SUBSCRIPTION AGREEMENT
DATED AS OF APRIL 27, 2004
BY AND BETWEEN
HARKEN ENERGY CORPORATION
AND
ALEXANDRA GLOBAL MASTER FUND LTD.
---------------------------------------------------
SERIES J CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
AND
UNIT PURCHASE WARRANTS
HARKEN ENERGY CORPORATION
SUBSCRIPTION AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS. 1
2. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE. 8
(a) Subscription. 8
(b) Form of Payment. 8
(c) Closing. 9
3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER. 9
(a) Acquisition for Investment. 9
(b) Accredited Investor. 9
(c) Reoffers and Resales. 9
(d) Company Reliance. 9
(e) Information Provided. 10
(f) Absence of Approvals. 10
(g) Subscription Agreement. 10
(h) Buyer Status. 11
(i) Absence of Reliance. 11
4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE COMPANY. 11
(a) Organization and Authority. 11
(b) Qualifications. 11
(c) Capitalization. 11
(d) Concerning the Shares and the Common Stock. 12
(e) Corporate Authorization. 12
(f) Non-contravention. 12
(g) Approvals, Filings, Etc. 13
(h) Information Provided. 13
(i) Conduct of Business. 13
(j) SEC Filings. 14
(k) Absence of Certain Proceedings. 14
(l) Liabilities. 14
(m) Absence of Certain Changes. 14
(n) Internal Accounting Controls. 15
(o) Compliance with Law. 15
(p) Labor Relation. 15
(q) Insurance. 15
(r) Tax Matters. 15
(s) Investment Company. 15
(t) Absence of Brokers, Finders, Etc. 15
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(u) No Solicitation; No Integrated Offering. 15
(v) Absence of Rights Agreement. 16
5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS. 16
(a) Transfer Restrictions. 16
(b) Restrictive Legends. 17
(c) Accounting Treatment. 18
(d) Form D. 18
(e) AMEX Listing; Reporting Status. 18
(f) Use of Proceeds. 18
(g) State Securities Laws. 18
(h) Limitation on Certain Actions. 19
(i) Best Efforts. 19
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO SELL AND ISSUE. 19
7. CONDITIONS TO THE BUYER'S OBLIGATIONS TO PURCHASE. 19
8. REGISTRATION RIGHTS. 20
(a) Mandatory Registration. 20
(b) Obligations of the Company. 22
(c) Obligations of the Buyer and Other Investors. 25
(d) Rule 144. 26
9. INDEMNIFICATION AND CONTRIBUTION. 26
(a) Indemnification. 26
(b) Contribution. 28
(c) Other Rights. 28
10. MISCELLANEOUS. 28
(a) Governing Law. 28
(b) Headings. 28
(c) Severability. 28
(d) Notices. 28
(e) Counterparts. 29
(f) Entire Agreement; Benefit. 29
(g) Waiver. 29
(h) Amendment. 29
(i) Further Assurances. 30
(j) Assignment of Certain Rights and Obligations. 30
(k) Expenses. 30
(l) ▇▇▇▇▇▇▇▇▇▇▇. ▇▇
(▇) ▇▇▇▇▇▇▇▇. ▇▇
(▇) Public Statements, Press Releases, Etc. 32
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(o) Construction. 32
ANNEXES
Annex I Form of Certificate of Designations
Annex II Form of Unit Purchase Warrant
Annex III Form of Common Stock Purchase Warrant
Annex IV Form of Opinion of Company Counsel to Be Delivered on Closing
Date
Annex V Form of Opinion of Company Counsel to Be Delivered upon
Effectiveness of the Registration Statement
Annex VI Form of Selling Security Holder Questionnaire
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SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated as of April 27, 2004 (this
"Agreement"), by and between HARKEN ENERGY CORPORATION, a Delaware corporation
(the "Company"), with headquarters located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and ALEXANDRA GLOBAL MASTER FUND LTD, a British
Virgin Islands company (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company wishes to sell, and the Buyer wishes to
purchase, upon the terms and subject to the conditions of this Agreement, shares
of Series J Convertible Preferred Stock of the Company which will be convertible
into shares of Common Stock (such capitalized term and all other capitalized
terms used in this Agreement having the respective meanings provided in Section
1); and
WHEREAS, in connection with the issuance of the Preferred
Shares, the Company is issuing to the Buyer the Warrant to purchase Common Stock
and the Unit Purchase Warrants to purchase additional Preferred Shares and
Warrants on the terms provided herein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS.
(a) As used in this Agreement, the terms "Agreement," "Buyer"
and "Company" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
(b) All the agreements or instruments herein defined shall
mean such agreements or instruments as the same may from time to time be
supplemented or amended or the terms thereof waived or modified to the extent
permitted by, and in accordance with, the terms thereof and of this Agreement.
(c) The following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Additional Dividend Event" shall have the meaning provided or
to be provided in the Certificate of Designations.
"Additional Preferred Shares" means the shares of Series J
Preferred Stock issued or issuable upon exercise of the Unit Purchase Warrants.
"Additional Registrable Securities" means any shares of Common
Stock which are included within the definition of Registrable Securities but not
included in any Registration Statement pursuant to Section 8(a)(1).
"Additional Warrants" means the Common Stock Purchase Warrants
in the form of ANNEX II to this Agreement issued or issuable upon exercise of
the Unit Purchase Warrants.
"Alternative Stock Exchange" means any other national or
regional stock exchange or quotation service such as the Nasdaq Market System or
any similar quotation service maintained by the National Quotation Bureau or any
successor thereto.
"AMEX" means the American Stock Exchange, Inc.
"Approved Market" means the AMEX, the Nasdaq National Market
or the New York Stock Exchange, Inc.
"Arrearage Interest" shall have the meaning provided or to be
provided in the Certificate of Designations.
"Blackout Period" means the period of up to an aggregate of 20
Trading Days in any period of 365 consecutive days, in each case commencing on
the day immediately after the date the Company notifies the Investors that they
are required, pursuant to Section 8(c)(4), to suspend offers and sales of
Registrable Securities pursuant to the Registration Statement as a result of an
event or circumstance described in Section 8(b)(5)(A), during which period, by
reason of Section 8(b)(5)(B), the Company is not required to amend the
Registration Statement or to supplement the Prospectus; provided, however, that
(1) no Blackout Period may exceed ten consecutive Trading Days in any period of
120 consecutive days and (2) no Blackout Period may commence sooner than 60 days
after the end of a prior Blackout Period.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
"Certificate of Designations" means the Certificate of
Designations of Series J Convertible Preferred Stock in the form of ANNEX I to
this Agreement, as the same is filed with the Secretary of State of the State of
Delaware.
"Claims" means any losses, claims, damages, liabilities or
expenses, including, without limitation, reasonable fees and expenses of legal
counsel (joint or several), incurred by a Person.
"Closing Date" means 12:00 noon, New York City time, on April
28, 2004 or such other time as is mutually agreed between the Company and the
Buyer.
"Closing Warrants" means the Common Stock Purchase Warrants in
the form of ANNEX III to this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder and published interpretations thereof.
"Common Shares" means the Conversion Shares and the Warrant
Shares.
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"Common Stock" means the Common Stock, $.01 par value, of the
Company.
"Common Stock Equivalent" means any warrant, option,
subscription or purchase right with respect to shares of Common Stock, any
security convertible into, exchangeable for, or otherwise entitling the holder
thereof to acquire, shares of Common Stock or any warrant, option, subscription
or purchase right with respect to any such convertible, exchangeable or other
security.
"Conversion Price" shall have the meaning to be provided or
provided in the Certificate of Designations.
"Conversion Shares" means the shares of Common Stock issued or
issuable upon conversion of the Preferred Shares and the Additional Preferred
Shares, if any.
"DGCL" means the General Corporation Law of the State of
Delaware.
"Encumbrances" means all mortgages, deeds of trust, claims,
security interests, liens, pledges, leases, subleases, charges, escrows,
options, proxies, rights of occupancy, rights of first refusal, preemptive
rights, covenants, conditional limitations, hypothecations, prior assignments,
easements, title retention agreements, indentures, security agreements or any
other encumbrances of any kind.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder and published interpretations
thereof.
"Event Period" means (x) an Optional Redemption Event shall
have occurred with respect to which the Buyer shall be entitled to exercise
redemption rights under Section 11 of the Certificate of Designations or with
respect to which the Buyer shall have exercised such rights and the Company
shall not have paid, or deposited in accordance with Section 15(c) of the
Certificate of Designations, the Optional Redemption Price or (y) an Additional
Dividend Event, or an event which, with notice or passage of time, or both,
would become an Additional Dividend Event, shall have occurred and be
continuing.
"GAAP" means United States generally accepted accounting
principles.
"Indemnified Party" means the Company, each of its directors,
each of its officers who signs the Registration Statement, each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder offering or selling securities pursuant to
the Registration Statement or any of its directors or officers or any Person who
controls such underwriter or stockholder within the meaning of the 1933 Act or
the 1934 Act.
"Indemnified Person" means the Buyer and each other Investor
who beneficially owns or holds Registrable Securities included in the
Registration Statement and each other Investor who offers or sells Registrable
Securities included in the Registration Statement in the manner permitted under
this Agreement, the directors, if any, of the Buyer or such Investor, the
officers (or persons performing similar functions), if any, of the Buyer and any
such Investor, each Person, if any, who controls the Buyer or any such Investor
within the meaning of the 1933 Act or the 1934 Act, any underwriter (as defined
in the ▇▇▇▇ ▇▇▇) acting on behalf of an Investor who participates in the
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offering of Registrable Securities of such Investor in accordance with the plan
of distribution contained in the Prospectus, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each Person, if
any, who controls any such underwriter within the meaning of the 1933 Act or the
1934 Act.
"Investor" means the Buyer and any permitted transferee or
assignee who agrees to become bound by the provisions of Sections 5(a), 5(b),
5(c), 8, 9, and 10.
"Majority Holders" means at any time the holders of
outstanding shares of Preferred Stock which shares constitute a majority of the
outstanding shares of Preferred Stock.
"1934 Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
"1933 Act" means the Securities Act of 1933, as amended, or
any successor statute.
"Optional Redemption Event" shall have the meaning to be
provided or provided in the Certificate of Designations.
"Optional Redemption Price" shall have the meaning to be
provided or provided in the Certificate of Designations.
"Person" means any natural person, corporation, partnership,
limited liability company, trust, incorporated organization, unincorporated
association, or similar entity or any government, governmental agency or
political subdivision.
"Preferred Shares" means the shares of Preferred Stock to be
purchased by the Buyer pursuant to this Agreement, as set forth on the signature
page of this Agreement.
"Preferred Stock" shall mean the Series J Convertible
Preferred Stock, $1.00 par value, of the Company.
"Prospectus" means the prospectus forming part of the
Registration Statement at the time the Registration Statement is declared
effective and any amendment or supplement thereto, including any documents or
information incorporated therein by reference.
"Purchase Price" means the aggregate purchase price for the
Preferred Shares set forth on the signature page of this Agreement.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Questionnaire" means the Selling Security Holder
Questionnaire in the form attached hereto as EXHIBIT VI and completed by the
Buyer and furnished to the Company in connection with this Agreement.
"Record" shall mean all pertinent financial and other records,
pertinent corporate documents and properties of the Company and its Subsidiaries
subject to inspection for the purposes provided in Section 8(b)(9).
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"register," "registered," and "registration" refer to a
registration effected by preparing and filing with the SEC of a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule
415, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"Registrable Securities" means (1) the Common Shares, (2) if
the Common Stock is changed, converted or exchanged by the Company or its
successor, as the case may be, into any other stock or other securities on or
after the date the Certificate of Designations is filed with the Secretary of
State of the State of Delaware, such other stock or other securities which are
issued or issuable in respect of or in lieu of the Common Shares and (3) if any
other securities are issued to holders of the Common Stock (or such other shares
or other securities into which or for which the Common Stock is so changed,
converted or exchanged as described in the immediately preceding clause (2))
upon any reclassification, share combination, share subdivision, share dividend,
merger, consolidation or similar transaction or event, such other securities
which are issued or issuable in respect of or in lieu of the Common Shares.
"Registration Default Period" means the period during which
any Registration Event occurs and is continuing.
"Registration Event" means the occurrence of any of the
following events:
(i) the Company fails to file with the SEC the Registration
Statement on or before the date by which the Company is required to
file the Registration Statement pursuant to Section 8(a)(1),
(ii) the Registration Statement covering Registrable
Securities is not declared effective by the SEC within 60 days
following the Closing Date; provided, however, that if the Registration
Statement is subject to review by the SEC staff, such effective date
shall be within 90 days following the Closing Date,
(iii) after the SEC Effective Date, sales cannot be made
pursuant to the Registration Statement for any reason (including
without limitation by reason of a stop order, or the Company's failure
to update the Registration Statement) but except as excused pursuant to
Section 8(b)(5), or
(iv) the Common Stock generally or the Registrable Securities
specifically are not listed or included for quotation on an Approved
Market, or trading of the Common Stock is suspended or halted on the
Approved Market which at the time constitutes the principal market for
the Common Stock.
"Registration Period" means the period from the SEC Effective
Date to the earliest of
(i) the date which is two years after the later of (x) the
Closing Date and (y) the date upon which the Unit Purchase Warrants are
exercised,
(ii) if the Warrants have been fully exercised, such date
after which each Investor may sell all of its Registrable Securities
without registration under the 1933 Act pursuant to Rule 144, free of
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any limitation on the volume of such securities which may be sold in
any period or on the manner of sale, and
(iii) the date on which the Investors no longer own or have
any right to acquire any Registrable Securities.
