SRS ENERGY, INC. SERIES A DEBENTURE PURCHASE AGREEMENT
Exhibit
4.3
SRS
ENERGY, INC.
SERIES
A DEBENTURE
PURCHASE
AGREEMENT
THIS
SERIES A DEBENTURE PURCHASE AGREEMENT is made as of the 20th day of
March,
2007, by and among SRS Energy, Inc., a Delaware corporation (the "Company"),
and
the investors severally and not jointly listed on Schedule A hereto, each of
which is herein referred to as an "Investor."
THE
PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase
and Sale of Debentures.
1.1 Sale
and Issuance of Series A Debentures.
(a) On
or prior to the Closing (as defined below), the Company shall have authorized
(i) the sale and issuance to the Investors of the Series A Debentures and (ii)
the issuance of the shares of Common Stock to be issued upon conversion of
the
Series A Debentures (the "Conversion Shares"). The Series A Debentures and
the
Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Form of Debenture attached as Exhibit A and
this Agreement.
(b) Subject
to the terms and conditions of this Agreement, each Investor agrees, severally
and not jointly, to purchase at the Closing and the Company agrees to sell
and
issue to each Investor at the Closing, that amount of the Company's Series
A
Debentures set forth opposite such Investor's name on Schedule A hereto
for the purchase price set forth thereon.
1.2 Closing.
The purchase and sale of the Series A Debentures shall take place at the offices
of Sauerwein, Simon, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C. immediately prior to the closing
of the transactions set forth in that certain Agreement and Plan of Merger
and
Reorganization among the Company, Alternative Ethanol Technologies, Inc. (the
“Parent”) and SRS Acquisition Corp. and dated as of March 19, 2007 (the “Merger
Agreement”), which is anticipated to be at 9:00 A.M., on March 27, 2007, or at
such other time and place as the Company and Investors acquiring in the
aggregate more than half the Series A Debentures sold pursuant hereto mutually
agree upon orally or in writing (which time and place are designated as the
"Closing"). At the Closing the Company shall deliver to each Investor the Series
A Debentures that such Investor is purchasing against payment of the purchase
price therefore by check, wire transfer, cancellation of indebtedness, or any
combination thereof.
1.3 Additional
Sale of Series A Debentures. The Company reserves the right,
solely through Parent, to sell up to an additional $1.0 million of Debentures
at
any time prior to filing the Registration Statement as such is defined in the
Investors’ Rights Agreement dated as of the date hereof by and among the parties
hereto (“Investors’ Rights Agreement”) provided any Purchaser of such Debentures
shall be required to enter into this Agreement (or an agreement substantially
similar to this Agreement, in the discretion of the Company and the Purchasers)
and the Investors’ Rights Agreement. Any such new Purchaser shall be subject to
the market stand-off provisions of the Investors’ Rights Agreement.
2. Representations
and Warranties of the Company. The Company hereby represents and
warrants to each Investor that, except as set forth on a Schedule of Exceptions
(the "Schedule of Exceptions") furnished each Investor specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization,
Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws
of the State of Delaware and has all requisite corporate power and authority
to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties. The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it.
2.2 Capitalization
and Voting Rights.
(a) The
authorized capital of the Company consists of 1,500 shares of common stock,
par
value $0.001 ("Common Stock"), of which 1,004 shares are issued and
outstanding.
(b) The
outstanding shares of Common Stock are owned by the stockholders and in the
numbers specified in Exhibit B hereto.
(c) The
outstanding shares of Common Stock are all duly and validly authorized and
issued, fully paid and nonassessable, and were issued in accordance with the
registration or qualification provisions of the Securities Act of 1933, as
amended (the" Act") and any relevant state securities laws, or pursuant to
valid
exemptions therefrom.
(d)
In
addition to the aforementioned options, the Company will cause Parent to reserve
an additional 7,000,000 shares of its Common Stock for purchase upon exercise
of
options to be granted in the future under the SRS ENERGY, INC. 2007 Stock Option
Plan. Except as set forth on Schedule 2.2(e) the Company is not a
party or subject to any agreement or understanding, and, to the best of the
Company's knowledge, there is no agreement or understanding between any persons
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the
Company.
2.3 Subsidiaries.
Except as set forth in the Schedule of Exceptions, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. The Company is not a
participant in any joint venture, partnership, or similar
arrangement.
