EXHIBIT 4.10
THIS SECURITIES PURCHASE AGREEMENT, as it may be amended from time to time (the
"Agreement"), dated as of the ___ day of ______, 1998, is entered into by and
among ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado corporation (the
"Company"); and the persons and/or entities who have executed this Agreement on
the signature pages hereof (hereinafter referred to individually as an
"Investor" and collectively as the "Investors").
WITNESSETH:
WHEREAS, the Company desires to sell to the Investors, and the Investors desire
to purchase from the Company, certain convertible notes of the Company entitling
the Investors to purchase certain shares of capital stock of the Company, for
the respective purchase prices and upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereby agree as follows:
1. AUTHORIZATION OF ISSUE.
The Company has authorized the issuance and sale to the Investors of: (i) up to
$3,000,0000 principal amount of the Company's 8.0% convertible notes due
______________, 2000 (the "Notes").
(a) The Notes shall be substantially in the form of Exhibit A annexed
hereto and made a part hereof.
2. ISSUANCE OF NOTES; REGISTRATION OF CONVERSION SHARES AND OPTION SHARES.
(a) Issuance of Notes. On the terms and subject to the conditions hereinafter
set forth, on the Closing Date (as hereinafter defined), the Company will issue
and sell to each Investor the principal amount of Notes set forth opposite the
name of each such Investor on Schedule I hereto and made a part hereof.
(b) Purchase Price: Payment. The purchase price for each of the Notes shall
equal 100% of the aggregate principal amount thereof. The purchase price payable
by each Investor shall be the amount set forth opposite the name of each such
Investor on Schedule 1 annexed hereto. The purchase price for the Notes shall be
paid at the Closing by wire transfer of immediately available funds or by
certified or bank cashier's checks (at the option of the Investors) payable to
the order of the Company, or otherwise as acceptable to the Company. The
purchase price shall be payable by each Investor against delivery of the Notes
being purchased by it, all of which shall be registered in the name of the
respective Investor purchasing such Notes.
(c) Registration of Conversion Shares. The Company shall file with the United
States Securities and Exchange Commission ("SEC") and use its best efforts to
cause to be declared effective a Form S-1 Registration Statement or other
appropriate form of registration in order to register for resale and
distribution under the Securities Act of 1933, as amended (the "Securities
Act"), all shares of Common Stock of the Company issuable upon voluntary or
mandatory conversion of all Notes (the "Conversion Shares"). The obligations of
the Company to so register the Conversion Shares are set forth in the
registration rights agreement, dated of even date herewith and in the form of
Exhibit B annexed hereto and made a part hereof (the "Registration Rights
Agreement").
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As used in this Agreement, the term "Subsidiary" or "Subsidiaries"
shall mean: (i) the individual or collective reference to the
corporations listed on Schedule 2 annexed hereto and made a part
hereof, including, without limitation, Bass American Petroleum Corp.
("BAPCO"). The Company hereby represents and warrants to the
Investors, as follows:
(a) Organization and Good Standing. The Company and each of its existing
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with full corporate power
and authority to own its properties and carry on its business as now being
conducted. Each of the Company and such Subsidiaries is qualified as a foreign
corporation and is in good standing in each jurisdiction in which the conduct of
its business or the ownership of its assets requires such qualification.
(b) Capitalization of the Company. The authorized, issued and outstanding
capital stock of the Company is described on the Company's Form S-1
supplementally submitted to the Securities and Exchange Commission (the "SEC")
on January 8, 1998 (the "Form S-1"), as amended. The Company's Form S-1 and all
other documents and reports filed by the Company and/or its Subsidiaries with
the SEC since October 1, 1995 (the "SEC Documents") have been furnished to or
otherwise made available to the Investors or their representatives. The
authorized, issued and outstanding shares of capital stock of each of the
Subsidiaries are disclosed on the SEC Documents.
(c) Authorization, Execution and Effect of Agreements. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Registration Rights Agreement to issue
the Notes in the manner and for the purpose contemplated by this Agreement, and
to execute, deliver and perform its obligations under this Agreement, the Notes
and the Registration Rights Agreement (collectively, the "Transaction
Documents") and all other agreements and instruments heretofore or hereafter
executed and delivered by it pursuant to or in connection with this Agreement.
The execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Company. This Agreement and the other Transaction
Documents have each been duly executed and delivered and constitutes, and upon
execution and delivery in accordance herewith each other agreement or instrument
executed and delivered by the Company pursuant hereto, including the Notes, will
constitute, the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject in each
such case, to applicable bankruptcy, insolvency, reorganization and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(d) Conflicting Agreements and Other Matters. The execution, delivery and
performance by the Company of this Agreement and the other Transaction
Documents, and all other agreements and instruments heretofore or hereafter to
be executed and delivered by the Company in connection with the consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents, and compliance by the Company with the terms and provisions hereof
and thereof applicable to it, including the issuance and sale of the Notes, does
not and will not (i) violate any provision of any law, rule, regulation, order,
writ, judgment, decree, administrative determination or award having
applicability to the Company or any of the Subsidiaries or (ii) conflict with or
result in a breach of or constitute a default under the Certificate of
Incorporation or By-Laws of the Company or any of the Subsidiaries, or any
indenture or loan or credit agreement, or any other material agreement or
instrument, to which the Company or any of the Subsidiaries is a party or by
which the Company or the Subsidiaries, or any of their respective properties are
bound or affected, and will not result in, or require the creation or imposition
of, any lien upon or with respect to any of the properties now owned by the
Company or any of the Subsidiaries or hereafter acquired by the Company or any
of the Subsidiaries.