"Registration Statement" means a registration statement on
Form S-3 (or if Form S-3 is then not available to the Company, on Form S-1 or
such other form of registration statement as is then available to effect a
registration for resale of the Registrable Securities) of the Company under the
1933 Act, including any amendment thereto, which names the Investors as selling
stockholders (including any documents or information incorporated therein by
reference, whether before or after the SEC Effective Date).
"Regulation D" means Regulation D under the 1933 Act.
"Required Information" means, with respect to any Investor,
all information regarding such Investor, the Registrable Securities held by such
Investor or which such Investor has the right to acquire and the intended method
of disposition of the Registrable Securities held by such Investor or which such
Investor has the right to acquire as shall be required by the 1933 Act to effect
the registration of the resale by such Investor of such Registrable Securities.
"Rule 415" means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a delayed or continuous basis.
"Rule 144" means Rule 144 under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time provide a "safe
harbor" exemption from registration under the 1933 Act so as to permit a holder
of securities to sell such securities to the public without registration under
the 1933 Act.
"Rule 144A" means Rule 144A under the 1933 Act or any
successor rule thereto.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement
is declared effective by the SEC.
"SEC Filing Date" means the date the Registration Statement is
first filed with the SEC pursuant to Section 8.
"SEC Reports" means the Company's (1) Annual Report on Form
10-K for the fiscal year ended December 31, 2003, (2) Quarterly Reports on Form
10-Q for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003
and (3) the Company's definitive proxy statement for its 2003 Annual Meeting of
Stockholders, in each case as filed with the SEC and including the information
and documents (other than exhibits) incorporated therein by reference.
"Securities" means the Shares, the Warrants and the Unit
Purchase Warrants.
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"Series J Preferred Stock" means the Series J Preferred Stock,
no par value, of the Company.
"Shares" means the Preferred Shares, the Additional Preferred
Shares and the Common Shares.
"Stated Value" shall have the meaning to be provided or
provided in the Certificate of Designations.
"Stock Option Plans" means the Company's 1993 Stock Option and
Restricted Stock Plan and the Company's 1996 Stock Option and Restricted Stock
Plan.
"Subscription Form" means the Subscription Form relating to
the Warrants.
"Subsidiary" means the material subsidiaries of the Company,
if any, set forth in the SEC Reports.
"Trading Day" means any day (other than a Saturday or Sunday)
on which the American Stock Exchange or the Alternative Stock Exchange, as the
case may be, is open for business.
"Transaction Documents" means, individually or collectively,
this Agreement, the Securities, the Certificate of Designations and the other
agreements, instruments and documents contemplated hereby and thereby.
"Transfer Agent" means American Stock Transfer, or any
successor thereof selected by the Company and reasonably acceptable to the
Majority Holders, serving as transfer agent and registrar for the Common Stock,
conversion agent for the Preferred Stock and exercise agent for the Warrants.
"2003 10-K" means the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2003.
"Unit Purchase Warrants" means the Unit Purchase Warrants to
purchase Units, in the form of ANNEX II to this Agreement.
"Units" means the units issuable upon exercise of the Unit
Purchase Warrants, each unit consisting of (x) one Additional Preferred Share
and (y) an Additional Warrant to purchase a number of shares of Common Stock
equal to 50% of the number of shares of Common Stock underlying one Additional
Preferred Share.
"Violation" means
(i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
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(ii) any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto with
the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light
of the circumstances under which the statements therein were made, not
misleading,
(iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any state securities law or any rule or
regulation under the 1933 Act, the 1934 Act or any state securities
law, or
(iv) any breach or alleged breach by any Person other than the
Buyer of any representation, warranty, covenant, agreement or other
term of any of the Transaction Documents.
"VWAP" of any security on any Trading Day means the
volume-weighted average closing price of such security on such Trading
Day on the Principal Market, as reported by Bloomberg Financial, L.P.
(based on a Trading Day from 9:30 a.m., Eastern Time, to 4:00 p.m.,
Eastern Time, using the AQR Function, for such Trading Day; provided,
however, that during any period the VWAP is being determined, the VWAP
shall be subject to adjustments from time to time for stock splits,
stock dividends, combinations, and capital reorganizations, as
applicable.
"Warrants" means the Closing Warrants and the Additional
Warrants.
"Warrant Shares" means the shares of Common Stock issuable or
issued upon exercise of the Warrants.
2. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) Subscription. Upon the terms and subject to the conditions
of this Agreement, the Buyer hereby agrees to purchase from the Company, and the
Company hereby agrees to sell to the Buyer, on the Closing Date, the number of
Preferred Shares set forth on the signature page of this Agreement, having the
terms and conditions as set forth in the Certificate of Designations in the form
of ANNEX I to this Agreement, at the price per share and for the Purchase Price
set forth on the signature page of this Agreement. The Purchase Price shall be
payable in United States Dollars. In connection with the purchase and sale of
the Preferred Shares, the Company will issue to the Buyer the Closing Warrants
initially entitling the holder to purchase the number of shares of Common Stock
set forth on the signature page of this Agreement and the Unit Purchase Warrants
initially entitling the holder to purchase the number of Units set forth on the
signature page of this Agreement.
(b) Form of Payment. Payment by the Buyer of the Purchase
Price to the Company on the Closing Date shall be made by wire transfer of
immediately available funds to:
▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇ Bank Houston, Texas
ABA No.: 11000609
For credit to account No.: 08805216221
For credit to the account of Harken Energy Corporation
Reference: Alexandra
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(c) Closing. The issuance and sale of the Preferred Shares and
the issuance of the Closing Warrants and the Unit Purchase Warrants shall occur
on the Closing Date at the Law Offices of ▇▇▇▇▇ ▇ ▇▇▇▇▇, Penthouse Suite, ▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇. At the closing, upon the terms and subject
to the conditions of this Agreement, (1) the Company shall issue and deliver to
the Buyer the Preferred Shares, the Closing Warrants and the Unit Purchase
Warrants, registered in the name of the Buyer or its nominee, against payment by
the Buyer to the Company of an amount equal to the Purchase Price, and (2) the
Buyer shall pay to the Company an amount equal to the Purchase Price, against
delivery by the Company to the Buyer of the Preferred Shares, the Closing
Warrants and the Unit Purchase Warrants.
3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE BUYER.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) Acquisition for Investment. The Buyer is purchasing the
Preferred Shares and acquiring the Closing Warrants and the Unit Purchase
Warrants and will acquire the Common Shares issued upon conversion of the
Preferred Shares and Additional Preferred Shares, if any, prior to the second
anniversary of the issuance of such Preferred Shares or Additional Preferred
Shares, as the case may be, or issued upon each exercise of the Warrants prior
to the second anniversary of the Closing Date or acquired upon exercise of the
Warrants by payment for the Warrant Shares in cash at any time, for its own
account, for investment, and not with a view towards the public sale or
distribution thereof within the meaning of the 1933 Act; the Buyer will acquire
any Common Shares issued to the Buyer prior to the SEC Effective Date, for its
own account, for investment, and not with a view towards the public sale or
distribution thereof within the meaning of the 1933 Act prior to the SEC
Effective Date.
(b) Accredited Investor. The Buyer is an "accredited investor"
as that term is defined in Rule 501 of Regulation D by reason of Rule 501(a)(3)
thereof;
(c) Reoffers and Resales.
The Buyer will not, directly or indirectly, offer, sell, transfer or otherwise
dispose of (or solicit any offers to buy, purchase or otherwise acquire) any of
the Securities unless registered under the 1933 Act, pursuant to an exemption
from registration under the 1933 Act or in a transaction not requiring
registration under the 1933 Act;
(d) Company Reliance. The Buyer understands that: (1) the
Preferred Shares are being offered and sold to the Buyer; (2) the Unit Purchase
Warrants are being offered and issued to the Buyer; (3) the Closing Warrants are
being offered and issued to the Buyer; (4) upon exercise of the Unit Purchase
Warrants, the Additional Preferred Shares and the Additional Warrants are being
issued to the Buyer (5) upon conversion of the Preferred Shares prior to the
second anniversary of the Closing Date and upon conversion of the Additional
Preferred Shares, if any, prior to the second anniversary of the exercise of the
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Unit Purchase Warrants, the Conversion Shares issued upon such conversions will
be issued to the Buyer; and (6) upon exercise of the Closing Warrants at any
time prior to the second anniversary of the Closing Date and the Additional
Warrants at any time prior to the second anniversary of the exercise of the Unit
Purchase Warrants or upon cash exercise of the Warrants, the Warrant Shares
issued upon such exercise will be issued to the Buyer, in each such case in
reliance on one or more exemptions from the registration requirements of the
1933 Act, including, without limitation, Regulation D, and exemptions from state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein, in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire or receive an offer to acquire the Securities;
(e) Information Provided. The Buyer and its advisors, if any,
have requested, received and considered all information relating to the
business, properties, operations, condition (financial or other), results of
operations and prospects of the Company and the Subsidiaries and information
relating to the offer and sale of the Preferred Shares and issuance of the
Warrants and the Unit Purchase Warrants, and the offer of the Common Shares
deemed relevant by them (assuming the accuracy and completeness of the SEC
Reports and of the Company's responses to the Buyer's requests); the Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company concerning the terms of the offering of the Securities and the business,
properties, operations, condition (financial or other), results of operations
and prospects of the Company and the Subsidiaries and have received satisfactory
answers to any such inquiries (assuming the accuracy and completeness of the SEC
Reports and the Company's responses to the Buyer's requests); without limiting
the generality of the foregoing, the Buyer has had the opportunity to obtain and
to review the SEC Reports; in connection with its decision to purchase the
Preferred Shares and to acquire the Unit Purchase Warrants and the Warrants, the
Buyer has relied solely upon the SEC Reports, the representations, warranties,
covenants and agreements of the Company set forth in this Agreement and to be
contained in the other Transaction Documents, as well as the due diligence
investigation of the Company and the Subsidiaries completed by the Buyer and its
advisors, if any; the Buyer understands that its investment in the Securities
involves a high degree of risk; and the Buyer understands that the offering of
the Preferred Shares and the Warrants and the Unit Purchase Warrants is being
made to the Buyer as part of an offering without any minimum or maximum amount
of the offering (subject, however, to the right of the Company at any time prior
to execution and delivery of this Agreement by the Company, in its sole
discretion, to accept or reject an offer by the Buyer to purchase the Preferred
Shares and to acquire the Unit Purchase Warrants and the Warrants);
(f) Absence of Approvals. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities;
(g) Subscription Agreement. The Buyer has all requisite power
and authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed or to be
executed by the Buyer in connection herewith and to consummate the transactions
contemplated hereby and thereby; and this Agreement has been duly and validly
authorized, duly executed and delivered on behalf of the Buyer and, assuming due
execution and delivery by the Company, is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, except as the enforceability
-10-
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity, regardless of
whether enforcement is considered in a proceeding in equity or at law;
(h) Buyer Status. The Buyer is not a "broker" or "dealer" as
those terms are defined in the 1934 Act which is required to be registered with
the SEC pursuant to Section 15 of the 1934 Act; and
(i) Absence of Reliance. The Buyer acknowledges that, other
than as expressly set forth in this Agreement and the other Transaction
Documents, the Company has not made, and the Buyer has not relied upon, any
representation or warranty as to the merits of an investment in the Preferred
Shares or the income tax consequences to the Buyer of the transactions
contemplated by this Agreement.
4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE
COMPANY.
The Company represents and warrants to, and covenants and
agrees with, the Buyer that:
(a) Organization and Authority. The Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and (i) the
Company and each Subsidiary has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as described
in the SEC Reports and as currently conducted, and (ii) the Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the other Transaction Documents being
executed and delivered by the Company in connection herewith, and to consummate
the transactions contemplated hereby and thereby.
(b) Qualifications. The Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where such qualification is necessary and where failure so to
qualify could have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company and the Subsidiaries, taken as a whole.
(c) Capitalization. The capitalization of the Company as of
April 26, 2004 is as described in Schedule 4(c) attached hereto. The Company has
not issued any capital stock since such date other than pursuant to the exercise
of employee stock options under the Company's Stock Option Plans, the issuance
of shares of Common Stock to employees pursuant to the Company's Stock Option
Plans and pursuant to the conversion or exercise of outstanding Common Stock
Equivalents. No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities or as disclosed in the SEC Reports, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
-11-
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the Buyers)
and will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities. The
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable and all of such options,
warrants and other rights have been duly authorized by the Company. None of the
holders of such outstanding shares of capital stock is subject to personal
liability solely by reason of being such a holder. None of the outstanding
shares of capital stock or options, warrants, or rights or other securities
entitling the holders to acquire Common Stock has been issued in violation of
the preemptive rights of any security holder of the Company. No holder of any of
the Company's securities has any rights, "demand," "piggy-back" or otherwise, to
have such securities registered by reason of the intention to file, filing or
effectiveness of the Registration Statement.