2.4 Authorization.
All corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement and the Investors' Rights Agreement, and the Ancillary Agreements,
the
performance of all obligations of the Company hereunder and thereunder, and
the
authorization, issuance (or reservation for issuance), sale and delivery of
the
Series A Debentures being sold hereunder and the Common Stock issuable upon
conversion of the Series A Debentures has been taken or will be taken prior
to
the Closing, and this Agreement and the Investors' Rights Agreement and the
Ancillary Agreements constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i)
as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities
laws.
2.5 Valid
Issuance of Series A Debentures Common Stock. The Series A Debentures
being purchased by the Investors hereunder, when issued, sold and delivered
in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and nonassessable, and
will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Investors' Rights Agreement and under applicable state
and federal securities laws. The Series A Debentures will be assumed by Parent
in accordance with the Merger Agreement and the Common Stock issuable upon
conversion of the Series A Debentures will be duly and validly reserved for
issuance by Parent and, upon issuance, will be duly and validly issued, fully
paid, and nonassessable and will be free of restrictions on transfer other
than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws.
2.6 Governmental
Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated
by
this Agreement, except the filing of the Restated Certificate with the Secretary
of State of Delaware.
2.7 Offering.
Subject in part to the truth and accuracy of each Investor's representations
set
forth in Section 3 of this Agreement, the offer, sale and issuance of the Series
A Debentures as contemplated by this Agreement are exempt from the registration
requirements of any applicable state and federal securities laws, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.8 Litigation.
Except as set forth in the Schedule of Exceptions, there is no action, suit,
proceeding or investigation pending or, to the Company's knowledge, currently
threatened against the Company that questions the validity of this Agreement
or
the Investors' Rights Agreement or any Ancillary Agreements, or the right of
the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or
in
the aggregate, in any material adverse changes in the assets, condition, affairs
or prospects of the Company, financially or otherwise, or any change in the
current equity ownership of the Company, nor is the Company aware that there
is
any basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court
or
government agency or instrumentality. Except as set forth in the Schedule of
Exceptions, there is no action, suit, proceeding or investigation by the Company
currently pending or that the Company intends to initiate.
2.9 Proprietary
Information and Inventions Agreement. ▇▇ ▇▇▇▇▇▇▇▇▇ has executed, or at
Closing will execute, a Proprietary Information and Inventions Agreement in
a
form satisfactory to the Investors.
2.10 Patents
and Trademarks. The Company has sufficient title and ownership of or
licenses to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for
its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others, except for such items as have
yet
to be conceived or developed or that are expected to be available for licensing
on reasonable terms from third parties. The Company is the licensee
of the “▇▇▇▇▇▇▇▇▇” technology pursuant to that certain Exclusive License
Agreement set forth on Schedule of Exception and of the “▇▇▇▇” technology
pursuant to that certain Technology License Agreement set forth on the Schedule
of Exception and pursuant to such agreements has the exclusive right to use
such
technology with regard to the production of ethanol. No circumstances
exist that would permit any party (including either the licensor of the
“▇▇▇▇▇▇▇▇▇” technology or of the “▇▇▇▇” technology, or the owner of such
technology, if different) to claim any right to use such technology for any
application or other process that would result in or be associated with
production of ethanol. The Schedule of Exceptions contains a complete
list of, licenses, patents and pending patent applications of the Company.
Except as set forth on the Schedule of Exceptions, there are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor
is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights
of
any other person or entity. The Company is not aware that any of its employees
areobligated under any contract (including licenses, covenants or commitments
of
any nature) or other agreement, or subject to any judgment, decree or order
of
any court or administrative agency, that would interfere with the use of his
or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement or the Investors' Rights Agreement
or
the Ancillary Agreements, nor the carrying on of the Company's business by
the
employees of the Company, nor the conduct of the Company's business as proposed,
will, to the best of the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to or outside the scope of their employment by the
Company.
2.11 Compliance
With Other Instruments. The Company is not in violation or default in
any material respect of any provision of its Restated Certificate or Bylaws,
or
in any material respect of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound, or, to the best of
its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to the Company. Subject to the filing of the Restated
Certificate, neither the execution and delivery by the Company of this
Agreement, the Investors’ Rights Agreement or the Ancillary Agreements, nor the
consummation by the Company of the transactions contemplated hereby, will (a)
conflict with or violate any provision of the certificate of incorporation
or
bylaws of the Company, as amended to date, (b) require on the part of the
Company any filing with, or any permit, authorization, consent or approval
of,
any court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a “Governmental Entity”), (c)
conflict with, result in a breach of, constitute (with or without due notice
or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any Party the right to terminate, modify or cancel,
or require any notice, consent or waiver under, any contract or instrument
to
which the Company is a party or by which the Company is bound or to which any
of
their assets is subject, (d) result in the imposition of any mortgage, pledge,
security interest, encumbrance, charge or other lien (whether arising by
contract or by operation of law), (each, a “Security Interest”) upon any assets
of the Company or (e) violate any order, writ, injunction, decree, statute,
rule
or regulation applicable to the Company or any of its properties or
assets.