(e) Financial Information. The (i) audited consolidated financial statements of
the Company for the fiscal year ended September 30, 1997 as set forth in the
Company's Form 10-K/A filed with the SEC, as amended from time to time, (the
"1998 Form 10-K"); (ii) the unaudited financial statements of the Company for
the nine months ended December 31, 1997 as set forth in the Company's Form
10-Q/A filed with the SEC, as amended from time to time (the "1998 Form 10Q/A")
and (iii) the unaudited financial statements of he Company for the quarter ended
March 31, 1998 as set forth in the Company's form 10-Q/A filed with the SEC, as
amended ("Second Quarter 1998 10-Q"), were prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied, and fairly present
the financial condition and results of operations of the Company and the
Subsidiaries for the periods indicated therein; provided, that the unaudited
financial statements do not contain certain footnote disclosures required under
GAAP for audited financial statements and are subject to year end audit
adjustments, none of which would be material to an Investor's decision to
purchase the Notes.
Included in the Form S-1 and the Amended Form S-1 filed with the SEC, the
Company disclosed the acquisition of certain assets from Mytec & Associates
(Mytec), including certain oil and gas reserves. The SEC has reviewed the
financial statements on this acquisition and has reviewed the reserve report
dated February 1997, as revised March 1998, by ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇, a petroleum
engineer, who estimated the reserves for these properties at $14,335,646.
While there is no issue with the SEC as to the value of the reserves, Mytec did
not have three (3) years of audited financial statements for these properties.
Under the accounting principles promulgated in Regulation S-X, such audited
financials are a requirement in order to take advantage of the normal oil and
gas accounting provisions which allow for reserve valuation. Without the
advantages of the GAAP accounting provisions on these reserves, such asset may
be booked only at valuation of the consideration given. The Company paid for
this acquisition in stock which had a market value at the time of the
transaction of $515,000. Based on this lack of financial statements the Company
only had four (4) options on how the Company may handle this matter in its
Second Amended Form S-1. The alternatives and the Company's position on each are
as follows:
(i)Return the assets to Mytec - the Company does not feel that
this would be in the best interest of the Company since it has already expended
approximately $500,000 in well rework procedures and well equipment repair and
the Company would forego any recapture of that money if it returned the
properties.
(ii)Withdraw the Form S-1 and resubmit it after the December
1998 Company financials become available- the Company believes that its
obligations relative to the funding provided on November 15, 1997 by Avalon
Research Group, Inc. ("Avalon") and the Private Equity Line of Credit
established with Kingsbridge Capital Limited ("Kingsbridge")
in March 1998 preclude such alternative.
(iii)Wait to submit the Second Amendment to the Form S-1 until
three (3) years of audited financial statements can be prepared for the Mytec
properties - the Company believes that such work could not be completed until
February 1999 at the earliest, and for the same reason as set forth in 3(B)
above, that this alternative is precluded.
(iv)Restate the book value of the asset at the amount of the
consideration given to acquire the properties - the Company has elected to
accept this last alternative since it believes that the SEC requirement is an
accounting requirement which does not impact upon the underlying value of the
reserves. Accordingly, while the asset was booked previously at approximately
$14 million, it will now be carried at $515,000. That will reduce the
shareholders' equity to $1.1 million for September 1997 and $1.6 million for
March, 1998. Additionally, as the Company recovers the reserves from these
properties, it will be recording depletion expense significantly below the
industry normal because of this lower basis in the properties. The effect of
this will be that the Company will record greater profits per barrel than the
industry norm.
The Company's Second Amendment intends to incorporate the change in Paragraph
3(e)(iv).
(f) Litigation, Proceedings: Defaults. Except as disclosed on the SEC Reports or
on Schedule 3(f) hereto, there is no action, suit, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of the Subsidiaries or any of their respective properties before
or by any court, governmental or regulatory authority (federal, state, local or
foreign) which either (i) relates to or challenges the legality, validity or
enforceability of this Agreement or any other document or agreement to be
executed and delivered by the Company pursuant hereto or in connection herewith,
or (ii) if determined adversely (A) would have a material adverse effect on the
condition (financial or otherwise), properties, assets, business or results of
operations of the Company or the Subsidiaries, when taken as a consolidated
whole (a "Material Adverse Effect") after giving effect to the transaction
contemplated by this Agreement, or (B) could materially impair the ability or
obligation of the Company or the Subsidiaries to perform fully on a timely basis
any obligation which it has or will have under this Agreement or the other
Transaction Documents, or any other agreement or document heretofore or
hereafter to be executed by the Company pursuant hereto or in connection
herewith. Neither the Company nor any of the Subsidiaries is in violation of its
Certificate of Incorporation or By-Laws. Neither the Company nor any of the
Subsidiaries is (i) in default under or in violation of any other material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any court
or governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters, or (iii) in violation of any statute,
rule or regulation of any governmental authority material to its business.