(d) Concerning the Shares and the Common Stock. The Shares
have been duly authorized and the Preferred Shares, when issued and paid for in
accordance with this Agreement and the Additional Preferred Shares, when issued
and paid for in accordance with the Unit Purchase Warrants, and the Conversion
Shares, when issued upon conversion of the Preferred Shares and the Additional
Preferred Shares, and the Warrant Shares, when issued upon exercise of the
Warrants, in each such case will be duly and validly issued, fully paid and
non-assessable. The Common Stock is listed for trading on the AMEX, the Company
and the Common Stock meet the criteria for continued listing and trading on the
AMEX, and no suspension of trading in the Common Stock is in effect.
(e) Corporate Authorization. This Agreement and the other
Transaction Documents have been duly and validly authorized by the Company. This
Agreement has been duly executed and delivered by the Company and, assuming due
execution and delivery by the Buyer, this Agreement is, and the Certificate of
Designations, when executed by the Company and filed with the Secretary of State
of the State of Delaware, will be, and the Warrants and the Unit Purchase
Warrants, when executed and delivered by the Company, will be, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except as the enforceability hereof and thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
general principles of equity, regardless of whether enforcement is considered in
a proceeding in equity or at law.
(f) Non-contravention. The execution and delivery of the
Transaction Documents by the Company, the issuance of the Securities as
contemplated by the Transaction Documents and the completion by the Company of
the other transactions contemplated by the Transaction Documents do not and will
not, with or without the giving of notice or the lapse of time, or both, (i)
result in any violation of any provision of the articles of incorporation or
by-laws or similar instruments of the Company or any Subsidiary, (ii) conflict
with or result in a breach by the Company or any Subsidiary of any of the terms
or provisions of, or constitute a default under, or result in the modification
of, or result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective properties or
-12-
assets are bound or affected, in any such case which would have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the Subsidiaries,
taken as a whole, or the validity or enforceability of, or the ability of the
Company to perform its obligations under, the Transaction Documents, (iii)
violate or contravene any applicable law, rule or regulation or any applicable
decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets which would have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries, taken as a whole, or the validity
or enforceability of, or the ability of the Company to perform its obligations
under, the Transaction Documents, or (iv) have any material adverse effect on
any permit, certification, registration, approval, consent, license or franchise
necessary for the Company or any Subsidiary to own or lease and operate any of
its properties and to conduct any of its business or the ability of the Company
or any Subsidiary to make use thereof.
(g) Approvals, Filings, Etc. No authorization, approval or
consent of, or filing with, any court, governmental body, regulatory agency,
self-regulatory organization, or stock exchange or market or the stockholders of
the Company is required to be obtained or made by the Company or any Subsidiary
for (1) the execution, delivery and performance by the Company of the
Transaction Documents, (2) the issuance and sale of the Securities as
contemplated by the Transaction Documents, and (3) the performance by the
Company of its other obligations under the Transaction Documents, other than (A)
approval by AMEX for the listing of the Common Shares on the AMEX, (B)
registration of the resale of the Common Shares under the 1933 Act as
contemplated by Section 8, (C) as may be required under applicable state
securities or "blue sky" laws, and (D) filing of one or more Forms D with
respect to the Securities as required under Regulation D.
(h) Information Provided. The written information provided by
or on behalf of the Company to the Buyer in connection with the transactions
contemplated by this Agreement, including, without limitation, the information
referred to in Section 3(e), does not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, it being understood that for purposes of this Section 4(h), any
statement contained in such information shall be deemed to be modified or
superseded for purposes of this Section 4(h) to the extent that a statement in
any document included in such information which was prepared and furnished to
the Buyer on a later date or filed with the SEC on a later date modifies or
replaces such statement, whether or not such later prepared and furnished or
filed statement so states.
(i) Conduct of Business. Except as set forth in the SEC
Reports, since December 31, 2003, neither the Company nor any Subsidiary has (i)
incurred any material obligation or liability (absolute or contingent) other
than in the ordinary course of business; (ii) canceled, without payment in full,
any material notes, loans or other obligations receivable or other debts or
claims held by it other than in the ordinary course of business; (iii) sold,
assigned, transferred, abandoned, mortgaged, pledged or subjected to lien any of
its material properties, tangible or intangible, or rights under any material
contract, permit, license, franchise or other agreement; (iv) conducted its
business in a manner materially different from its business as conducted on
December 31, 2003; (v) declared, made or paid or set aside for payment any cash
or non-cash distribution on any shares of its capital stock; or (vi) consummated
or entered into any agreement with respect to, any transaction or event which
-13-
would constitute an Optional Redemption Event. Except as disclosed in the SEC
Reports, the Company and each Subsidiary owns, possesses or has obtained all
governmental, administrative and third party licenses, permits, certificates,
registrations, approvals, consents and other authorizations necessary to own or
lease (as the case may be) and operate its properties, whether tangible or
intangible, and to conduct its business and operations as currently conducted,
except such licenses, permits, certificates, registrations, approvals, consents
and authorizations the failure of which to obtain would not have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company and the Subsidiaries,
taken as a whole.
(j) SEC Filings. Except for the Company's Form 10-K/A for the
year ended December 31, 2002 which was not timely filed, the Company has timely
filed all reports required to be filed under the 1934 Act and any other material
reports or documents required to be filed with the SEC since December 31, 2002.
All of such reports and documents complied, when filed, in all material
respects, with all applicable requirements of the 1933 Act and the 1934 Act. As
of April 30, 2004 the Company will meet the requirements for the use of Form S-3
for the registration of the resale of the Registrable Securities.
(k) Absence of Certain Proceedings. Except as disclosed in the
SEC Reports, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body, or governmental agency pending or,
to the knowledge of the Company or any Subsidiary, threatened against or
affecting the Company or any Subsidiary, in any such case wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole,
or the transactions contemplated by the Transaction Documents or which could
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, the Transaction Documents; and
to the best of the Company's knowledge there is not pending or contemplated any,
and there has been no, investigation by the SEC involving the Company or any
current or former director or officer of the Company.
(l) Liabilities. The consolidated financial statements
included in the 2003 10-K present fairly the consolidated financial position,
consolidated results of operations and consolidated cash flows of he Company and
the Subsidiaries, at the dates and for the periods covered thereby, have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods covered thereby. Except to the extent
disclosed, reflected or reserved against in the financial statements of the
Company and the notes thereto included in the SEC Reports, neither the Company
nor any Subsidiary (1) has any liability, debt or obligation, whether accrued,
absolute, contingent or otherwise, and whether due or to become due which,
individually or in the aggregate, are material to the Company and the
Subsidiaries, taken as a whole, or (2) has incurred any liability, debt or
obligation of any nature whatsoever subsequent to December 31, 2003 which is,
individually or in the aggregate, material to the Company and the Subsidiaries,
taken as a whole, other than those incurred in the ordinary course of their
respective businesses.
(m) Absence of Certain Changes. Since December 31, 2003, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or other), results of
-14-
operations or prospects of the Company and the Subsidiaries, taken as a whole,
except as disclosed in the SEC Reports.
(n) Internal Accounting Controls. The Company maintains a
system of internal accounting controls for the Company and the Subsidiaries
which meets the requirements of Section 13(b)(2) of the 1934 Act in all material
respects.
(o) Compliance with Law. Neither the Company nor any
Subsidiary is in violation of or has any liability under any statute, law, rule,
regulation, ordinance, decision or order of any governmental agency or body or
any court, domestic or foreign, except where such violation or liability would
not individually or in the aggregate have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole;
and to the knowledge of the Company there is no pending investigation which
would reasonably be expected to lead to such a claim.
(p) Labor Relation. No material labor problem exists or, to
the knowledge of the Company or any Subsidiary, is imminent with respect to any
of the employees of the Company or any Subsidiary.
(q) Insurance. The Company and each Subsidiary maintains
insurance against loss or damage by fire or other casualty and such other
insurance, including but not limited to, product liability insurance, in such
amounts and covering such risks as the Company reasonably believes is adequate
for the conduct of its business and the value of its properties.
(r) Tax Matters. The Company and each Subsidiary has filed all
federal, state and local income and franchise tax returns required to be filed
and has paid all taxes shown by such returns to be due, and no tax deficiency
has been determined adversely to the Company or any Subsidiary which has had
(nor does the Company or any Subsidiary have any knowledge of any tax deficiency
which, if determined adversely to the Company or any Subsidiary, might have) a
material adverse effect on the business, properties, operations, condition
(financial or other), results of operations, or prospects of the Company and the
Subsidiaries, taken as a whole.
(s) Investment Company. Neither the Company nor any Subsidiary
is an "investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the SEC
thereunder.
(t) Absence of Brokers, Finders, Etc. No broker, finder, or
similar Person is entitled to any commission, fee, or other compensation by
reason of the transactions contemplated by this Agreement other than ▇.▇. ▇▇▇▇▇
Securities, Inc., and the Company shall pay, and indemnify and hold harmless the
Buyer from, any claim made against the Buyer by ▇.▇. ▇▇▇▇▇ Securities, Inc., or
any other Person for any such commission, fee or other compensation.
(u) No Solicitation; No Integrated Offering. No form of
general solicitation or general advertising was used by the Company or, to the
best of its knowledge, any other Person acting on behalf of the Company, in
respect of the Securities or in connection with the offer and sale of the
Securities. Neither the Company nor, to its knowledge, any Person acting on
behalf of the Company has, either directly or indirectly, sold or offered for
sale to any Person any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
-15-
this Agreement or disclosed in the SEC Reports, and neither the Company nor any
Person authorized to act on its behalf will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person so as thereby to (1)
cause the issuance or sale of any of the Securities to be in violation of
Section 5 of the 1933 Act or (2) require the integration of the offering of
Securities with any other offering of securities for purposes of determining the
need to obtain stockholder approval of the transactions contemplated hereby
under the rules of AMEX.
(v) Absence of Rights Agreement. The Company has not adopted a
shareholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
(w) Not Material. The transactions contemplated by this
agreement and the other Transaction Documents do not constitute "material
information" for purposes of the disclosure requirements of the AMEX. The Buyer
shall not be in violation of any duty to the Company if, after the execution of
this Agreement, they trade in securities of the Company, regardless of whether
the transactions contemplated by this Agreement or the other Transaction
Documents shall have been publicly disclosed by the Company.
5. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) Transfer Restrictions. The Buyer acknowledges and agrees
that (1) the Preferred Shares, the Additional Preferred Shares, the Unit
Purchase Warrants and the Warrants have not been and are not being registered
under the provisions of the 1933 Act or any state securities laws and, except as
provided in Section 8, the Common Shares have not been and are not being
registered under the 1933 Act or any state securities laws, and that the
Preferred Shares, the Additional Preferred Shares, the Unit Purchase Warrants,
the Warrants and the Common Shares may not be transferred without such
registration unless the Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that the Preferred Shares, the Additional Preferred Shares, the Unit
Purchase Warrants, the Warrants or the Common Shares to be transferred may be
transferred without such registration or unless transferred in accordance with
Rule 144A to a QIB; (2) no sale, assignment or other transfer of the Preferred
Shares, the Additional Preferred Shares, the Unit Purchase Warrants, the
Warrants or the Common Shares or any interest therein may be made except in
accordance with the terms thereof; (3) the Common Shares are not transferable in
the absence of registration under the 1933 Act and applicable state securities
laws, or applicable exemptions therefrom; (4) any sale of the Common Shares
under the Registration Statement shall be made only in compliance with the terms
of this Section 5(a) and Section 8 (including, without limitation, Section
8(c)(5)); (5) any sale of the Shares made in reliance on Rule 144 may be made
only in accordance with the terms of Rule 144 and further, if the exemption
provided by Rule 144 is not available, any resale of the Shares under
circumstances in which the seller, or the Person through whom the sale is made,
may be deemed to be an underwriter, as that term is used in the 1933 Act, may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (6) the Company is under no obligation to
register the Shares (other than registration of the resale of the Common Shares
in accordance with Section 8) under the 1933 Act or, except as provided in
-16-
Sections 5(e) and 8, to comply with the terms and conditions of any exemption
thereunder. Prior to the time particular Common Shares are eligible for resale
under Rule 144(k), the Buyer may not transfer such Common Shares in a
transaction which does not constitute a transfer thereof pursuant to the
Registration Statement in accordance with the plan of distribution set forth
therein or in any supplement to the Prospectus unless the Buyer shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, that such Common Shares may be transferred
without registration under the 1933 Act. Nothing in any of the Transaction
Documents shall limit the right of a holder of the Securities to make a bona
fide pledge thereof to an institutional lender and the Company agrees to
cooperate with any Investor who seeks to effect any such pledge by providing
such information and making such confirmations as reasonably requested.
(b) Restrictive Legends. (1) The Buyer acknowledges and agrees
that the certificates for the Preferred Shares and Additional Preferred Shares,
if any, shall bear restrictive legends in substantially the following form (and
a stop-transfer order may be placed against transfer of the Preferred Shares and
Additional Preferred Shares, if any):
These securities have not been registered under the Securities Act of
1933, as amended (the "Act"). The issuance to the holder of these
securities of the shares of common stock issuable upon conversion of
these securities is not covered by a registration statement under the
Act. These securities have been acquired, and such shares of common
stock must be acquired, for investment and may not be sold, transferred
or assigned unless (1) their resale is registered under the Act, (2)
the Company has received an opinion of counsel reasonably satisfactory
in form, scope and substance to the Company that such registration is
not required or (3) sold, transferred or assigned to a QIB pursuant to
Rule 144A.