2.12 Agreements;
Action.
(a) Except
for agreements explicitly contemplated hereby and by the Investors' Rights
Agreement and the Ancillary Agreements, there are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) Except
as set forth on the Schedule of Exceptions, There are no agreements,
understandings, instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company is a party or by which it is
bound
that may involve (i) obligations (contingent or otherwise) of, or payments
to
the Company in excess of, $5,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company, or (iii)
provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services.
(c) The
Company has not (i) declared or paid any dividends or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii), except as set forth on Schedule 2.12(c)(ii), incurred any indebtedness
for
money borrowed or any other liabilities individually in excess of $5,000 or,
in
the case of indebtedness and/or liabilities individually less than $5,000,
in
excess of $25,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the
sale of its inventory in the ordinary course of business.
(d) For
the purposes of subsections (b) and (c) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such
subsections.
(e) The
Company is not a party to and is not bound by any contract, agreement or
instrument, or subject to any restriction under its Restated Certificate or
Bylaws that adversely affects its business as now conducted or as proposed
to be
conducted, its properties or its financial condition.
2.13 Related-Party
Transactions. Except as set forth on the Schedule of Exceptions, no
employee, officer, or director of the Company or member of his or her immediate
family is indebted to the Company, nor is the Company indebted (or committed
to
make loans or extend or guarantee credit) to any of them. None of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated (does this apply to SRS) or with which the
Company has a business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any material contract with the Company.
2.14 Permits.
The Company has all permits, licenses, and any similar authority necessary
for
the conduct of its business as now being conducted by it, the lack of which
could materially and adversely affect the business, properties, prospects,
or
financial condition of the Company, and the Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.
2.15 Environmental
and Safety Laws. The Company is not in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of its knowledge, no material expenditures are
or
will be required in order to comply with any such existing statute, law or
regulation.
2.16 Manufacturing
and Marketing Rights. The Company has not granted rights to
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.17 Disclosure.
No representation or warranty by the Company contained in this Agreement, and
no
statement contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered or to be delivered by or on behalf
of
the Company pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made,
in
order to make the statements herein or therein not misleading. The Company
has
disclosed to the Parent all material information relating to the business of
the
Company or any Subsidiary or the transactions contemplated by this Agreement.
Neither this Agreement, the Investors' Rights Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not
misleading.
2.18 Registration
Rights. Except as provided in the Investors' Rights Agreement and the
Merger Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or
entity.
2.19 Corporate
Documents. Except for amendments necessary to satisfy representations
and warranties or conditions contained herein (the form of which amendments
has
been approved by the Investors), the Restated Certificate and Bylaws of the
Company are in the form previously provided to special counsel for the
Investors.
2.20 Title
to Property and Assets. The Company owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens that arise in the ordinary course of business and do
not
materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.21 Financial
Statements/Material Liabilities. The Company has delivered
to the Parent copies of its unaudited balance sheet as of December 31, 2005
and
2006 and the related statements of operations, changes in stockholders’ equity
(deficiency), and cash flows for the years ended December 31, 2005 and 2006
(the
“Company Financial Statements”). The Company Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”) consistently applied, and present fairly the financial
condition and results of operations of the Company at the dates and for the
periods covered by the Company Financial Statements. Since December 31, 2005,
(a) there has occurred no event or development which, individually or in the
aggregate, has had, or could reasonably be expected to have in the future,
a
Material Adverse Effect to the Company. The Company does not have any liability
(whether known or unknown, whether absolute or contingent, whether liquidated
or
unliquidated and whether due or to become due), except for (a) liabilities
that
have arisen since the December 31, 2006 in the ordinary course of business
and
(b) liabilities disclosed in the Company Financial Statements.