(g) Governmental Consents, etc. No authorization, consent, approval, license,
qualification or formal exemption from, nor any filing, declaration or
registration with, any court, governmental agency or regulatory authority or any
securities exchange or any other person or entity (collectively "Approvals") is
required in connection with the execution, delivery or performance by the
Company of this Agreement.
(h) Use of Proceeds. The proceeds to the Company from the sale of the Notes
shall be used for general working capital purposes, and to perform certain
obligations under its June 1997 joint venture agreement with the Democratic
Republic of Sao Tome & Principe for the development of potential oil and gas
reserves in the Gulf of Guinea of West Africa (the "Sao Tome Project"), with the
balance, if any used by the Company for additional payments for general working
capital purposes or to perform on its obligations to the Sao Tome Project, as
the Company so directs.
(i) Accuracy of all SEC Public Filings, All SEC Reports furnished to the
Investors or their representatives and all other documents and reports filed by
or on behalf of the Company with the SEC, when filed, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company and
each of its Subsidiaries has filed, on a timely basis, all required forms,
reports and documents with the SEC required to be filed by it pursuant to the
Securities Act and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), all of which complied at the time of filing in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act.
Although the Company believed that disclosures made in the Form S-1 and the
Amended Form S-1 and all SEC Reports previously filed were accurate and true at
the time made, based upon the planned revisions set forth herein to the Second
Amended Form S-1, which have required refiling of the Company's, 10-Q's and 10-K
filed since June 30, 1997, the Company believes that as currently filed, such
SEC Reports are incorrect and require amendment to the extent of the planned
revisions disclosed herein.
(j) Absence of Certain Changes or Events. Since June 30, 1997, except as
contemplated by this Agreement, disclosed on Schedule 3(j) hereto and made a
part hereof, or disclosed in any Company SEC Report filed since June 30, 1997,
the Company and the Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, in the
Company's opinion, there has not been (i) any event or events having,
individually or in the aggregate, a Material Adverse Effect, (ii) any change by
the Company in its accounting methods, principles or practices, (iii) any
revaluation by the Company of any material asset (including, without limitation,
any writing down or writing up of the value of oil and gas reserves, writing off
of notes or accounts receivable or reversing of any accruals or reserves), other
than in the ordinary course of business consistent with past practice, (iv) any
entry by the Company or any Subsidiary into any commitment or transaction
material to the Company and the Subsidiaries taken as a whole, except in the
ordinary course of business and consistent in all material respects with past
practice, or (v) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of its securities.
(k) Absence of Litigation. Except as disclosed in the Company SEC Reports or in
Schedule3(k) annexed hereto and made a part hereof, there is no claim, action,
proceeding or investigation pending or, to the Company's knowledge, threatened
against the Company or any Subsidiary, or any property or asset of the Company
or any Subsidiary, before any court, arbitrator or Governmental Authority,
which, individually or when aggregated with other claims, actions, proceedings
or investigations or product liability claims, actions, proceedings or
investigations which are reasonably likely to result from facts and
circumstances that have given rise to such a claim, action, proceeding or
investigation, would have a Material Adverse Effect. As of the date hereof,
neither the Company nor any Subsidiary nor any property or asset of the Company
or any Subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award having, individually or in the aggregate, a Material
Adverse Effect.
(l) Labor Matters. Except as set forth in Schedule 3(l) annexed
hereto and made a part hereof, with respect to employees of the
Company:
(i) to the best of the Company's knowledge, no senior executive
or key employee has any plans to terminate employment with the Company
or any of its Subsidiaries;
(ii) there is no unfair labor practice charge or complaint against the
Company or any of its Subsidiaries pending or, to the best of the Company's
knowledge, threatened before the National Labor Relations Board or any other
comparable authority;
(iii) there is no demand for recognition made by any labor organization
or petition for election filed with the National Labor Relations Board or any
other comparable authority which, individually or in the aggregate, would have a
Material Adverse Effect;
(iv) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the best of the Company's
knowledge, no claims therefor have been threatened other than grievances or
arbitrations incurred in the ordinary course of business which, individually or
in the aggregate, would not have a Adverse Effect; and
(v) there is no litigation, arbitration proceeding, governmental
investigation, administrative charge, citation or action of any kind pending or,
to the knowledge of the Company or any of its Subsidiaries, proposed or
threatened against the Company relating to employment, employment practices,
terms and conditions of employment or wages and hours which, individually or in
the aggregate, would have a Material Adverse Effect. Except as disclosed in
Schedule 3(l), none of the Company nor any of its Subsidiaries has any
collective bargaining relationship or duty to bargain with any Labor
Organization (as such term is defined in Section 2(5) of the National Labor
Relations Act, as amended), and none of the Company nor any of its Subsidiaries
has recognized any labor organization as the collective bargaining
representative of any of its employees.