(2) The Buyer further acknowledges and agrees that the Unit
Purchase Warrants and Warrants shall bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against the
Warrants):
This Warrant has not been registered under the Securities Act of 1933,
as amended (the "Act"), and may not be sold, transferred or assigned
unless (1) the resale hereof is registered under the Act, (2) the
Company has received an opinion of counsel reasonably satisfactory in
form, scope and substance to the Company that such registration is not
required or (3) sold, transferred or assigned to a QIB pursuant to Rule
144A.
(3) The Buyer further acknowledges and agrees that until such
time as the Common Shares have been registered for resale under the 1933 Act as
contemplated by Section 8 or are eligible for resale under Rule 144(k) under the
1933 Act, the certificates for the Common Shares may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for the Common Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Act, or an opinion of counsel
reasonably satisfactory in form, scope and substance to the Company
that registration is not required under the Act.
-17-
(4) Once the Registration Statement has been declared
effective and for so long as such Registration Statement remains effective, or
particular Common Shares are eligible for resale pursuant to Rule 144(k) under
the 1933 Act, thereafter (A) upon request of the Buyer the Company will
substitute certificates without restrictive legend for certificates for any
Common Shares issued prior to the SEC Effective Date or prior to the time of
such eligibility, as the case may be, which bear such restrictive legend and
remove any stop transfer restriction relating thereto promptly, but in no event
later than three Trading Days after surrender of such certificates by the Buyer
and (B) the Company shall not place any restrictive legend on certificates for
Common Shares subsequently issued or impose any stop transfer restriction
thereon, unless the Registration Statement subsequently becomes withdrawn or
otherwise ceases to be effective.
(c) Accounting Treatment. The Buyer acknowledges that the
Company seeks to account for the Preferred Stock as permanent equity to be
included in the stockholders equity portion of its balance sheet for financial
reporting purposes in accordance with GAAP, and not as redeemable preferred
stock which is considered outside permanent equity under GAAP. The Company
believes that the terms of the Preferred Stock as set forth in the Certificate
of Designations meet the requirements for classifying the Preferred Stock as
permanent equity to be included in the stockholders equity portion of the
Company's balance sheet in accordance with GAAP and not as redeemable preferred
stock under GAAP, and the Buyer concurs in such determination.
(d) Form D. The Company agrees to file with the SEC on a
timely basis a Form D with respect to the Securities as required to claim the
exemption provided by Rule 506 of Regulation D and to provide a copy thereof to
the Buyer promptly after such filing.
(e) AMEX Listing; Reporting Status. Prior to the Closing Date,
the Company shall file with the AMEX an application or other document required
by the AMEX for the listing of the Common Shares with the AMEX and shall provide
evidence of such filing to the Buyer. The Company shall use its best efforts to
obtain the listing, subject to official notice of issuance, of the Common Shares
on the AMEX prior to the Closing Date. So long as the Buyer beneficially owns
any Preferred Shares, Additional Preferred Shares, the Unit Purchase Warrants or
the Warrants or any Common Shares, the Company will use its best efforts to
maintain the listing of the Common Stock on the AMEX or a registered national
securities exchange. During the Registration Period, the Company shall timely
file all reports required to be filed with the SEC pursuant to Section 13 or
15(d) of the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act unless the 1934 Act or the
rules and regulations thereunder would permit such termination.
(f) Use of Proceeds. The Company intends to use the proceeds
of sale of the Securities for general working capital purposes and in the
operation of the Company's business.
(g) State Securities Laws. On or before the Closing Date, the
Company shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the offer and sale of the Securities to the Buyer as contemplated
by the Transaction Documents under such of the securities laws of jurisdictions
in the United States as shall be applicable thereto. In connection with the
foregoing obligations of the Company in this Section 5(g), the Company shall not
be required (1) to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5(g), (2) to subject
itself to general taxation in any such jurisdiction, (3) to file a general
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consent to service of process in any such jurisdiction, (4) to provide any
undertakings that cause more than nominal expense or burden to the Company, or
(5) to make any change in its charter or by-laws which the Company determines to
be contrary to the best interests of the Company and its stockholders. The
Company shall furnish to the Buyer copies of all filings, applications, orders
and grants or confirmations of exemptions relating to such securities laws on or
prior to the Closing Date.
(h) Limitation on Certain Actions. From the date of execution
and delivery of this Agreement by the parties hereto to the date of issuance of
the Preferred Shares and the Warrant, the Company shall not take any action
which, if the Preferred Shares were outstanding, would constitute an Optional
Redemption Event, or with the giving of notice or the passage of time or both,
would constitute an Optional Redemption Event.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO SELL AND ISSUE.
The Buyer understands that the Company's obligations to sell
to the Buyer the Preferred Shares and to issue to the Buyer the Unit Purchase
Warrants and the Closing Warrants on the Closing Date are conditioned upon
satisfaction of the following conditions precedent on or before the Closing Date
(any or all of which may be waived by the Company in its sole discretion):
(a) On the Closing Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement; and
(b) The representations and warranties of the Buyer contained
in this Agreement shall have been true and correct on the date of this Agreement
and shall be true and correct on the Closing Date as if made on and as of the
Closing Date and on or before the Closing Date the Buyer shall have performed
all covenants and agreements of the Buyer required to be performed by the Buyer
on or before the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATIONS TO PURCHASE.
The Company understands that the Buyer's obligations to
purchase the Preferred Shares and to acquire the Unit Purchase Warrants and the
Closing Warrants from the Company on the Closing Date are conditioned upon
satisfaction of the following conditions precedent on or before the Closing Date
(any or all of which may be waived by the Buyer in its sole discretion):
(a) On the Closing Date, no legal action, suit or proceeding
shall be pending or threatened which seeks to restrain or prohibit the
transactions contemplated by this Agreement;
(b) The representations and warranties of the Company
contained in this Agreement and each other agreement or instrument
executed and delivered by the Company in connection with this Agreement
shall have been true and correct on the date of this Agreement and
shall be true and correct on the Closing Date as if made on the Closing
Date; and on or before the Closing Date the Company shall have
performed all covenants and agreements of the Company contained herein
or therein and required to be performed by the Company on or before the
Closing Date;
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(c) No event which, if the Preferred Shares were outstanding,
would constitute an Optional Redemption Event or, with the giving of
notice or the passage of time or both, would constitute an Optional
Redemption Event shall have occurred and be continuing;
(d) The Company shall have delivered to the Buyer a
certificate, dated the Closing Date, executed by a duly authorized
officer of the Company to the effect set forth in subparagraphs (a),
(b) and (c) of this Section 7;
(e) The Buyer shall have received satisfactory confirmation of
the filing with the Secretary of State of the State of Delaware of the
Certificate of Designations, which shall continue to be filed and in
full force and effect on the Closing Date;
(f) Common Shares shall have been approved for listing,
subject to official notice of issuance, by the AMEX and the Buyer shall
have received written evidence of such approval by the AMEX;
(g) The Buyer shall have received on the Closing Date an
opinion of McGuireWoods LLP, counsel for the Company, dated the Closing
Date, addressed to the Buyer, in form, scope and substance reasonably
satisfactory to the Buyer, substantially in the form of ANNEX IV to
this Agreement;
(h) The Company shall have delivered to the Buyer a
certificate, dated the Closing Date, of the Secretary or the Assistant
Secretary of the Company certifying (1) the Articles of Incorporation
and By-Laws of the Company as in effect on the Closing Date, and (2)
all resolutions of the Board of Directors (and committees thereof) of
the Company relating to the Transaction Documents and the transactions
contemplated hereby and (3) such other matters as are customary and as
reasonably requested by the Buyer; and
(i) On the Closing Date, (i) trading in securities on the New
York Stock Exchange, Inc., the AMEX or Nasdaq shall not have been
suspended or materially limited and (ii) a general moratorium on
commercial banking activities in the State of New York shall not have
been declared by either federal or state authorities.
8. REGISTRATION RIGHTS.
(a) Mandatory Registration. (1) The Company shall prepare
promptly and, on or prior to the date which is 30 days after the
Closing Date, file with the SEC the Registration Statement for the
resale by the Buyer of a number of Registrable Securities equal to (A)
the number of shares of Common Stock equal to at least the number of
Common Shares issuable to the Buyer upon conversion of the Preferred
Shares and the Additional Preferred Shares and one quarter-year of
accrued and unpaid dividends on the Preferred Shares at the rate
specified in the Certificate of Designations, determined at the
Conversion Price which is applicable on the day the Registration
Statement is filed with the SEC and (B) the number of Warrant Shares
issuable upon exercise of the Warrants, and which Registration
Statement shall state that, in accordance with Rule 416 under the 1933
Act, such Registration Statement also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Shares and the Additional Preferred Shares
and exercise of the Warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions. If for any reason the
SEC does not permit all of the Registrable Securities to be included in
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such Registration Statement, then the Company shall prepare and file
with the SEC a separate Registration Statement with respect to any such
Registrable Securities not included with the initial Registration
Statements, as expeditiously as possible, but in no event later than
the date which is 30 days after the date on which the SEC shall
indicate as being the first date such filing may be made.
(2) If a Registration Event occurs, then the Company will make
payments to the Buyer as partial liquidated damages for the minimum
amount of damages to the Buyer by reason thereof, and not as a penalty,
at the rate of 2% per month of the Purchase Price paid by the Buyer
pursuant to this Agreement, for each calendar month of the Registration
Default Period (pro rated for any period less than 30 days). Each such
payment shall be due and payable within five (5) days after the end of
each calendar month of the Registration Default Period until the
termination of the Registration Default Period and within five (5) days
after such termination. Such payments shall be in partial compensation
to the Buyer, and shall not constitute the Buyer's exclusive remedy for
such events. The Registration Default Period shall terminate upon (u)
the filing of the Registration Statement in the case of clause (i) of
the definition of "Registration Event"; (v) the SEC Effective Date in
the case of clause (ii) of the definition of "Registration Event"; (w)
the ability of the Buyer to effect sales pursuant to the Registration
Statement in the case of clause (iii) of the definition of
"Registration Event"; (x) the listing or inclusion and/or trading of
the Common Stock on an Approved Market, as the case may be, in the case
of clause (iv) of the definition of "Registration Event"; and (y) in
the case of the events described in clauses (ii) and (iii) of the
definition of "Registration Event", the earlier termination of the
Registration Period and in each such case any Registration Default
Period that commenced by reason of the occurrence of such event shall
terminate if at the time no other Registration Event is continuing. The
amounts payable as liquidated damages pursuant to this paragraph shall
be payable in lawful money of the United States. Amounts payable as
liquidated damages hereunder shall cease when the Buyer no longer holds
the Preferred Shares, the Additional Preferred Shares, the Unit
Purchase Warrants, the Warrants or Registrable Securities; provided,
however, that in no event shall the amount payable as liquidated
damages pursuant to this Section 8(a)(3) be in excess of 8% of the
Purchase Price paid by the Investor. If the Company fails to pay any
liquidated damages pursuant to this Section in full within seven days,
after the date payable, the Company will pay interest thereon at a rate
of 18% per annum (or such lesser amount that is permitted to be paid by
applicable law) to the Investor, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full.
(3) At any time and from time to time, promptly following the
written demand of the Investor following the issuance of any Additional
Registrable Securities, and in any event within thirty (30) days
following such written demand, the Company shall prepare and file with
the SEC either a new Registration Statement or a post-effective
amendment to a previously filed Registration Statement, to the extent
permitted under the 1933 Act, on Form S-3 (or, if Form S-3 is not then
available to the Company, on such form of registration statements as is
then available to effect a registration for resale of the Additional
Registrable Securities) covering the resale of the Additional
Registrable Securities in an amount equal to the number of Additional
Registrable Securities. Such Registration Statement also shall cover,
to the extent allowable under the 1933 Act and the rules promulgated
thereunder (including Rule 416), as determined by the Company and its
legal counsel, such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Additional Registrable Securities. The
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Registration Statement (and each amendment or supplement thereto) shall
be provided in accordance with Section 8(b) to the Investor and its
counsel prior to its filing or other submission.