2.22 Changes.
Since December 31, 2005 there has not been:
(a) any
change in the assets, liabilities, financial condition or operating results
of
the Company from that reflected in the Financial Statements, except changes
in
the ordinary course of business that have not been, in the aggregate, materially
adverse;
(b) any
damage, destruction or loss, whether or not covered by insurance, materially
and
adversely affecting the assets, properties, financial condition, operating
results, prospects or business of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any
waiver by the Company of a valuable right or of a material debt owed to
it;
(d) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and that
is
not material to the assets, properties, financial condition, operating results
or business of the Company (as such business is presently conducted and as
it is
proposed to be conducted);
(e) any
material change or amendment to a material contract or arrangement by which
the
Company or any of its assets or properties is bound or subject;
(f) any
material change in any compensation arrangement or agreement with any
employee;
(g) any
sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets;
(h) any
resignation or termination of employment of any key officer of the Company;
and
the Company, to the best of its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(i) receipt
of notice that there has been a loss of, or material order cancellation by,
any
major customer of the Company;
(j) any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company, with respect to any of its material properties or assets, except liens
for taxes not yet due or payable;
(k) any
loans or guarantees made by the Company to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business;
(l) any
declaration, setting aside or payment or other distribution in respect of any
of
the Company's capital stock, or any direct or indirect redemption, purchase
or
other acquisition of any of such stock by the Company;
(m) to
the best of the Company's knowledge, any other event or condition of any
character that might materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
or
(n) any
agreement or commitment by the Company to do any of the things described in
this
Section 2.22.
2.23 Employee
Benefit Plans. The Company does not have any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974.
2.24 Tax
Returns, Payments and Elections. The Company has filed all tax returns
and reports (including information returns and reports) as required by law.
These returns and reports are true and correct in all material respects. The
Company has paid all taxes and other assessments due. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"),
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made
any
other elections pursuant to the Code (other than elections that relate solely
to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on
the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns and none of its state income or franchise
tax or sales or use tax returns have ever been audited by governmental
authorities. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited
to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom,
and
has paid the same to the proper tax receiving officers or authorized
depositories.
2.25 Labor
Agreements and Actions; Employee Compensation. The Company is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. The Company has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment. The Company is
not
a party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement.
2.26 Brokers.
The Company has no contract, arrangement or understanding with any broker,
finder or similar agent with respect to the transactions contemplated by this
Agreement.
2.27 Legal
Compliance. Each of the Company and the Subsidiaries, and the conduct
and operations of their respective businesses, are in compliance with each
applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, including,
without limitation, those related to requirements pertaining to equal employment
opportunity, employee retirement, affirmative action and other hiring practices,
environmental matters, occupational safety and health workers’ compensation and
unemployment, except for any violations or defaults that, individually or in
the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. No claims have been filed against the Company, and
the
Company has not received any written notice, alleging a violation of any such
laws, regulations or other requirements.
2.28 Use
of Proceeds. The Company shall use the proceeds of the sale of the
Series A Debentures solely as set forth in the budget attached hereto as
Schedule B and for no other purpose or in no other manner, other than as
may be approved by a majority of the Purchasers (not including any additional
Purchaser that purchases Series A Debentures pursuant to Section 1.3 of this
Agreement).
3. Representations
and Warranties of the Investors. Each Investor hereby represents and
warrants that:
3.1 Authorization.
Such Investor has full power and authority to enter into this Agreement and
the
Investors' Rights Agreement, and each such Agreement constitutes its valid
and
legally binding obligation, enforceable in accordance with its terms except
(i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities
laws.
3.2 Purchase
Entirely for Own Account. This Agreement is made with such Investor in
reliance upon such Investor's representation to the Company, which by such
Investor's execution of this Agreement such Investor hereby confirms, that
the
Series A Debentures to be received by such Investor and the Common Stock
issuable upon conversion thereof (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have
any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 Disclosure
of Information. Such Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding
the
terms and conditions of the offering of the Series A Debentures and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors
to
rely thereon.
3.4 Investment
Experience. Such Investor is an investor in securities of companies in
the development stage and acknowledges that it is able to fend for itself,
can
bear the economic risk of its investment, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits
and
risks of the investment in the Series A Debentures. If other than an individual,
Investor also represents it has not been organized for the purpose of acquiring
the Series A Debentures.
3.5 Accredited
Investor. Such Investor is an "accredited investor" within the meaning
of Securities and Exchange Commission ("SEC") Rule 501 of Regulation D, as
presently in effect.
3.6 Restricted
Securities. Such Investor understands that the Securities it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Act.
3.7 Further
Limitations on Disposition. Without in any way limiting the
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound
by
this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There
is then in effect a Registration Statement under the Act covering such proposed
disposition and such disposition is made in accordance with such Registration
Statement; or
(b) (i)
Such Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, such Investor shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will
not
require registration of such shares under the Act. It is agreed that the Company
will not require opinions of counsel for transactions made pursuant to Rule
144
except in unusual circumstances.