(m) Title to and Sufficiency of Assets. As of the date hereof, the Company and
the Subsidiaries own, and as of the Closing Date, the Company and the
Subsidiaries will own, good and marketable title to all of their assets
constituting personal property which is material to their business (excluding,
for purposes of this sentence, assets held under leases), free and clear of any
and all mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions (collectively, "Liens") except as set forth in
the Company SEC Reports or Schedule 3(m) annexed hereto and made a part hereof.
Such assets, together with all assets held by the Company and the Subsidiaries
under leases, include all tangible and intangible personal property, contracts
and rights necessary or required for the operation of the businesses of the
Company. As of the date hereof, the Company and the Subsidiaries own, and as of
the Closing Date, the Company and the Subsidiaries will own, good and marketable
title to all of their real estate, including oil and gas reserves, which is
material to such persons (excluding, for purposes of this sentence, leases to
real estate and oil and gas reserves), free and clear of any and all Liens,
except as set forth in the Company SEC Reports or in Schedule 3(m) annexed
hereto or such other Liens which would not, individually or in the aggregate,
have a Material Adverse Effect. Such assets, together with real estate and oil
and gas reserve assets held by the Company and the Subsidiaries under leases,
are adequate for the operation of the businesses of the Company, as presently
conducted. The leases to all real estate and oil and gas reserves which are
material to the operations of the businesses of the Company and the Subsidiaries
are in full force and effect and no event has occurred which, with the passage
of time, the giving of notice, or both, would constitute a default or event of
default by the Company or any Subsidiary or, to the knowledge of the Company,
any other person who is a party signatory thereto, other than such defaults or
events of default which, individually or in the aggregate, would not have a
Material Adverse Effect.
(n) Environmental Matters. For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Hazardous Substances" means
(A) petroleum and petroleum products, by-products or breakdown
products, radioactive materials, asbestos- containing materials and
polychlorinated biphenyls, and
(B) any other chemicals, materials or substances regulated as
toxic or hazardous or as a pollutant, contaminant or waste under any applicable
Environmental Law;
(ii) "Environmental Law" means any law, past, present or future
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment, or
common law, relating to pollution or protection of the environment, health or
safety or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Substances; and
(iii) "Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any applicable
Environmental Law.
(A) Except as disclosed on Schedule 3(n-1) annexed hereto and
made a part hereof, the Company and the Subsidiaries are and have been in
compliance with all applicable Environmental Laws, have obtained all
Environmental Permits and are in compliance with their requirements, and have
resolved all past non-compliance with Environmental Laws and Environmental
Permits without any pending, on-going or future obligation, cost or liability,
except in each case for the notices set forth in Schedule 3(n-1) or where such
non-compliance would not, individually or in the aggregate, have a Material
Adverse Effect.
(B) Except as disclosed in Schedule 3(n-2) annexed hereto and
made a part hereof, neither the Company nor any of the Subsidiaries has (I)
placed, held, located, released, transported or disposed of any Hazardous
Substances on, under, from or at any of the Company's or any of the
Subsidiaries' properties or any other properties, other than in a manner that
would not, in all such cases taken individually or in the aggregate, result in a
Company Material Adverse Effect, (II) any knowledge of the presence of any
Hazardous Substances on, under, emanating from, or at any of the Company's or
any of the Subsidiaries' properties or any other property but arising from the
Company's or any of the Subsidiaries' current or former properties or
operations, other than in a manner that would not result in a Material Adverse
Effect, or (III) any knowledge of nor has it received any written notice (x) of
any violation of or liability under any Environmental Laws, (y) of the
institution or pendency of any suit, action, claim, proceeding or investigation
by any Governmental Entity or any third party in connection with any such
violation or liability, (z) requiring the response to or remediation of
Hazardous Substances at or arising from any of the Company's or any of the
Subsidiaries' current or former properties or operations or any other
properties, (aa) alleging noncompliance by the Company or any of the
Subsidiaries with the terms of any Environmental Permit requiring material
expenditures or resulting in material liability or (bb) demanding payment for
response to or remediation of Hazardous Substances at or arising from any of the
Company's or any of the Subsidiaries' current or former properties or operations
or any other properties, except in each case for the notices set forth in
Schedule 3(n-2) annexed hereto.
(o) Brokers. No broker, finder or investment banker, is entitled to any
brokerage, finder's or other fee or commission in connection with the this
Agreement and the transactions contemplated hereby, other than the following:
▇. ▇. ▇▇▇▇▇, Inc.