(4) In the event the Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on
another appropriate form and (ii) attempt to register the Registrable
Securities on Form S-3 as soon as such form is available, provided that
the Company shall maintain the effectiveness of the Registration
Statements then in effect until such time as a Registration Statement
on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
(b) Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall:
(1) use its best efforts to cause the Registration Statement
to become effective as promptly as possible after the Closing Date and
to keep the Registration Statement effective pursuant to Rule 415 at
all times during the Registration Period. The Company shall submit to
the SEC, within three Business Days after the Company learns that no
review of the Registration Statement will be made by the staff of the
SEC or that the staff of the SEC has no further comments on the
Registration Statement, as the case may be, a request for acceleration
of effectiveness of the Registration Statement to a time and date not
later than 48 hours after the submission of such request. The Company
shall notify the Investors of the effectiveness of the Registration
Statement on the SEC Effective Date. The Company represents and
warrants to the Investors that (a) the Registration Statement
(including any amendments or supplements thereto and prospectuses
contained therein), at the time it is first filed with the SEC, at the
time it is ordered effective by the SEC and at all times during which
it is required to be effective hereunder (and each such amendment and
supplement at the time it is filed with the SEC and at all times during
which it is available for use in connection with the offer and sale of
the Registrable Securities) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(b) the Prospectus, at the time the Registration Statement is declared
effective by the SEC and at all times that the Prospectus is required
by this Agreement to be available for use by any Investor and, in
accordance with Section 8(c)(4), any Investor is entitled to sell
Registrable Securities pursuant to the Prospectus, shall not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading;
(2) subject to Section 8(b)(5), prepare and file with the SEC
such amendments (including post-effective amendments) and supplements
to the Registration Statement and the Prospectus as may be necessary to
keep the Registration Statement effective, and the Prospectus current,
at all times during the Registration Period, and, during the
Registration Period (other than during any Blackout Period during which
the provisions of Section 8(b)(5)(B) are applicable), comply with the
provisions of the 1933 Act applicable to the Company in order to permit
the disposition by the Investors of all Registrable Securities covered
by the Registration Statement;
(3) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel (A)
promptly after the same is prepared and publicly distributed, filed
with the SEC or received by the Company, (A) five copies of the
Registration Statement and any amendment thereto and the Prospectus and
-22-
each amendment or supplement thereto, (B) one copy of each letter
written by or on behalf of the Company to the SEC or the staff of the
SEC and each item of correspondence from the SEC or the staff of the
SEC relating to the Registration Statement (other than any portion of
any thereof which contains information for which the Company has sought
confidential treatment), each of which the Company hereby determines to
be confidential information and which each Investor hereby agrees to
keep confidential as a confidential Record in accordance with Section
8(b)(9) and (C) such number of copies of the Prospectus and all
amendments and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(4) subject to Section 8(b)(5), use its commercially
reasonable efforts (A) to register and qualify the Registrable
Securities covered by the Registration Statement under the securities
or blue sky laws of such jurisdictions as any Investor who owns or
holds any Registrable Securities reasonably requests, (B) to prepare
and to file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness
thereof at all times during the Registration Period and (C) to take all
other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale by the Investors in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto (i) to qualify to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 8(b)(4), (ii) to subject itself to general
taxation in any such jurisdiction, (iii) to file a general consent to
service of process in any such jurisdiction, (iv) to provide any
undertakings that cause more than nominal expense or burden to the
Company or (v) to make any change in its charter or by-laws which the
Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders;
(5) (A) as promptly as practicable after becoming aware of
such event or circumstance, notify each Investor of the occurrence of
an event or circumstance of which the Company has knowledge (x) as a
result of which the Prospectus, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading
or (y) which requires the Company to amend or supplement the
Registration Statement due to the receipt from an Investor or any other
Selling Stockholder named in the Prospectus of new or additional
information about such Investor or selling stockholder or its intended
plan of distribution of its Registrable Securities or other securities
caused by the Registration Statement, as the case may be, so that the
Prospectus does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and use its best efforts
promptly to prepare a supplement or amendment to the Registration
Statement and Prospectus to correct such untrue statement or omission
or to add any new or additional information, and deliver a number of
copies of such supplement or amendment to each Investor as such
Investor may reasonably request; and
(B) notwithstanding Section 8(b)(5)(A) above, if at any time
the Company notifies the Investors as contemplated by Section
8(b)(5)(A) the Company also notifies the Investors that the event
giving rise to such notice relates to a development involving the
Company which occurred subsequent to the later of (x) the SEC Effective
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Date and (y) the latest date prior to such notice on which the Company
has amended or supplemented the Registration Statement, then the
Company shall not be required to use best efforts to make such
amendment during a Blackout Period; provided, however, that (A) the
aggregate number of Trading Days on which any Blackout Period is in
effect may not exceed ten consecutive Trading Days in any period of 120
consecutive days or 20 Trading Days (whether or not consecutive) in any
period of 365 consecutive days; (B) the Company shall not be able to
avail itself of its rights under this Section 8(b)(5)(B) with respect
to more than three Blackout Periods in any period of 365 consecutive
days; and (C) no Blackout Period may commence sooner than 60 days after
the end of an earlier Blackout Period;
(6) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being
offered or sold pursuant to the Registration Statement of the issuance
by the SEC of any stop order or other suspension of effectiveness of
the Registration Statement at the earliest possible time;
(7) permit the Investors who hold Registrable Securities being
included in the Registration Statement and their legal counsel, at such
Investors' sole cost and expense to review and have a reasonable
opportunity to comment on the Registration Statement and all amendments
and supplements thereto at least three Business Days prior to their
filing with the SEC and shall not file any such document to which any
Investor reasonably objects;
(8) make generally available to its security holders as soon
as practical, but not later than 90 days after the close of the period
covered thereby, an earning statement (in form complying with the
provisions of Rule 158 under the ▇▇▇▇ ▇▇▇) covering a 12-month period
beginning not later than the first day of the Company's fiscal quarter
next following the SEC Effective Date;
(9) use its best efforts to cause all the Registrable
Securities covered by the Registration Statement to be listed on the
AMEX or such other principal securities market on which securities of
the same class or series issued by the Company are then listed or
traded;
(10) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities at all times;
(11) cooperate with the Investors who hold Registrable
Securities being offered pursuant to the Registration Statement to
facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to
be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts as the Investors
may reasonably request and registered in such names as the Investors
may request; and, not later than the SEC Effective Date, cause legal
counsel selected by the Company to deliver to the Investors whose
Registrable Securities are included in the Registration Statement and,
if required by the Transfer Agent, to the Transfer Agent an opinion of
counsel in the form of ANNEX V to this Agreement;
(12) during the Registration Period, refrain from bidding for
or purchasing any Common Stock or any right to purchase Common Stock or
attempting to induce any Person to purchase any such security or right
if such bid, purchase or attempt would in any way limit the right of
-24-
the Investors to sell Registrable Securities by reason of the
limitations set forth in Regulation M under the 1934 Act; and
(13) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investors of the Registrable
Securities pursuant to the Registration Statement.
(c) Obligations of the Buyer and Other Investors. In
connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(1) it shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement
with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company the Required
Information and shall execute such documents in connection with such
registration as the Company may reasonably request. Prior to the
execution and delivery of this Agreement, the Buyer has completed and
delivered to the Company the Questionnaire, which shall be deemed to
provide all Required Information for purposes of the preparation and
filing of the Registration Statement. Promptly after a request from the
Company, the Investor will confirm or update the Required Information
previously provided to the Company by the Investor;
(2) each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation
and filing of the Registration Statement hereunder, unless such
Investor has notified the Company of such Investor's election to
exclude all of such Investor's Registrable Securities from the
Registration Statement;
(3) each Investor agrees that it will not effect any
disposition of the Registrable Securities except as contemplated in the
Registration Statement or as shall otherwise be in compliance with the
registration requirements of applicable securities laws and that it
will promptly notify the Company of any material changes in the
information set forth in the Registration Statement regarding such
Investor or its plan of distribution; each Investor agrees (a) to
notify the Company in the event that such Investor enters into any
material agreement with a broker or a dealer for the sale of the
Registrable Securities through a block trade, special offering,
exchange distribution or a purchase by a broker or dealer and (b) in
connection with such agreement, to provide to the Company in writing
the information necessary to prepare any supplemental prospectus
pursuant to Rule 424(c) under the 1933 Act which is required with
respect to such transaction;
(4) each Investor acknowledges that there may occasionally be
times as specified in Section 8(b)(5) or 8(b)(6) when the Company must
suspend the use of the Prospectus until such time as an amendment to
the Registration Statement has been filed by the Company and declared
effective by the SEC, the Company has prepared a supplement to the
Prospectus or the Company has filed an appropriate report with the SEC
pursuant to the 1934 Act. Each Investor hereby covenants that it will
not sell any Registrable Securities pursuant to the Prospectus during
the period commencing at the time at which the Company gives such
Investor notice of the suspension of the use of the Prospectus in
accordance with Section 8(b)(5) or 8(b)(6) and ending at the time the
Company gives such Investor notice that such Investor may thereafter
-25-
effect sales pursuant to the Prospectus, or until the Company delivers
to such Investor or files with the SEC an amended or supplemented
Prospectus;
(5) in connection with any sale of Registrable Securities
which is made by an Investor pursuant to the Registration Statement (A)
if such sale is made through a broker, such Investor shall instruct
such broker to deliver the Prospectus to the purchaser or purchasers
(or the broker or brokers therefor) in connection with such sale and
shall supply copies of the Prospectus to such broker or brokers, and
(B) if such sale is made in a transaction directly with a purchaser and
not through the facilities of any securities exchange or market, such
Investor shall deliver, or cause to be delivered, the Prospectus to
such purchaser; and
(6) each Investor agrees to notify the Company promptly after
the event of the completion of the sale by such Investor of all
Registrable Securities to be sold by such Investor pursuant to the
Registration Statement.
(d) Rule 144. With a view to making available to each Investor
the benefits of Rule 144, the Company agrees:
(1) so long as any Investor owns or has the right to acquire
Registrable Securities, promptly upon request of such Investor, to
furnish to such Investor such information as may be necessary, and
otherwise reasonably to cooperate with such Investor, to permit such
Investor to sell its Registrable Securities pursuant to Rule 144
without registration; and
(2) if at any time the Company is not required to file such
reports with the SEC under Sections 13 or 15(d) of the 1934 Act, to use
its commercially reasonable efforts to, upon the request of an
Investor, to make publicly available other information so long as is
necessary to permit publication by brokers and dealers of quotations
for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification. (1) To the extent not prohibited by
applicable law, the Company will indemnify and hold harmless each
Indemnified Person against any Claims to which any of them may become
subject under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any Violation or any of
the transactions contemplated by the Transaction Documents. Subject to
the restrictions set forth in Section 9(a)(3) with respect to the
number of legal counsel, the Company shall reimburse each Indemnified
Person, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, an
Indemnified Person shall not be entitled to indemnification under this
Section 9(a)(1) for: (I) a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with
information relating to such Indemnified Person furnished in writing to
the Company by such Indemnified Person or an underwriter for such
Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or
supplement thereto if the Prospectus or such amendment or supplement
thereto was timely made available by the Company pursuant to Section
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8(b)(3); and (II) amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Persons and shall
survive the transfer of the Registrable Securities by the Investors.
The Company and the Buyer agree that the information set forth in the
Questionnaire is the only information furnished by the Buyer in writing
expressly for use in connection with the preparation of the
Registration Statement on or prior to the date hereof.
(2) In connection with the Registration Statement, each
Investor whose Registrable Securities are included in the Registration
Statement agrees to indemnify and hold harmless, to the same extent and
in the same manner set forth in Section 9(a)(1), each Indemnified Party
against any Claim to which any of them may become subject, under the
1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation, in each case to the extent (and only
to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such
Investor expressly for use in connection with the Registration
Statement or any amendment thereof or supplement thereto; and such
Investor will reimburse any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
Section 9(a)(2) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent
of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that each Investor shall be liable under
this Section 9(a)(2) for only that amount of all Claims in the
aggregate as does not exceed the amount by which the proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to
the Registration Statement exceeds the amount paid, directly or
indirectly, by such Investor for such Registrable Securities. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 9(a)(2) with
respect to any preliminary prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely
basis in the Prospectus, as then amended or supplemented.
(3) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 9(a) of notice of the commencement
of any action (including any governmental action), such Indemnified
Person or Indemnified Party shall, if a Claim in respect thereof is to
be made against any indemnifying party under this Section 9(a), deliver
to the indemnifying party a notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel reasonably satisfactory to the Indemnified Person
or the Indemnified Party, as the case may be; provided, however, that
an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained
by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other
party represented by such counsel in such proceeding; provided further,
however, that no indemnifying person shall be responsible for the fees
and expenses of more than one separate counsel for all Indemnified
-27-
Persons or Indemnified Parties, as the case may be, hereunder and one
separate counsel in each jurisdiction in which a Claim is pending or
threatened. The failure to deliver notice to the indemnifying party
within a reasonable time of the commencement of any such action shall
not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 9(a), except to the
extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 9(a)
shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
(b) Contribution. To the extent any indemnification by an
indemnifying party as set forth in Section 9(a) above is applicable by
its terms but is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable under Section 9(a) to the fullest
extent permitted by law. In determining the amount of contribution to
which the respective parties are entitled, there shall be considered
the relative fault of each party, the parties' relative knowledge of
and access to information concerning the matter with respect to which
the Claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations
appropriate under the circumstances; provided, however, that (a) no
contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set
forth in Section 9(a), (b) no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇)
shall be entitled to contribution from any other Person who was not
guilty of such fraudulent misrepresentation and (c) the contribution by
any Investor in respect of all Claims in the aggregate shall be limited
to the amount by which the proceeds received by such Investor from the
sale of such Registrable Securities exceeds the amount paid, directly
or indirectly, by such Investor for such Registrable Securities.
(c) Other Rights. The indemnification and contribution
provided in this Section shall be in addition to any other rights and
remedies available at law or in equity.
10. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York.
(b) Headings. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of,
or affect the interpretation of, this Agreement.
(c) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction.
(d) Notices. Any notices required or permitted to be given
under the terms of this Agreement shall be in writing and shall be sent
by mail, personal delivery, by telephone line facsimile transmission or
courier and shall be effective five days after being placed in the
mail, if mailed, or upon receipt, if delivered personally, by telephone
line facsimile transmission or by courier, in each case addressed to a
party at such party's address (or telephone line facsimile transmission
-28-
number) shown in the introductory paragraph or on the signature page of
this Agreement or such other address (or telephone line facsimile
transmission number) as a party shall have provided by notice to the
other party in accordance with this provision. In the case of any
notice to the Company, such notice shall be addressed to the Company at
its address shown in the introductory paragraph of this Agreement,
Attention: General Counsel (telephone line facsimile transmission
number (▇▇▇) ▇▇▇-▇▇▇▇), and in the case of any notice to the Buyer, a
copy shall be given to: Law Offices of ▇▇▇▇▇ ▇ ▇▇▇▇▇, Penthouse Suite,
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (telephone line facsimile
transmission number (▇▇▇) ▇▇▇-▇▇▇▇. The Buyer hereby designates as its
address for any notice required or permitted to be given to the Buyer
pursuant to the Certificate of Designations the address shown on the
signature page of this Agreement until the Buyer shall designate
another address for such purpose.
