanding,
the Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company's assets (including, for the avoidance of any
doubt, the assets of any Subsidiary), except in the event of a
17
merger or consolidation or sale or transfer of all or substantially all of the
Company's assets (including, for the avoidance of any doubt, the assets of any
Subsidiary), where the surviving or successor entity in such transaction (i)
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is quoted on or listed for trading on NASDAQ,
NASDAQ SmallCap, AMEX or NYSE. From the date of this Agreement and for so long
as any Notes or Warrants are outstanding, the Company shall, and shall cause
each of its Subsidiaries to, refrain from violating, breaching or defaulting
under in any material respect, or taking or failing to take any action that
(with or without notice or lapse of time or both) would constitute a material
violation or breach of, or default under, any term or provision of any real
property lease to which the Company or any of its Subsidiaries is a party.
l. PLEDGE OF SECURITIES. The Company acknowledges and agrees that
the Securities may be pledged by an Investor (as defined in the Registration
Rights Agreement) in connection with a bona fide margin agreement or other loan
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting any such 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 Section 2(f) of
this Agreement; provided that an Investor and its pledgee shall be required to
comply with the provisions of Section 2(f) in order to effect a sale, transfer
or assignment of Securities to such pledgee. 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.
m. PRIORITY OF NOTES. Each of the Buyers acknowledges that the
Notes will rank above all other obligations of the Company, except for secured
debt and existing senior debt, as more specifically delineated in the
Subordination Agreement. Specifically, all principal and interest payments due
under the Notes will be subordinated to payments due under the Company's
currently outstanding Senior Secured Convertible Notes. From the date of this
Agreement and for so long as any of the Notes is outstanding, the Company shall
not, and shall not permit any of its Subsidiaries to, (a) issue or incur any
Indebtedness, except for Indebtedness the holders of which agree in writing to
be subordinate to the Notes on terms and conditions acceptable to the Buyers,
including with regard to interest payments or repayment of principal, (b) issue,
assume or incur any Indebtedness which would mature or require or permit
repayment prior to the Maturity Date (as defined in the Notes); or (c) issue any
capital stock of the Company or any Subsidiary redeemable prior to the Maturity
Date. The provisions of this Section 4(m) are in furtherance of Section 11 of
the Notes, and in no way limit the other restrictions on or obligations of the
Company pursuant to Section 11 of the Notes or otherwise.
n. RESTRICTION ON LOANS AND INVESTMENTS. From the date of this
Agreement and for so long as any of the Notes is outstanding, the Company shall
not, and shall not permit any of its Subsidiaries to, except for Permitted
Investments (as defined herein), make any loans to, or investments in, any other
person or entity, including through lending money, deferring the purchase price
of property or services (other than trade payables on terms of ninety (90) days
or
18
less), purchasing any note, bond, debenture or similar instrument, entering
into any letter of credit, guaranteeing (or taking any action that has the
effect of guaranteeing) any obligations of any other person or entity, or
acquiring any equity securities of, or other ownership interest in, any other
entity. "PERMITTED INVESTMENTS" means any investment in (A) direct obligations
of the United States, or obligations guaranteed by the United States, in each
case which mature and become payable within 90 days of the investment by the
Company or any Subsidiary, (B) commercial paper rated at least A-1 by Standard &
Poor's Ratings Service and P-1 by ▇▇▇▇▇'▇ Investors Services, Inc., (C) time
deposits with, including certificates of deposit issued by, any office located
in the United States of any bank or trust company which is organized under the
laws of the United States or any State thereof and has capital, surplus and
undivided profits aggregating at least $500,000,000 and which issues (or the
parent of which issues) certificates of deposit or commercial paper with a
rating described in clause (B) above, in each case which mature and become
payable within 90 days of the investment by the Company or any Subsidiary, (D)
repurchase agreements with respect to securities described in clause (A) above
entered into with an office of a bank or trust company meeting the criteria
specified in clause (C) above, provided in each case that such investment
matures and becomes payable within 90 days of the investment by the Company or
any Subsidiary, or (E) any money market or mutual fund which invests only in the
foregoing types of investments.
o. RESTRICTION ON PURCHASES OR PAYMENTS. From the date of this
Agreement and for so long as any of the Notes is outstanding, the Company shall
not, and shall not permit any of its Subsidiaries to: (i) declare, set aside or
pay any dividends on or make any other distributions (whether in cash, stock,
equity securities or property) in respect of any capital stock or split, combine
or reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock or
(ii) purchase, redeem or otherwise acquire, directly or indirectly, any shares
of the Company's capital stock or the capital stock of any of its Subsidiaries,
except repurchases of unvested shares at cost in connection with the termination
of the employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof and set forth on SCHEDULE 3(C).