(collectively "▇▇▇▇▇"). The Company has agreed to pay ▇▇▇▇▇ ▇▇▇▇ compensation
not to exceed seven percent (7.0%) of the face amount of the Notes sold pursuant
to this Agreement as a consulting fee, plus an amount not to exceed one percent
(1%) of the face amount of the Notes sold pursuant to this Agreement for
non-accountable expenses and to issue to ▇▇▇▇▇ warrants to purchase shares of
Company Common Stock in an amount equal to nine percent (9.0%) of the face
amount of the Notes at an exercise price equal to the closing bid price on the
date of the first closing, plus the fees and expenses of its counsel, ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇ LLP in the amount of $15,000.
In addition, the Company agrees to pay one half of one percent (2%) per million
dollars raised over One Million Dollars prorated up to Three Million Dollars of
the net funds received by the Company from the initial lease sale which is
scheduled to occur in or about the first quarter of 1999, up to a total equal to
the amount raised by ▇▇▇▇▇. The funds shall be paid from the primary term
thereof and shall not include any delay rentals, production royalties or any
seismic data.
Furthermore, St. Petro has the right to reserve certain blocks for
exploration and development on its own account. No sale proceeds are
contemplated to be received by the Company on any of these leases,
except production payments made to it by St. Petro. Such production
payments will not be included in this transaction.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each Investor hereby separately represents and warrants to the Company as
follows (such representations and warranties being made separately and only to
the extent such representations and warranties relate to such Investor):
(a) Investigation; Investment Representation. Each Investor (i) possesses such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment hereunder; (ii) has been
afforded the opportunity to ask questions of, and receive answers from, the
Company concerning the terms and conditions of its investment, the transactions
contemplated hereby and the business and affairs of the Company; (iii) has
examined, to the extent it deems appropriate, all of the agreements and
documents referred to herein or in the schedules hereto and such other documents
that it has requested; and (iv) understands that the Notes are not being
registered under the Securities Act of 1933, as amended, on the ground that the
issuance thereof is exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as a transaction by an issuer not involving
a public offering, and the Company's reliance on this exemption is predicated in
part on the Investors' representations and warranties contained in this Section
4(a). The Investors are acquiring the Notes for their own account, for
investment purposes only and not with a view to the sale or distribution
thereof.
(b) Execution and Effect of Agreement. Each Investor has all necessary power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of each Investor, enforceable against each Investor in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
5. COVENANTS.
As long as any of the Notes are outstanding, the Company agrees that, unless it
first procures the written consent to act otherwise of the holders of record of
66-2/3% of the outstanding principal amount of the Notes of record then
outstanding, it will use its best efforts to cause each of its Subsidiaries to:
(a) Promptly pay all taxes (exclusive of income taxes imposed on the Investors),
fees and charges payable, or ruled to be payable, by any federal, state or local
authority, in respect of this Agreement or the execution, delivery or issuance
of the Notes by reason of any now existing or hereafter enacted federal, state
or local statute or ordinance, and indemnify and hold the Investors harmless
from and against all liabilities with respect to or in connection with any such
taxes, fees or charges.
(b) Maintain their corporate existence and right to carry on business, duly
procure all necessary renewals and extensions thereof, and use their best
efforts to maintain, preserve and renew all necessary or desirable rights,
powers, privileges and franchises owned by them.
(c) Promptly notify the Investors of any material adverse change in the
condition (financial or otherwise), properties, assets, business or results of
operations of the Company or any of the Subsidiaries.
(d) Not cause, suffer or permit any liquidation, winding up or
dissolution of the Company or the Subsidiaries.
(e) Maintain and cause the Subsidiaries to maintain a system of
accounting established and administered in accordance with generally
accepted accounting principles.
(f) Comply with all of the covenants and agreements on the part of
the Company to be performed under the terms of the Notes and the other
Transaction Documents.
6. FINANCIAL STATEMENTS; INSPECTION; NON-PUBLIC INFORMATION.
(a) The Company will furnish to each Investor (and their permitted transferees,
successors and assigns), as long as such Investor owns any of the Notes or
copies of all Form 10-K Annual Report and Form 10- Q Quarterly Financial Reports
filed by the Company, with the SEC.
(b) The Company will, subject to execution of appropriate confidentiality and
non- disclosure agreements, permit the Investors, as long as they own Notes,
shares of Common Stock issuable upon conversion of the Notes (the "Conversion
Shares") or any authorized representative designated by the Investors, to visit
and inspect at the Investors' expense any of the properties of the Company and
the Subsidiaries, and to discuss its affairs, finances and accounts with
officers of the Company, all at such reasonable times and as often as the
Investors may reasonably request.