(e) Counterparts. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, each
of which shall be deemed an original and all of which together shall
constitute one and the same instrument. A telephone line facsimile
transmission of this Agreement bearing a signature on behalf of a party
hereto shall be legal and binding on such party. Although this
Agreement is dated as of the date first set forth above, the actual
date of execution and delivery of this Agreement by each party is the
date set forth below such party's signature on the signature page
hereof. Any reference in this Agreement or in any of the documents
executed and delivered by the parties hereto in connection herewith to
(1) the date of execution and delivery of this Agreement by the Buyer
shall be deemed a reference to the date set forth below the Buyer's
signature on the signature page hereof, (2) the date of execution and
delivery of this Agreement by the Company shall be deemed a reference
to the date set forth below the Company's signature on the signature
page hereof and (3) the date of execution and delivery of this
Agreement, or the date of execution and delivery of this Agreement by
the Buyer and the Company, shall be deemed a reference to the later of
the dates set forth below the signatures of the parties on the
signature page hereof.
(f) Entire Agreement; Benefit. This Agreement, including the
Annexes and Schedules hereto, constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof. There are
no restrictions, promises, warranties, or undertakings, other than
those set forth or referred to herein and therein. This Agreement,
including the Annexes and Schedules hereto, and the Letter Agreement
supersede all prior agreements and understandings, whether written or
oral, between the parties hereto with respect to the subject matter
hereof. This Agreement and the terms and provisions hereof are for the
sole benefit of only the Company, the Buyer and their respective
successors and permitted assigns.
(g) Waiver. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, or any course of dealing between the
parties, shall not operate as a waiver thereof or an amendment hereof,
nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or exercise of
any other right or power.
(h) Amendment. No amendment, modification, waiver, discharge
or termination of any provision of this Agreement nor consent to any
departure by the Buyer or the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by the party
-29-
to be charged with enforcement, and then shall be effective only in the
specific instance and for the purpose for which given.
(i) Further Assurances. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be
necessary and proper under the circumstances in order to accomplish the
intents and purposes of this Agreement and to carry out its provisions.
(j) Assignment of Certain Rights and Obligations. The rights
of an Investor under Sections 5(a), 5(b), 8, 9, and 10 of this
Agreement shall be automatically assigned by such Investor to any
transferee of all or any portion of such Investor's Registrable
Securities (or all or any portion of the Preferred Shares, Additional
Preferred Shares, Unit Purchase Warrant or any Warrant) who is an
"accredited investor" as that term is defined in Regulation D under the
1933 Act, only if: (1) such Investor agrees in writing with such
transferee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such
assignment, (2) the Company is, within a reasonable time after such
assignment, furnished with notice of (A) the name and address of such
transferee and (B) the Securities with respect to which such rights and
obligations are being assigned, (3) immediately following such
assignment the further disposition of Registrable Securities by such
transferee is restricted under the 1933 Act and applicable state
securities laws, and (4) at or before the time the Company received the
notice contemplated by clause (2) of this sentence the transferee
agrees in writing with the Company (x) to be bound by all of the
provisions contained in Sections 5(a), 5(b), 8, 9, and 10 hereof and
(y) to complete and deliver to the Company promptly a Questionnaire.
Upon any such assignment, the Company shall be obligated to such
transferee to perform all of its covenants under Sections 5, 8, 9, and
10 of this Agreement as if such transferee were the Buyer; provided,
however, that the Company shall remain obligated to such assigning
investor notwithstanding such assignment. In connection with any such
transfer the Company shall, at its sole cost and expense, promptly
after such assignment, and subject to receipt of a completed
Questionnaire from the transferee, take such actions as shall be
reasonably acceptable to the transferring Investor and such transferee
to assure that the Registration Statement relating to the Registrable
Securities involved in such transfer and the Prospectus are available
for use by such transferee for sales of the Registrable Securities in
respect of which such rights and obligations have been so assigned.
(k) Expenses. The Company and the Buyer shall be responsible
for their respective expenses (including, without limitation, their
respective fees and expenses of their counsel) incurred by them in
connection with the negotiation and execution of, and closing under,
this Agreement except that the Company shall be obligated to pay or
reimburse the legal fees and expenses and out-of-pocket due diligence
expenses of the Investors, not in excess of $20,000. All reasonable
expenses incurred in connection with registrations, filings or
qualifications pursuant to this Agreement shall be paid by the Company,
including, without limitation, all registration, listing and
qualifications fees, printers fees, accounting fees, and the fees and
disbursements of counsel for the Company but excluding (a) fees and
expenses of investment bankers retained by any Investor, (b) brokerage
commissions incurred by any Investor and (c) fees and expenses of
counsel for the Investors to the extent the same of counsel to the
Investors, together with amounts paid or reimbursed by the Company to
the Investors pursuant to the first sentence of this Section 10(k)
exceed $20,000. The Company shall pay on demand all expenses incurred
by the Buyer, including reasonable fees and expenses of counsel, as a
consequence of, or in connection with the negotiation, preparation or
execution of any amendment, modification or waiver of the Transaction
Documents initiated by the Company. The Company shall pay on demand the
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expenses incurred by the Buyer, including reasonable fees and expenses
of counsel, as a consequence of, or in connection with (1) any default
or breach of any of the Company's obligations set forth in the
Transaction Documents and (2) the enforcement or restructuring of any
right of, including the collection of any payments due, the Buyer under
the Transaction Documents, including any action or proceeding relating
to such enforcement or any order, injunction or other process seeking
to restrain the Company from paying any amount due the Buyer. Except as
otherwise provided in this Section 10(k), each of the Company and the
Buyer shall bear its own expenses in connection with this Agreement and
the transactions contemplated hereby.
(l) Termination. (1) The Buyer shall have the right to
terminate this Agreement by giving notice to the Company at any time at
or prior to the Closing Date if:
(A) the Company shall have failed, refused, or been unable at
or prior to the date of such termination of this Agreement to perform
any of its obligations hereunder;
(B) any other condition of the Buyer's obligations hereunder
is not fulfilled; or
(C) the closing shall not have occurred on a Closing Date on
or before April 30, 2004, other than solely by reason of a breach of
this Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(2) The Company shall have the right to terminate this
Agreement by giving notice to the Company at any time at or prior to
the Closing Date if:
(A) the Buyer shall have failed, refused, or been unable at or
prior to the date of such termination of this Agreement to perform any
of its obligations hereunder;
(B) any other condition of the Company's obligations hereunder
is not fulfilled; or
(C) the closing shall not have occurred on a Closing Date on
or before April 30, 2004, other than solely by reason of a breach of
this Agreement by the Company;
so long as the Company is not in breach of this Agreement at the time it gives
such notice. Any such termination shall be effective upon the giving of notice
thereof by the Company. Upon such termination, neither the Company nor the Buyer
shall have any further obligation to one another hereunder.
(m) Survival. The respective representations, warranties,
covenants and agreements of the Company and the Buyer contained in this
Agreement and the other Transaction Documents shall survive the execution and
delivery of this Agreement and the other Transaction Documents and the closing
hereunder and the delivery of and payment for the Preferred Shares and the
Additional Preferred Shares, if any, and the issuance of the Unit Purchase
Warrants and the Warrants and shall remain in full force and effect regardless
of any investigation made by or on behalf of the Buyer or any Person controlling
-31-
or acting on behalf of the Buyer or by the Company or any Person controlling or
acting on behalf of the Company.
(n) Public Statements, Press Releases, Etc. (1) The Company
and the Buyer shall have the right to approve before issuance any press releases
or any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations,
including the 1933 Act and the rules and regulations promulgated thereunder
(although the Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release and shall be
provided with a copy thereof).
(2) Within two Business Days after the Closing Date, the
Company will publicly report the issue and sale of the Preferred Shares, the
Unit Purchase Warrants and the Closing Warrants by filing with the SEC a Current
Report on Form 8-K under the 1934 Act which report shall describe the material
terms, and include copies of, the Transaction Documents (or the forms thereof)
as exhibits to such report.
(o) Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers or other representatives thereunto
duly authorized as of the date first set forth above and on the dates set forth
below their respective signatures.
Number of Preferred Shares: 50,000
Price Per Share: $ ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Price: $5,000,000.00
Warrant Shares Initially Issuable Upon Exercise of Warrant: 2,873,563
Units Initially Issuable Upon Exercise of Unit Purchase Warrants: 10,000
HARKEN ENERGY CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President, Secretary and
General Counsel
Date: April 27, 2004
ALEXANDRA GLOBAL MASTER
FUND LTD.
BY: ALEXANDRA INVESTMENT
MANAGEMENT, LLC,
AS INVESTMENT ADVISOR
By: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chairman & CEO
Address:
c/o Alexandra Investment Management, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Date: April 27, 2004
-33-
Schedule 4 ( c )
Shares Available for Issuance as of April 26, 2004
Total Authorized Shares of Common Stock 275,000,000
TOTAL SHARES ISSUED 194,297,775
-----------
Authorized but Unissued Shares 80,702,225
Treasury Stock 605,700
-----------
Unissued Shares plus Treasury Stock 81,307,925
Shares Reserved for Future Issuance:
4.25 % Euronote Conversion ($5,000,000/$1.25 per 4,000,000 Preferred Series
G1 (295,372 x $100/$12.50 per sha2,362,976 Preferred Series G2 (27,150 x
$100/$3.00 per share) 905,000 Preferred Series G3 (59,000 x $100/$0.50 per
share11,800,000 Preferred Series G4 (77,517 x $100/$2.00 per share3,875,850
▇▇▇▇▇▇▇ Warrants 1,750,000
Total Shares Reserved for Future Issuance 24,693,826
-----------
Shares Available for Issuance 56,614,099
===========
Total Shares Issued 194,297,775
Treasury Stock 605,700
-----------
Total Shares Outstanding 193,692,075
Shares Reserved for Future Issuance 24,693,826
-----------
Fully Diluted Shares 218,385,901
===========
ANNEX I
TO
SUBSCRIPTION
AGREEMENT
CERTIFICATE OF DESIGNATIONS
OF
SERIES J CONVERTBLE PREFERRED STOCK
Harken Energy Corporation, a Delaware corporation, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors of
said corporation by virtue of its certificate of incorporation as amended and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware (the "DGCL"), said Board of Directors has duly adopted a resolution by
unanimous written consent on March 24, 2004, providing for the issuance of a
series of preferred stock, par value $1.00 per share, designated as Series J
Convertible Preferred Stock, which resolution reads as follows:
"RESOLVED, that the Board of Directors (the "BOARD OF DIRECTORS") of
Harken Energy Corporation (the "CORPORATION") hereby authorizes the issuance of
a series of preferred stock and fixes its designation, powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations and restrictions thereof, as follows:
Section 1. Designation. The distinctive serial designation of said series
shall be "SERIES J CONVERTIBLE PREFERRED STOCK" (hereinafter called "SERIES J
PREFERRED STOCK"). Each share of Series J Preferred Stock shall be identical in
all respects with all other shares of Series J Preferred Stock.
Section 2. Number of Shares. The number of authorized shares of Series J
Preferred Stock shall be, in aggregate, 65,000 shares. The number of authorized
shares of Series J Preferred Stock may be increased or reduced by the Board of
Directors of the Corporation by the filing of a certificate pursuant to the
provisions of the DGCL stating that the change has been so authorized. When
shares of Series J Preferred Stock are purchased or otherwise acquired by the
Corporation or converted into Common Stock, par value $0.01 per share, of the
Corporation (the "COMMON STOCK"), the Corporation shall take all necessary
action to cause the shares of Series J Preferred Stock so purchased or acquired
to be canceled and reverted to authorized but unissued shares of preferred stock
undesignated as to series. The Corporation shall not issue any shares of Series
J Preferred Stock other than pursuant to the Subscription Agreement, unless such
issuance shall have been approved by the Majority Holders.
Section 3. Rank. The Series J Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, whether
voluntary or involuntary, rank (i) junior to all claims of creditors, including
holders of the Corporation's outstanding debt securities, (ii) senior to all
classes of Common Stock and to each other class of preferred stock established
hereafter by the Board of Directors of the Corporation, the terms of which
expressly provide that it ranks junior to the Series J Preferred Stock as to
dividend rights and rights on liquidation, winding up and dissolution of the
Corporation (collectively referred to, together with all classes of Common Stock
of the Corporation, as "JUNIOR STOCK"), and (iii) on a parity with each other
class of preferred stock established or issued hereafter by the Board of
Directors of the Corporation the terms of which expressly provide that such
class or series shall rank on a parity with the Series J Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution
(collectively referred to as "PARITY STOCK"). The Series J Preferred Stock shall
rank as Parity Stock to the Series G-1 Preferred Stock, Series G-2 Preferred
Stock, Series G-3 Preferred Stock and Series G-4 Preferred Stock of the
Corporation, previously authorized by the Board.
Section 4. Dividends; Additional Dividend.