p. RESTRICTION ON ISSUANCE OF SECURITIES. The Company shall not,
prior to 30 days following the Closing Date, (x) issue any Convertible Security
(as defined in the Notes) or Option (as defined in the Notes) which is
convertible or exercisable into, or exchangeable for, shares of Common Stock, or
(y) issue any shares of Common Stock, other than shares of Common Stock issued
or deemed to be issued by the Company upon the conversion, exchange or exercise
of any right, option, obligation or security outstanding on the date hereof and
set forth in SCHEDULE 3(C), provided that the terms of such option, obligation
or security are not amended or otherwise modified on or after the date hereof.
q. OPERATION OF THE BUSINESS IN ORDINARY COURSE. From the date of
this Agreement and continuing until the earlier of (i) the Closing or (ii) the
termination of the parties obligations with respect to the Closing, the Company
and its Subsidiaries shall carry on their respective business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted. From the date of this Agreement and for so long as any of the Notes
is
19
outstanding, the Company shall maintain directors' and officers' liability
insurance providing for aggregate coverage of at least $5,000,000.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent in the form attached hereto as EXHIBIT E (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"), and any subsequent transfer agent, to issue certificates or
credit shares to the applicable balance accounts at DTC, registered in the name
of each Buyer or its respective nominee(s), for the Conversion Shares and the
Warrant Shares in such amounts as specified from time to time by each Buyer to
the Company upon conversion of the Notes or exercise of the Warrants. Prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act,
all such certificates shall bear the restrictive legend specified in Section
2(g). The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 2(f) (in the case of the Conversion
Shares and the Warrant Shares, prior to registration of the Conversion Shares
and the Warrant Shares under the ▇▇▇▇ ▇▇▇) 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 the extent provided in this
Agreement and the Registration Rights Agreement. If a Buyer provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Securities may be made without
registration under the 1933 Act or the Buyer provides the Company with
reasonable assurances that the Securities can be sold pursuant to Rule 144
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the
transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates or credit
shares to the applicable balance accounts at DTC in such name and in such
denominations as specified by such Buyer and without any restrictive legend. 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 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyers shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company to issue and sell the Notes and the
Warrants to each Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:
20
a. Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the Purchase
Price for the Notes and the Warrants being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which shall be true and correct as of such date), and such Buyer
shall have performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Notes and
the Warrants from the Company at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for each Buyer's sole benefit and may be waived only by
such Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:
a. Each of the Company and its Subsidiaries shall have executed
each of the Transaction Documents applicable to it and delivered the same to
such Buyer.
b. The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which shall be true and correct as of such date) and the Company
shall have performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer, including an update
as of the Closing Date of the representations contained in Sections 3(c) and
3(bb) above.
c. Such Buyer shall have received the opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.C., dated as of the Closing Date, which opinion will
address, among other things, laws of the State of Colorado applicable to the
transactions contemplated hereby, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of EXHIBIT F attached
hereto.
d. The Company shall have executed and delivered to such Buyer
the Note Certificates and the Warrants (in such denominations as such Buyer
shall request) for the Notes and the Warrants being purchased by such Buyer at
the Closing.
21
e. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Buyer (the "RESOLUTIONS").
f. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Notes and the exercise of the Warrants, at least
11,063,829 shares of Common Stock (such number to be adjusted for any stock
splits, stock dividends, stock combinations or other similar transactions
involving the Common Stock that are effective at any time after the date
hereof).
g. The Irrevocable Transfer Agent Instructions shall have been
delivered to and acknowledged in writing by the Company's transfer agent, and
the Company shall have delivered a copy thereof to such Buyer.
h. The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such entity's state of incorporation or organization issued by the
Secretary of State of such state of incorporation or organization as of a date
within ten (10) days of the Closing Date.
i. The Company shall have delivered to such Buyer a secretary's
certificate, dated as of the Closing Date, certifying as to (A) the Resolutions,
(B) the Articles of Incorporation, certified as of a date within ten (10) days
of the Closing Date, by the Secretary of State of the State of Colorado and (C)
the Bylaws, each as in effect at the Closing.
j. The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance of the
Securities pursuant to this Agreement in compliance with such laws.
k. The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
l. The Company and its Subsidiaries shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
8. 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 shareholders,
partners, officers, directors, employees and direct or indirect investors and
any of the foregoing persons' agents or other representatives (including 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
Indemnitees is a party to the action for which indemnification hereunder is
22
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Indemnitees as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (c) any cause of action, suit or claim brought
or made against such Indemnitees and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents in
accordance with the terms thereof or any other certificate, instrument or
document contemplated hereby or thereby in accordance with the terms thereof
(other than a cause of action, suit or claim brought or made against an
Indemnitee by such Indemnitee's owners, investors or affiliates), (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 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 8 shall
be the same as those set forth in Sections 6(a) and (d) of the Registration
Rights Agreement, including those procedures with respect to the settlement of
claims and the Company's rights to assume the defense of claims.