(c) The Company in no event shall disclose non-public information to the
Investors, advisors to or representatives of the Investors unless prior to
disclosure of such information the Company marks such information as 'Non-Public
Information - Confidential" and provides the Investors, such advisors and
representatives with a reasonable opportunity to accept or refuse to accept such
non-public information for review. Nothing herein shall require the Company to
disclose non-public information to the Investors or their respective advisors or
representatives, and the Company represents that it does not disseminate
non-public information to any Investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts; provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, notify immediately the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the Prospectus included in the Registration Statement, would cause such
Prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing herein
shall be construed to mean that such persons or entities other than the
Investors (without the written consent of the Investors prior to disclosure of
such information) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
7. TRANSFER OF NOTES
(a) Permissible Transfers. The Investors acknowledge that the Company's
securities being issued and sold to them hereunder are being so issued and sold
in transactions which are exempt from the registration requirements of the
Securities Act of 1933, as amended. None of the Notes or Conversion Shares
issuable upon conversion of the Notes, may be distributed, transferred, or
otherwise disposed of by the Investors except pursuant to an effective
Registration Statement under such Act which is current with respect to the
securities offered thereby, or pursuant to an applicable exemption therefrom,
and pursuant to applicable "Blue Sky" or state securities laws or an applicable
exemption therefrom.
(b) Legend. Unless the Conversion Shares have been registered pursuant to an
effective Registration Statement filed under the Securities Act or held for the
requisite period to be freely transferable pursuant to Rule 144 promulgated
under the Securities Act and otherwise comply with Rule 144(k) (in either such
case the certificates shall bear no legend), the Company shall cause to be set
forth on the certificates representing any Conversion Shares a legend
substantially in the following form: "The shares represented by this certificate
have not been registered under the Securities Act of 1933, as amended. No
transfer of such shares shall be valid or effective except in accordance with an
effective registration statement covering such shares or an opinion of counsel
acceptable to the Company that registration of such shares is not required
pursuant to the applicable requirements of the Securities Act of 1933, as
amended."
(c) Registration of Conversion Shares, Other Exemption. The Company shall use
its best efforts to cause the Conversion Shares to be registered for resale or
distribution under the Securities Act, all in accordance with the terms of the
Registration Rights Agreement in the form annexed hereto as Exhibit B and made a
part hereof.
8. CONDITIONS PRECEDENT TO CLOSING.
(a) Conditions Precedent to Obligations of the Investors. The obligation of each
Investor to purchase the Notes to be purchased by it at the Closing hereunder is
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
(i) Such Investor shall have received an opinion, addressed to it and
each other Investor and dated the Closing Date, of counsel to the Company
acceptable to Investor, in the form of Exhibit C hereto and made a part hereof.
(ii) The representations and warranties made by the Company herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date, and the Company shall have complied in all
material respects with all covenants hereunder required to be performed by it at
or prior to the Closing Date.
(iii) There shall not have occurred and be continuing any
Material Adverse Effect.
(iv) The purchase of the Notes agreed to be purchased by such Investor
hereunder shall not be prohibited or enjoined (temporarily or permanently) under
the laws of any jurisdiction to which such Investor is subject.
(v) The Company and the Investors shall have executed the Registration
Rights Agreement in substantially the form of Exhibit B hereto.
(vi) All legal matters incident to the transactions contemplated by
this Agreement shall have been reasonably approved by counsel to the Investors.
(vii) Not less than $________ of the Notes offered hereby shall have
been subscribed for by Investors as at the Closing Date. Following the Closing
Date and until 5:00 p.m. (New York time) on the thirtieth (30th) day following
the Closing Date, the Company shall be entitled to continue to offer the Notes
to additional investors, until such time as a maximum of $3,000,000 of Notes
shall have been sold.
(viii) The Investors shall have received a certificate, dated the
Closing Date, and signed by the chief executive officer or chief financial
officer of the Company, stating that the conditions specified in subsections (i)
through (vii) of this Section 8(a) have been satisfied.
(b) Conditions Precedent to Obligations to the Company. The obligation of the
Company to issue and sell the Notes to be issued pursuant to this Agreement is
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
(i) The representations and warranties made by the Investors herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of the Closing Date.
(ii) The sale of the Notes by the Company shall not be prohibited or
enjoined (temporarily or permanently) as of the Closing Date.
(iii) The purchase of the Notes agreed to be purchased by such Investor
hereunder shall not be prohibited or enjoined (temporarily or permanently) under
the laws of any jurisdiction to which such Investor is subject.
(iv) All legal matters incident to the transactions contemplated by
this Agreement shall have been reasonably approved by counsel to the Company.
(v) Not less than $__________ of the Notes offered hereby shall have
been subscribed for by Investors as at the Closing Date. Following the Closing
Date and until 5:00 p.m. (New York time) on the thirtieth (30th) day following
the Closing Date, the Company shall be entitled to continue to offer the Notes
to additional investors, until such time as a maximum of $3,000,000 of Notes
shall have been sold.
9. CLOSING.
The closing hereunder (the "Closing") shall take place at 10:00 A.M. at the
offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ on or before __________, 1998, or at such other
location as may be mutually agreed upon. The date of such Closing is referred to
in this Agreement as the "Closing Date".
(a) At the Closing, in addition to true copies of the other Transaction
Documents duly executed by the Company, the Company shall deliver to each
Investor in the respective amounts set forth on Schedule 1 hereto a duly
executed Note in the form of Exhibit A hereto all against payment of the
purchase price therefor by wire transfer of immediately available funds or by
certified or bank cashier's check payable to the order of the Company.