(c) Notwithstanding
the provisions of Paragraphs (a) and (b) above, no such registration statement
or opinion of counsel shall be necessary for a transfer by an Investor that
is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his or her spouse or to the siblings, lineal descendants
or
ancestors of such partner or his or her spouse, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Investor hereunder.
3.8 Legends.
It is understood that the certificates evidencing the Securities may bear one
or
all of the following legend:
"These
securities have not been registered under the Securities Act of 1933, as
amended. They may not be sold, offered for sale, pledged or hypothecated in
the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act.
"
3.9 Further
Representations by Foreign Investors. If an Investor is not a United
States person, such Investor hereby represents that he or she has satisfied
himself or herself as to the full observance of the laws of his or her
jurisdiction in connection with any invitation to subscribe for the Securities
or any use of this Agreement, including (i) the legal requirements within his
jurisdiction for the purchase of the Securities, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Securities. Such Investor's subscription and payment
for, and his or her continued beneficial ownership of the Securities, will
not
violate any applicable securities or other laws of his or her
jurisdiction.
4. Conditions
of Investors' Obligations at Closing. The obligations of each Investor
under subsection 1.1 (b) of this Agreement are subject to the fulfillment on
or
before the Closing of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent
thereto:
4.1 Representations
and Warranties. The representations and warranties of the Company
contained in Section 2 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as
of
the date of such Closing.
4.2 Performance.
The Company shall have performed and complied with all agreements, obligations
and conditions contained in this Agreement that are required to be performed
or
complied with by it on or before the Closing.
4.3 Compliance
Certificate. The President of the Company shall deliver to each
Investor at the Closing a certificate stating that the conditions specified
in
Sections 4.1 and 4.2 have been fulfilled and stating that there shall have
been
no adverse change in the business, affairs, operations, properties, assets
or
condition of the Company since the date of this Agreement.
4.4 Qualifications.
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to
this
Agreement shall be duly obtained and effective as of the Closing.
4.5 Proceedings
and Documents. All corporate and other proceedings in connection with
the transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to Investors' special
counsel, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
This
may include, without limitation, good standing certificates and certification
by
the Company's Secretary regarding the Company's Certificate of Incorporation
and
Bylaws and Board of Director and stockholder resolutions relating to this
transaction.
4.6 Proprietary
Information and Employee Stock Purchase Agreements. ▇▇ ▇▇▇▇▇▇▇▇▇ shall
have entered into a Proprietary Information and Inventions
Agreement.
4.7 Bylaws.
The Bylaws of the Company shall provide that the Board of Directors of the
Company shall consist of five (5) persons.
4.8 Board
of Directors. The directors of the Company shall be Messrs. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, _______________ and ______________ and there shall be two vacancies
on the Board of Directors.
4.9 Opinion
of Company Counsel. Each Investor shall have received from Sauerwein,
Simon, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C., counsel for the Company, an opinion, dated as
of the Closing, in the form attached hereto as Exhibit C.
4.10 Investors'
Rights Agreement. The Company and each Investor shall have entered into
the Investors' Rights Agreement.
5. Conditions
of the Company's Obligations at Closing. The obligations of the Company
to each Investor under this Agreement are subject to the fulfillment on or
before the. Closing of each of the following conditions by that
Investor:
5.1 Representations
and Warranties. The representations and warranties of the Investors
contained in Section 3 shall be true on and as of the Closing with the same
effect as though such representations and warranties had been made on and as
of
the Closing.
5.2 Payment
of Purchase Price. The Investor shall have delivered the purchase price
specified in Section 1.2, and Investors shall collectively have acquired and
paid for at the closing at least $1,400,000 in principal amount of Series A
Debentures hereunder.
5.3 Qualifications.
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Securities pursuant to
this
Agreement shall be duly obtained and effective as of the Closing.
6. Indemnification.
6.1 Indemnification.
The Company shall indemnify each Investor in respect of, and hold it harmless
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due
or
to become due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators,
fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) incurred or suffered by such Investor
resulting from, relating to or constituting: any misrepresentation,
breach of warranty or failure to perform any covenant or agreement of the
Company contained in this Agreement, the Investors’ Rights Agreement, any
Ancillary Agreement or the Company Certificate required in Section
4.3.
6.2 Indemnification
Claims. Any Investor entitled to indemnification under this Section 6
will give written notice to the Company of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section 6.