9. GOVERNING LAW; 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 Colorado,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of Denver, 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 HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
23
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to each other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. HEADINGS. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all
other prior oral or written agreements between each 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 any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyers that purchased at least two-thirds (2/3) of the aggregate
principal amount of the Notes on the Closing Date, or if prior to the Closing,
by the Buyers listed on the SCHEDULE OF BUYERS as being obligated to purchase at
least two-thirds (2/3) of the aggregate principal amount of the Notes. Any such
amendment shall bind all holders of the Notes and the Warrants. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Notes or Warrants 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
Notes, 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 delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized 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:
24
If to the Company:
Galaxy Energy Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
With a copy to:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
If to the Transfer Agent:
Computershare Trust Company, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
If to a Buyer, to it at the address and facsimile number set forth on the
SCHEDULE OF BUYERS, with copies to such Buyer's representatives as set forth on
the SCHEDULE OF BUYERS, or, in the case of a Buyer or any other party named
above, at 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 or (C)
provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or deposit with a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes. 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 aggregate principal
of the Notes then outstanding, including by merger or consolidation, except
pursuant to a Change of Control (as defined in Section 4(b) of the Notes) with
respect to which
25
the Company is in compliance with Section 4(k) of this Agreement, Section 4 of
the Notes and Section 10 of the Warrants. A Buyer may assign some or all of its
rights hereunder without the consent of the Company; provided, however, that 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, which consent shall not be
unreasonably withheld. Notwithstanding anything to the contrary contained in the
Transaction Documents, the Buyers shall be entitled to pledge the Securities in
connection with a bona fide margin account or other loan or financing
arrangement secured by the Securities.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and, to the extent provided in Section 8 hereof, each Indemnitee, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.
i. SURVIVAL. Unless this Agreement is terminated under Section
9(k), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. FURTHER ASSURANCES. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the 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. TERMINATION. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(k)(i), the Company shall be obligated to reimburse each of the
Buyers (so long as such Buyer is a nonbreaching party) for its legal and due
diligence expenses as set forth in Section 4(h).
l. PLACEMENT AGENT. The Company acknowledges that it has engaged
JTE Finanz AG as placement agent in connection with the sale of the Notes and
the related Warrants, which placement agent 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 broker's 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
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
26
m. 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.
n. REMEDIES. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies that such holders have been granted at any time under any
other agreement or contract and all of the rights that 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 or proving actual damages), to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights
granted by law.
o. PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement, the Notes or Warrants 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,
by a trustee, receiver or any other person under any law (including 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.
p. INDEPENDENT NATURE OF BUYERS. The obligations of each Buyer
hereunder are several and not joint with the obligations of any other Buyer, and
no Buyer shall be responsible in any way for the performance of the obligations
of any other Buyer hereunder. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder. The decision of
each Buyer to purchase the Securities pursuant to this Agreement has been made
by such Buyer independently of any other Buyer and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or any of its Subsidiaries
which may have been made or given by any other Buyer or by any agent or employee
of any other Buyer, and no Buyer or any of its agents or employees shall have
any liability to any other Buyer (or any other person or entity) relating to or
arising from any such information, materials, statements or opinions. Nothing
contained herein, and no action taken by any Buyer pursuant hereto or thereto,
shall be deemed to constitute the Buyers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Buyers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated hereby. Each Buyer shall be
entitled to independently protect and enforce its rights, including the rights
arising out of this Agreement the Notes or the Warrants, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.
27
q. INTERPRETATIVE MATTERS. Unless the context otherwise requires,
(a) all references to Sections, Schedules or Exhibits are to Sections, Schedules
or Exhibits contained in or attached to this Agreement, (b) each accounting term
not otherwise defined in this Agreement has the meaning assigned to it in
accordance with GAAP, (c) words in the singular or plural include the singular
and plural and pronouns stated in either the masculine, the feminine or neuter
gender shall include the masculine, feminine and neuter and (d) the use of the
word "including" in this Agreement shall be by way of example rather than
limitation.
* * * * * *
28
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.
COMPANY: BUYERS:
GALAXY ENERGY CORPORATION
By:
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
29