(b) At the Closing, each Investor shall wire transfer the purchase price for the
Notes subscribed to by such Investor to the Bank of New York, as provided in the
Escrow Agreement attached as Exhibit D.
10. ADJUSTMENT TO TERMS OF NOTES.
In the event and to the extent that the Company shall, at any time within one
hundred and twenty (120) days following the Closing Date, issue any (a) notes,
debentures, bonds or other debt instruments which, by their terms, are
convertible into shares of Common Stock of the Company, (b) shares of preferred
stock, which, by their terms, are convertible into shares of Common Stock of the
Company, or (c) warrants, options or rights which are exercisable for shares of
Common Stock of the Company, excluding, however, warrants or options issued to
key employees, advisors and other consultants in the ordinary course of
business, or options, warrants or stock disclosed in the Form S-1 as effective
(all of the foregoing referred to herein as "Other Common Stock Equivalents"),
in each case, and such instruments are actually converted at a conversion price
which shall be lower than the Conversion Price set forth in the Notes offered
hereby, the Conversion Price for such time period set forth in the Notes shall
be automatically adjusted and amended to be equal to the terms of the lowest
conversion price provided for in the instruments governing the issuance of such
Other Common Stock Equivalents.
The parties agree that the purpose of paragraph 10 of this Agreement is to
protect the Investors under this Agreement against the Company issuing "cheap
stock" to anyone during the one hundred twenty (120) days following the closing.
Further, it is agreed that it is not the intent of paragraph 10 to preclude the
Company from seeking additional capital through the issuance of additional
equity or debt in the
Company. The parties specifically agree that to the extent the Company issues
any equity or debt during such one hundred twenty (120) day period following the
closing under substantially similar terms and conditions and with substantially
similar formulae relative to conversion, that it is not the intention of this
Paragraph 10 that the Company will be required to automatically adjust the
Investor's Conversion price to a lower conversion price merely because someone
has elected to convert on a different date and has had the opportunity of a
different result by virtue of such election. The parties recognize the Company
can control the price at which it issues equity or debt or the terms and
conditions of conversion, if applicable; however the parties further recognize
that by virtue of the fluctuations in the market, both another closing date and
another election to convert date may result in a lower price, which prices are
generally outside the Company's control.
11. EXCHANGE OF NOTES.
At the request of any holder of any Note and upon surrender of any such Note for
such purpose to the Company at its principal office, the Company at its expense
will issue in exchange therefor a new Note, in such denomination or
denominations and payable to the order of such payee or payees as may be
requested, dated the date to which interest has been paid on the surrendered
Note, in an aggregate principal amount equal to the principal balance of the
surrendered Note. Such new Note shall be in the form of the surrendered Note.
12. REPLACEMENT OF NOTES
Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity bond by the holder in such
reasonable amount as the Company may determine, or, in the case of any such
mutilation, upon surrender and cancellation of such Note, the Company at its
expense will execute and deliver, in lieu thereof, a new Note of like tenor
dated the date to which interest on such lost, stolen, destroyed or mutilated
Note has been paid.
13. BROKERS.
(a) The Investors represent and warrant to the Company that they have not
engaged or authorized any broker, finder, investment banker or other third party
to act on their behalf, directly or indirectly, as a broker, finder, investment
banker or in any other like capacity in connection with the transactions
contemplated by this Agreement nor have they consented to or acquiesced in
anyone so acting, and they know of no claim by any person for compensation from
them for so acting or of any basis for such a claim.
(b) The Company represents and warrants to the Investors that, except for ▇▇▇▇▇
as disclosed in Section 3(o) hereto, neither the Company nor any of its
officers, directors or agents has engaged or authorized any broker, finder,
investment banker or other third party to act on its behalf, directly or
indirectly, as a broker, finder, investment banker or in any other like capacity
in connection with the transactions contemplated by this Agreement nor has it
consented to or acquiesced in anyone so acting, and it knows of no claim by any
person for compensation from it for so acting or of any basis for such a claim.
14. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and agreements of the Company or of the
Investors contained in this Agreement or in any certificate, document, schedule
or instrument delivered pursuant hereto shall survive for a period of two (2)
years the Closing hereunder and the delivery of any and all documents and
instruments hereunder, regardless of any investigation made by or on behalf of
the Investors or the Company, respectively. All statements contained in any
certificate, schedule or other document delivered by the Company pursuant hereto
in connection with the transactions contemplated hereby shall be deemed
representations and warranties of the Company.
15. NOTICES.
Any notices or other communications required or permitted hereunder shall be in
writing and personally delivered or sent by telecopier or by registered or
certified mail, return receipt requested, postage prepaid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
▇-▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Secretary
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
-and-
Environmental Remediation Holding Corp.
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President and CFO
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇ Traurig ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
Met Life Building
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
-and-
Mintmire & Associates
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Investors: To the addresses set forth below the name of
each Investor on Schedule I annexed hereto and
made a part hereof.