7. Miscellaneous.
7.1 Survival
of Warranties. The warranties, representations and covenants of the
Company and Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made
by
or on behalf of the Investors or the Company.
7.2 Successors
and Assigns. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees
of
any Securities). Nothing in this Agreement, express or implied, is intended
to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this
Agreement.
7.3 Governing
Law. This Agreement shall be governed by and construed under the laws
of the State of Missouri as applied to agreements among Missouri residents
entered into and to be performed entirely within Missouri.
7.4 Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
7.5 Titles
and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
7.6 Notices.
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon deposit with the United States
Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
7.7 Finder's
Fee. Each party represents that it neither is nor will be obligated for
any finders' fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which such Investor or any of its officers, partners, employees, or
representatives is responsible.
The
Company agrees to indemnify and hold harmless each Investor from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives
is
responsible.
7.8 Expenses.
Each party shall pay all costs and expenses that it incurs with respect to
the
negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the Investors' Rights Agreement or
the
Restated Certificate, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
7.9 Amendments
and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or
in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Common
Stock
issuable or issued upon conversion of the Series A Debentures. Any amendment
or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company.
7.10 Severability.
If one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.11 Entire
Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations,
or
covenants except as specifically set forth herein or therein.
7.12 Waiver
of Conflicts. Each party to this Agreement acknowledges that Sauerwein,
Simon, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C., counsel for the Company, has in the past and
may continue to perform legal services for certain of the Investors in matters
unrelated to the transactions described in this Agreement, including the
representation of such Investors in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (1) acknowledges
that
they have had an opportunity to ask for information relevant to this disclosure;
(2) acknowledges that Sauerwein, Simon, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C. represented
the Company in the transaction contemplated by this Agreement and has not
represented any individual Investor or any individual shareholder or employee
of
the Company in connection with such transaction; and (3) gives its informed
consent to Sauerwein, Simon, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C.’s representation of
certain of the Investors in such unrelated matters and to Sauerwein, Simon,
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C.'s representation of the Company in connection with
this Agreement and the transactions contemplated hereby.
[Remainder
of page intentionally left blank; signature page to follow.]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
|
COMPANY
|
||||
|
SRS
ENERGY, INC.
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Title:
|
||||
|
HOLDERS:
|
||||
|
IS
INVESTMENTS
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Title:
|
||||
|
TRINITY
ENTERPRISES, L.L.C.
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Title:
|
||||
|
LEGGWEAR
INTERNATIONAL, LTD.
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Title:
|
||||
|
PADSTOW
ESTATES, INC.
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Title:
|
||||
|
ANAHUAC
MANAGEMENT, INC.
|
||||
|
By:
|
||||
|
Name:
|
||||
|
Title:
|
||||
|
▇▇▇▇▇
▇▇▇▇
|
|
▇▇▇▇
▇▇▇▇
|
|
▇▇▇▇
▇▇▇▇
|
|
▇▇▇▇
▇▇▇▇▇▇▇
|
|
▇▇▇▇
▇. ▇▇▇▇▇
|
|
▇▇▇▇
▇. ▇▇▇▇
|
|
AGEST,
INC.
|
||
|
By:
|
||
|
▇▇▇▇
▇▇▇▇▇▇▇
|
Schedule
A
Schedule
of Investors
|
Investor
|
Debenture
Amount
|
Common
Shares Initially
Issuable
on Conversion
|
|
IS
Investments
|
$100,000.00
|
666,667
|
|
Leggwear
International, Ltd.
|
$100,000.00
|
666,667
|
|
Trinity
Enterprises, L.L.C.
|
$250,000.00
|
1,666,667
|
|
Padstow
Estates, Inc.
|
$250,000.00
|
1,666,667
|
|
Anahuac
Management, Inc.
|
$200,000.00
|
1,333,333
|
|
Agest,
Inc.
|
$150,000.00
|
1,000,000
|
|
▇▇▇▇▇
▇▇▇▇
|
$20,000.00
|
133,333
|
|
▇▇▇▇
▇▇▇▇
|
$30,000.00
|
200,000
|
|
▇▇▇▇
▇▇▇▇
|
$30,000.00
|
200,000
|
|
▇▇▇▇
▇▇▇▇▇▇▇
|
$30,000.00
|
200,000
|
|
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
$15,000.00
|
100,000
|
|
▇▇▇▇
▇. ▇▇▇▇▇
|
$10,000.00
|
66,667
|
|
▇▇▇▇
▇. ▇▇▇▇
|
$215,000.00
|
1,433,333
|