(a) The holders of record, as of the Record Date therefor, of the
outstanding shares of Series J Preferred Stock shall be entitled to receive, out
of funds legally available therefor, dividends on the Series J Preferred Stock
at a rate equal to $5.00 per share per annum (equivalent to 5% of the
liquidation preference annually) (the "DIVIDEND RATE"), payable quarterly in
arrears in cash or, at the option of the Corporation, in Freely Tradeable shares
of the Corporation's Common Stock provided, however, that if an Additional
Dividend Event shall have occurred then so long as any Additional Dividend Event
shall continue the Dividend Rate shall be 11% percent per annum. If and when the
Corporation shall elect from time to time to pay such dividends in shares of
Common Stock, such shares will be valued at 93% of the daily VWAPs for the 10
trading days ending the day prior to the Dividend Payment Date per share;
provided, however, that (i) if the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, such per share
valuation shall be proportionately reduced on the day upon which such
subdivision becomes effective, and (ii) if the outstanding shares of Common
Stock shall be combined into a smaller number of shares of Common Stock, such
per share valuation shall be proportionately increased on the day such
combination becomes effective. In case the Corporation shall take any action
affecting the Common Stock, other than the aforementioned adjustments, which in
the Board of Directors' view would materially adversely affect the conversion
right of the holders of the shares of Series J Preferred Stock, such per share
valuation may be adjusted, to the extent permitted by law, in such manner, if
any, and at such time, as the Board of Directors may determine to be equitable
in the circumstances; provided, however, that in no event shall the Board of
Directors be required to take such action.
If the Corporation elects in the exercise of its sole discretion to issue
shares of Common Stock in payment of dividends on the Series J Preferred Stock
with respect to any Dividend Payment Date, the Corporation shall (1) give notice
to the holders at least 20 Trading Days prior to the applicable Dividend Payment
Date of the Corporation's election to exercise such right and (2) deliver, or
cause to be delivered, by the fifth Trading Day after such Dividend Payment Date
-2-
to each holder of record at the close of business on the Record Date (as defined
below) for such dividend the number of whole shares of Common Stock arrived at
in accordance with this Section 4(a); provided, however, that if shares of
Common Stock for such dividend are not delivered to the holders on or prior to
the fifth Trading Day after a Dividend Payment Date, then the Corporation shall
not be entitled to pay such dividend in shares of Common Stock and such
dividend, together with Arrearage Interest from the applicable Dividend Payment
Date, shall be payable solely in cash. No fractional shares of Common Stock
shall be issued in payment of dividends. In lieu thereof, the Corporation shall
pay cash in an amount equal to the product of (x) the Market Price of the Common
Stock for the five consecutive Trading Days ending on and including the Trading
Day immediately preceding such Dividend Payment Date times (y) the fraction of a
share of Common Stock which would otherwise be issuable by the Corporation. The
Corporation shall not exercise its right to issue shares of Common Stock in
payment of dividends on Series J Preferred Stock if:
(1) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, together with the number of
shares of Common Stock held in the Corporation's treasury, is insufficient
to pay the portion of such dividends to be paid in shares of Common Stock;
(2) the issuance or delivery of shares of Common Stock as a dividend
payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval
has not been effected or obtained;
(3) the shares of Common Stock to be issued as a dividend payment
have not been authorized for listing, upon official notice of issuance, on
any securities exchange or market on which the Common Stock is then
listed; or have not been approved for quotation if the Common Stock is
traded in the over-the-counter market;
(4) the shares of Common Stock to be issued as a dividend are not
Freely Tradeable; or
(5) an Optional Redemption Event shall have occurred and on the
applicable Dividend Payment Date any holder of shares of Series J
Preferred Stock shall be entitled to exercise optional redemption rights
under Section 10 hereof by reason of such Optional Redemption Event or
shall have exercised such optional redemption rights and the Corporation
shall not have paid the applicable Optional Redemption Price.
Shares of Common Stock issued in payment of dividends on Series J
Preferred Stock pursuant to this Section shall be, and for all purposes shall be
deemed to be, validly issued, fully paid and nonassessable shares of Common
Stock of the Corporation; the issuance and delivery thereof is hereby
authorized; and the dispatch in full thereof will be, and for all purposes shall
be deemed to be, payment in full of the cumulative dividends to which holders
are entitled on the applicable Dividend Payment Date.
-3-
(b) All dividends shall accrue from the date of issuance of the Series J
Preferred Stock and shall be payable quarterly in arrears. Such dividends will
be payable on March, 31, June 30, September 30, and December 31 of each year
(each a "DIVIDEND PAYMENT DATE"), commencing on September 30, 2004; provided,
however, that if a Dividend Payment Date is not a Trading Day, then the dividend
shall be payable on the first immediately succeeding Trading Day. Dividends
shall be paid to the holders of record of the Series J Preferred Stock as their
names appear on the stock transfer records of the Corporation on the date
designated by the Board of Directors ("RECORD DATE"), provided, however, that
such Record Date may not precede the date upon which the resolution fixing the
Record Date is adopted, and which Record Date may not be more than sixty (60)
days prior to the Dividend Payment Date. Dividends shall be computed on the
basis of a 360-day year of twelve 30-day months.
(c) No dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Stock for any period unless full dividends
shall have been or contemporaneously are declared and paid in full or declared
and a sum in cash sufficient for such payment set apart for such payment on the
Series J Preferred Stock. No dividends may be paid or set apart for such payment
on Junior Stock (except dividends on Junior Stock payable in additional shares
of Junior Stock) and no Junior Stock or Parity Stock may be repurchased or
otherwise retired for value nor may funds be set apart for payment with respect
thereto, if dividends have not been paid in full on the Series J Preferred Stock
in cash; provided, however, that the Corporation may repurchase Junior Stock (i)
in the open market from time to time as and to the fullest extent permitted by
Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended
(240 C.F.R. 10b-18), or corresponding rule from time to time in effect, and (ii)
in a private purchase or in an "ISSUER TENDER OFFER" as defined in Rule 13e-4
under the Exchange Act from time to time so long as such repurchases do not
exceed ten percent (10%) of the then outstanding shares of Junior Stock. Except
as provided above, so long as any shares of the Series J Preferred Stock are
outstanding, the Corporation shall not make payment on account of the purchase
or other retirement of any Parity Stock or Junior Stock, and shall not permit
any corporation or other entity directly or indirectly controlled by the
Corporation to purchase any Parity Stock, Junior Stock or any warrants, rights,
calls or options unless full dividends determined to be in accordance herewith
on the Series J Preferred Stock have been paid (or are deemed paid) in full.
(d) All dividends payable on the Series J Preferred Stock shall be paid
net of withholding tax, if any, under all applicable laws (including applicable
income tax treaties). In addition to any Additional Dividends payable to the
holders of the Series J Preferred Stock in accordance with Section 4(e) below,
the Corporation will, subject to certain exceptions and limitations set forth
below, pay, as additional dividends, such additional amounts (the "ADDITIONAL
AMOUNTS") to the holder of any Series J Preferred Stock as may be necessary in
order that every net payment of the principal or dividends on such Series J
Preferred Stock, after withholding for or on account of any present or future
tax, duty, assessment or governmental charge imposed or levied upon or as a
result of such payment by or on behalf of the United States (or any political
subdivision, authority or agency thereof or therein having the power to tax)
(collectively, "TAXES"), will not be less than the amount such holder would have
received if such Taxes had not been withheld, provided that no Additional
Amounts will be payable with respect to a payment which is subject to such Taxes
by reason of such holder being connected with the United States (or any
-4-
political subdivision thereof) otherwise than by the mere holding of the Series
J Preferred Stock or the receipt of payments made under or with respect to the
Series J Preferred Stock. In addition, the Corporation will indemnify and hold
harmless each holder of the Series J Preferred Stock (subject to the exclusion
set forth above) and will, upon written request of each holder (subject to the
exclusion set forth above), and provided that reasonable supporting
documentation is provided, reimburse each other holder for the amount of any
Taxes levied or imposed by the United States and paid by or on behalf of the
holder as a result of payments made under or with respect to the Series J
Preferred Stock. Any payment made pursuant to this paragraph shall be considered
an Additional Amount. If the Corporation becomes generally subject at any time
to any taxing jurisdiction other than or in addition to the United States,
references in this Certificate of Designations to the United States shall be
read and construed as reference to the United States and/or such other
jurisdiction.
(e) If an Additional Dividend Event occurs, then so long as any Additional
Dividend Event continues, the holders of the Series J Preferred Stock shall be
entitled to receive, when, as, and if declared by the Board of Directors out of
funds legally available for such purpose, dividends at a higher rate per annum,
as specified in the definition of the term Dividend Rate, for the period from
the occurrence of such Additional Dividend Event to the date no Additional
Dividend Event is continuing. The Corporation will notify each holder Series J
Preferred Stock of the occurrence of each Additional Dividend Event within six
business days after the same occurs or becomes known to the Corporation, which
notice shall state the nature of such Additional Dividend Event and briefly
describe the circumstances giving rise thereto.
Section 5. Preference on Liquidation.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, holders of Series J Preferred Stock shall be
entitled to be paid, out of the assets of the Corporation available for
distribution to stockholders, the liquidation preference of $100.00 per share of
Series J Preferred Stock, plus, without duplication, an amount in cash equal to
all accrued and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last Dividend Payment Date, or if such event is prior to the
first Dividend Payment Date, from the Closing Date, to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Stock, including, without limitation, any class of common stock of the
Corporation.
(b) If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the amounts payable with respect to the Series J
Preferred Stock and all Parity Stock are not paid in full, then the assets of
the Corporation available for distribution among the holders of the Series J
Preferred Stock and any Parity Stock shall bear to each other the same ratio
that the full amounts payable on liquidation, dissolution or winding-up of the
Corporation to the holders of shares of Series J Preferred Stock and any Parity
Stock bear to each other.
-5-
(c) After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Series J Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Corporation.
(d) Neither the sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consolidation) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of the
Corporation with one or more entities shall be deemed to be or constitute a
liquidation, dissolution or winding-up of the Corporation.
(e) Notice of any payment to the holders of Series J Preferred Stock as a
result of the liquidation, dissolution or winding-up of the Corporation, stating
the payment date or dates when and the place or places where the amounts
distributable in such circumstances shall be payable, shall be given not more
than sixty (60) but not less than thirty (30) days prior to any payment date
stated therein, to the holders of shares of Series J Preferred Stock as provided
in Section 11 herein.
Section 6. Voting. The holders of Series J Preferred Stock shall have no
voting rights except as required by law. In exercising any voting rights, each
outstanding share of Series J Preferred Stock shall be entitled to one vote.
Section 7. Holder Conversion Rights.
(a) Each holder of shares of Series J Preferred Stock shall have the right
("CONVERSION RIGHT"), subject as provided herein and to any applicable laws and
regulations, at any time and from time to time at the holder's option to convert
the liquidation preference of $100 for each share of Series J Preferred Stock
plus the amount of any accrued and unpaid dividends (whether or not earned or
declared) on the Series J Preferred Stock delivered for conversion as specified
herein (including an amount equal to a prorated dividend from the immediately
preceding Dividend Payment Date to the date of such conversion, or, if such
conversion is prior to the first Dividend Payment Date, from the Closing Date to
the date of such conversion) into shares of Common Stock at the conversion price
(subject to adjustment as described in Section 8 below) of $0.87 per share (the
"CONVERSION PRICE"); provided, however, that the holder may request, and the
Corporation may, at its sole discretion, pay, any or all of such accrued and
unpaid dividends in cash. Subject to the provisions of the DGCL, no fractional
shares of Common Stock shall be issued upon conversions, but the number of
shares shall be rounded up or down to the nearest whole number.
(b) If the Corporation pays any accrued and unpaid dividends in cash, the
amount of any such accrued and unpaid dividends shall be promptly sent to the
holder thereof by means of check or other means provided by the Corporation
after the receipt of the notice and funds, if any, referred to in Sections 7(d)
and 7(e) below.
(c) (1) As promptly as practicable, but in no event later than five
Trading Days, after the receipt by the Corporation of certificates for shares of
the Series J Preferred Stock for conversion and the receipt of the notice and
funds, if any, as described in Sections 7(d) and 7(e) below, the Corporation
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shall issue and shall deliver to such holder, or on such holder's written order,
a certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares of the Series J Preferred Stock in accordance
with the provisions of this Section 7, together with certificates representing
the number of shares of Common Stock (if any) in payment of any accrued but
unpaid dividends if the holder elects to receive such dividends in Common Stock.
Each conversion with respect to such shares of the Series J Preferred Stock
shall be deemed to have been effected immediately prior to the close of business
on the date on which the certificates for shares of the Series J Preferred Stock
shall have been surrendered and such notice shall have been received by the
Corporation as aforesaid, and the Person or Persons entitled to receive the
Common Stock issuable upon such conversion shall be deemed for all purposes to
be the record holder or holders of such Common Stock upon that date.
(2) The Corporation's obligations to issue and deliver Conversion Shares
in accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by a holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other Person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other Person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to such holder in connection with the issuance of Conversion Shares.