16. ENTIRE AGREEMENT: AMENDMENT ETC.
This Agreement and the Exhibits hereto represents the entire understanding and
agreement among the parties hereto with respect to the subject matter hereof.
With the written consent of the holders of 66-2/3% of the outstanding principal
amount of the Notes, the obligations of the Company and the rights of the
holders of the Notes may be waived or modified (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors ("Approved
Company Resolutions"), may enter into a supplementary agreement for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement. Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, except by a statement
in writing authorized as aforesaid and signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
17. SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
18. SECTION READINGS.
The section headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
19. APPLICABLE LAW.
This Agreement shall be governed by, construed and enforced in accordance with
the laws of the State of New York, United States of America, without reference
to or application of principles of conflicts of laws.
20. SEVERABILITY.
If at any time subsequent to the date hereof, any provision of this Agreement
shall be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
21. NO WAIVER.
The failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
22. RESOLUTION OF DISPUTES.
Any dispute regarding the interpretation or application of this Agreement, the
Note, the Warrant, the Registration Rights Agreement or any of the other
Transaction Documents which cannot be settled among the parties shall be
resolved in New York, New York final and binding arbitration in accordance with
the then obtaining rules of the American Arbitration Association. There shall be
appointed three arbitrators, one of whom shall be selected by the Company, the
second by the Investor(s) and the third by mutual agreement of the parties or by
the American Arbitration Association. The decision of the arbitrators shall be
final and upon all Investors and the Company and may be enforced by the
prevailing party or parties in any court of competent jurisdiction. Each party
shall bear their own costs of the arbitration and shall share equally the costs
of the arbitrators.
23. ATTORNEY FEES.
Investors shall be entitled to recover from the Company the reasonable
attorneys' fees and expenses (and the reasonable costs of investigation)
incurred by such Holder in connection with enforcement by such Holder of any
obligation of the Company hereunder.
24. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the date first written.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: ______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Secretary
By: ______________________________________
▇▇▇ ▇▇▇▇, Chairman
THE INVESTORS:
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SCHEDULE 1
Name/Address of Investor/Amt.of Note/No. of Warrants/Purchase Price
SCHEDULE 2
Subsidiaries
There are no subsidiaries other than BAPCO.
SCHEDULE 3(f)
Litigation, Proceedings: Defaults
A requirement of the funding provided to the Company on November 15, 1997 from
Avalon was that the Company would file its registration statement within
forty-five (45) days of the funding. The Form S-1 was filed on January 8, 1998,
however, this eight (8) day lateness was waived by the Avalon investors. In
addition, the Company had agreed to use its best effort to have its registration
declared effective within one hundred twenty (120) days of the November 15, 1997
closing.
The Company believes that it has used its best efforts to have its registration
declared effective. The Avalon agreements required that in the event that the
registration statement was not effective within one hundred twenty (120) days,
that the Company would pay as liquidated damages an amount equal to three
percent (3%) of the aggregate amount of the notes per month. The initial
comments and the comments to the Amended Form S-1 have delayed registration.
While most of the comments received on the Amended Form S-1 are purely
accounting matters which the Company believes have now been resolved, as a
result of the delay in registration, pursuant to the Avalon agreements, the
Avalon investors are due $129,999 for the months of April, May and June. The
Company intends to use a part of the proceeds from this transaction to cure the
default in the payment of such liquidated damage payments.
In the Kingsbridge agreements, the Company had agreed to use its best effort to
have its registration declared effective within ninety (90) days of the March
23, 1998 closing. The Company believes that it has used its best efforts to have
its registration declared effective. The Kingsbridge agreements required that in
the event that the registration statement was not effective within such ninety
(90) period, that the Company would be required to make a lump sum payment in
the amount of $10,000 within three (3) trading days of the date by which such
registration statement was required to have been declared effective. Such ninety
(90) period ended on June 21, 1998. Said sums are due and owing on or before
June 24, 1998. The Company intends to use a part of the proceeds from this
transaction to make such payment.
SCHEDULE 3(j)
Absence of Certain Changes or Events
To the extent of changes in the Company's accounting disclosure, the Company
believes that the restatement of the financial position of the Company is
material relative to all SEC reports since June 30, 1997 and that such SEC
reports must be amended to the extent of the planned revisions disclosed herein.
SCHEDULE 3(k)
Absence of Litigation
There is no claim, action proceeding or litigation pending or threatened which
has not been disclosed in an SEC Report.
SCHEDULE 3(l)
Labor Matters
None
SCHEDULE 3(m)
Title to and Sufficiency of Assets
There are Liens which have not been disclosed in an SEC Report.
SCHEDULE 3(n-1)
Environmental Matters - Notice
None
SCHEDULE 3(n-2)
Environmental Compliance - Hazardous Waste
None
EXHIBITS
EXHIBIT A -Form of 8.0% Convertible Note due _____, 2000
EXHIBIT B -Form of Registration Rights Agreement
EXHIBIT C -Opinion of Company Counsel
EXHIBIT D -Form of the Escrow Agreement