Nothing herein shall limit a holder's right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Corporation's failure to timely deliver certificates representing shares of
Common Stock upon conversions of Series J Preferred Stock as required pursuant
to the terms hereof. If the Corporation fails to issue and deliver the shares of
Common Stock to a converting holder in connection with a particular conversion
of shares of Series J Preferred Stock within five Trading Days after the receipt
of the notice and funds, if any, as described in Section 7(d) and 7(c) below for
such conversion, in addition to any other liabilities the Corporation may have
hereunder and under applicable law (i) the Corporation shall pay or reimburse
such holder on demand for all out-of-pocket expenses, including, without
limitation, reasonable fees and expenses of legal counsel, incurred by the
holder as a result of such failure, (ii) if as a result of such failure such
holder shall suffer any direct damages or liabilities from such failure
(including, without limitation, margin interest and the cost of purchasing
securities to cover a sale (whether by such holder or such holder's securities
broker) or borrowing of shares of Common Stock by such holder for purposes of
settling any trade involving a sale of shares of Common Stock made by such
holder during the period beginning on the Issuance Date and ending on the date
the Corporation delivers or causes to be delivered to such holder such shares of
Common Stock, then the Corporation shall upon demand of such holder pay to the
holder an amount equal to the actual direct, out-of-pocket damages and
liabilities suffered by such holder by reason thereof which such holder
documents to the reasonable satisfaction of the Corporation, and (iii) the
holder may by written notice (which may be given by mail, courier, personal
service or telephone line facsimile transmission) or oral notice (promptly
confirmed in writing), given at any time prior to delivery to such holder of the
shares of Common Stock issuable in connection with such exercise of the holder's
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conversion right, rescind such exercise and the conversion notice relating
thereto and the Corporation shall return any funds provided by the holder in
accordance with Section 7(e) below, in which case such holder shall thereafter
be entitled to convert, in accordance with this Section 7 that portion of such
shares of Series J Preferred Stock as to which such exercise is so rescinded.
Notwithstanding the foregoing, the Corporation shall not be liable to such
holder under clause (ii) of the immediately preceding sentence to the extent the
failure of the Corporation to deliver or to cause to be delivered such shares of
Common Stock results from fire, flood, storm, earthquake, shipwreck, strike,
war, acts of terrorism, crash involving facilities of a common carrier, acts of
God, or any similar event outside the control of the Corporation (it being
understood that the action or failure to act of the Conversion Agent shall not
be deemed an event outside the control of the Corporation except to the extent
resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God, the
bankruptcy, liquidation or reorganization of the Conversion Agent under any
bankruptcy, insolvency or other similar law or any similar event outside the
control of the Conversion Agent). A converting holder shall notify the
Corporation in writing (or by telephone conversation, confirmed in writing) as
promptly as practicable following the third Trading Day after such holder gives
a conversion notice if such holder becomes aware that such shares of Common
Stock so issuable have not been received as provided herein, but any failure so
to give such notice shall not affect the holder's rights under this Certificate
of Designations or otherwise.
(d) In order to exercise the conversion right, the holder of each share
of Series J Preferred Stock to be converted shall surrender that certificate
representing such shares, duly endorsed or assigned to the Corporation or in
blank, at the office of the transfer agent for the Series J Preferred Stock and
shall give written notice to the Corporation where such notice shall also state
the name or names (with address) in which the shares of Common Stock that shall
be issuable upon such conversion shall be issued. Each share surrendered for
conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the name in which such shares of the Series J Preferred Stock
is registered, be duly endorsed by, or accompanied by, instruments of transfer
(in each case, in form reasonably satisfactory to the Corporation), duly
executed by the holder or such holder's duly authorized attorney-in-fact.
(e) If a holder converts shares of the Series J Preferred Stock, the
Corporation shall pay any and all documentary, stamp or similar issue or
transfer tax payable in respect of the issue or delivery of the shares of the
Series J Preferred Stock (or any other securities issued on account thereof
pursuant hereto) or Common Stock upon the conversion; provided, however, the
Corporation shall not be required to pay any such tax that may be payable
because any such shares are issued at the request of the holder in a name other
than the name of the holder. In the event that the shares are to be issued in a
name other than that of the holder, the holder shall provide funds necessary to
pay any and all of the foregoing taxes, if any shall be applicable.
(f) The Corporation shall reserve out of its authorized but unissued
Common Stock or its Common Stock held in treasury enough shares of Common Stock
to permit the conversion of all of the outstanding shares of the Series J
Preferred Stock, but in no event shall the Corporation be required to reserve
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sufficient shares of Common Stock to permit the conversion of any accrued and
unpaid dividends on the Series J Preferred Stock. The Corporation shall from
time to time, in accordance with the DGCL, increase the authorized amount of its
Common Stock if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all shares of the
Series J Preferred Stock at the time outstanding. If any shares of Common Stock
required to be reserved for issuance upon conversion of shares of the Series J
Preferred Stock hereunder require registration with or approval of any
governmental authority under any federal or state law before the shares may be
issued upon conversion, the Corporation shall in good faith and as expeditiously
as possible endeavor to cause the shares to be so registered or approved. All
shares of Common Stock delivered upon conversion of the shares of the Series J
Preferred Stock will, upon delivery, be duly authorized and validly issued,
fully paid and nonassessable, free from all taxes, liens and charges with
respect to the issue thereof.
Section 8. Conversion Price Adjustments.
(a) Dividends or Distributions of Common Stock. In case the Corporation
shall pay or make a dividend or other distribution on its Common Stock
exclusively in Common Stock or shall pay or make a dividend or other
distribution on any other class of capital stock of the Company which dividend
or distribution includes Common Stock, the Conversion Price in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day next
following the date fixed for such determination. For the purposes of this
calculation, the number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the Corporation. For the avoidance of
doubt, this provision does not apply to dividends or other distributions in
shares of Common Stock pursuant to the terms of the securities to which such
dividend or other distribution may be made.
(b) Dividends or Distributions of Rights, Warrants or Options to Purchase
Common Stock. In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights, warrants or options entitling
the holders thereof to subscribe for or purchase shares of Common Stock at a
price per share less than the Market Price per share of the Common Stock on the
date fixed for the determination of stockholders entitled to receive such
rights, warrants or options, the Conversion Price in effect at the opening of
business on the day following the date fixed for such determination shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such Market Price and the denominator shall be the number of shares of Common
-9-
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, outstanding at the close of business on the date fixed
for such reduction to become effective immediately after the opening of business
on the day following the date fixed for such determination. For the purposes of
this paragraph (b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Corporation. The
Corporation shall not issue any rights, warrants or options in respect of shares
of Common Stock held in the treasury of the Corporation.
(c) Dividends or Distributions in Cash. In case the Corporation shall, by
dividend or otherwise, make a distribution to all holders of its Common Stock
exclusively in cash in an aggregate amount that, together with (1) the aggregate
amount of any other distributions to all holders of its Common Stock made
exclusively in cash within the 12 months preceding the date of payment of such
distribution and in respect of which no Conversion Price adjustment pursuant to
this Section has been made and (2) the aggregate of any cash plus the fair
market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Corporation's Board of Directors), as of the expiration of the tender or
exchange offer referred to below, of consideration payable in respect of any
tender or exchange offer by the Corporation or a Subsidiary for all or any
portion of the Common Stock concluded within the 12 months preceding the date of
payment of such distribution and in respect of which no Conversion Price
adjustment pursuant to this Section has been made, exceeds five percent (5%) of
the product of the Market Price per share of the Common Stock on the date fixed
for stockholders entitled to receive such distribution times the number of
shares of Common Stock outstanding on such date, the Conversion Price shall be
reduced so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this paragraph (c) by a fraction of
which the numerator shall be the Market Price per share on the date of such
effectiveness less the amount of cash so distributed applicable to one share of
Common Stock and the denominator shall be such Market Price per share of the
Common Stock, such reduction to become effective immediately prior to the
opening of business on the day following the date fixed for the payment of such
distribution.
(d) All Other Distributions or Dividends. Subject to the last sentence of
this paragraph (d), in case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its Indebtedness,
shares of any class of capital stock, securities, cash or Property (excluding
any rights, warrants or options referred to in paragraph (b), any dividend or
distribution paid exclusively in cash and any dividend or distribution referred
to in paragraph (a), the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price reduction
contemplated by this paragraph (d) by a fraction of which the numerator shall be
the Market Price per share of the Common Stock on the date of such effectiveness
less the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a resolution
of the Corporation's Board of Directors and shall, in the case of securities
being distributed for which prior thereto there is an actual or when issued
trading market, be no less than the value determined by reference to the average
of the Market Price over the period specified in the succeeding sentence), on
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the date of such effectiveness, of the portion of the evidences of Indebtedness,
shares of capital stock, securities, cash and Property so distributed applicable
to one share of Common Stock and the denominator shall be such Market Price per
share of the Common Stock, such reduction to become effective immediately prior
to the opening of business on the day next following the date fixed for the
payment of such distribution (such date to be referred to as the "REFERENCE
DATE"). If the Board of Directors determines the fair market value of any
distribution for purposes of this paragraph (d) by reference to the actual or
when issued trading market for any securities comprising such distribution, it
must in doing so consider the prices in such market over the same period used in
computing the Market Price per share pursuant to paragraph (f). For purposes of
this paragraph (d), any dividend or distribution that includes shares of Common
Stock or rights, warrants or options to subscribe for or purchase shares of
Common Stock shall be deemed instead to be (1) a dividend or distribution of the
evidences of Indebtedness, cash, Property, shares of capital stock or securities
other than such shares of Common Stock or such rights, warrants or options
(making any Conversion Price reduction required by this paragraph (d))
immediately followed by (2) a dividend or distribution of such shares of Common
Stock or such rights, warrants or options (making any further Conversion Price
reduction required by paragraph (a) or (b)), except (A) the Reference Date of
such dividend or distribution as defined in this paragraph (d) shall be
substituted as "the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution," "the date fixed for the
determination of stockholders entitled to receive such rights, warrants or
options," and "the date fixed for such determination" within the meaning of
paragraph (a) or (b) and (B) any shares of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" within the meaning of
paragraph (a)).
(e) Subdivision of Common Stock. In case outstanding shares of Common
Stock shall be subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following the
day upon which such subdivision becomes effective shall be proportionately
reduced, and, conversely, in case outstanding shares of Common Stock shall each
be combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately increased,
such reduction or increase, as the case may be, to become effective immediately
after the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(f) Tender or Exchange Offer for Common Stock. In case a tender or
exchange offer made by the Corporation or any Subsidiary for all or any portion
of the Common Stock shall expire and such tender or exchange offer shall involve
an aggregate consideration having a fair market value (as determined in good
faith by the Board of Directors, whose determination shall be conclusive and
described in a resolution of the Corporation's Board of Directors) at the last
time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such
tender or exchange offer (as it may be amended) that, together with (A) the
aggregate of the cash plus the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a resolution of the Corporation's Board of Directors), as of the expiration of
the other tender or exchange offer referred to below, of consideration payable
in respect of any other tender or exchange offer by the Company or a Subsidiary
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for all or any portion of the Common Stock concluded within the preceding 12
months and in respect of which no Conversion Price adjustment pursuant to this
paragraph (f) has been made and (B) the aggregate amount of any distributions to
all holders of the Common Stock made exclusively in cash within the preceding 12
months and in respect of which no Conversion Price adjustment pursuant to this
Section has been made, exceeds five percent (5%) of the product of the Market
Price per share of the Common Stock on the Expiration Time times the number of
shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time, the Conversion Price shall be reduced (but not increased) so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the Expiration Time by a fraction of which
the numerator shall be (1) the product of the Market Price per share of the
Common Stock at the Expiration Time times the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) at the Expiration Time
minus (2) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the "PURCHASED
SHARES") and the denominator shall be the product of (1) such Market Price per
share at the Expiration Time times (2) such number of outstanding shares at the
Expiration Time less the number of Purchased Shares, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Time.
(g) Certificate of Adjustment and Notice. Whenever the Conversion Price is
adjusted as herein provided, the Corporation shall promptly file with the
transfer agent for the Series J Preferred Stock a certificate of an officer of
the Corporation setting forth the Conversion Price after the adjustment and
setting forth a brief statement of the facts requiring such adjustment and a
computation thereof. The Corporation shall promptly cause a notice of the
adjusted Conversion Price be given to the holders of shares of the Series J
Preferred Stock as provided in Section 11 herein.
(h) Adjustment in Conversion Price in Case of Certain Events. In case the
Corporation shall take any action affecting the Common Stock, other than actions
described in Section 7 or this Section 8, which in the opinion of the Board of
Directors would materially adversely affect the conversion right of the holders
of the shares of the Series J Preferred Stock, the Conversion Price may be
adjusted, to the extent permitted by law, in such manner, if any, and at such
time, as the Board of Directors may determine to be equitable in the
circumstances; provided, however, that in no event shall the Board of Directors
be required to take any such action.
(i) Registration of Conversion Shares. The Corporation shall undertake to
file a registration statement on Form S-1 (or such other form as the Corporation
may determine is appropriate) with respect to the Common Stock that may be
issuable at any time upon the conversion or redemption of the Series J Preferred
Stock ("CONVERSION SHARES") as soon as practicable, but no later than 90 days
after the date of issue of the Series J Preferred Stock. The Corporation shall
use its best efforts to cause the Commission to declare such registration
statements (and any necessary amendments thereto) effective. The Corporation
shall also use its best efforts to maintain the effectiveness of such
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registration statements, and to re-file such registration statements from time
to time in the event their effectiveness lapses, until all Conversion Shares
either issued or that may be issued are Freely Tradeable (as defined in Section
13 below) in the United States.
(j) (1) In case at any time on or after the Issuance Date and prior to the
date on which a registration statement covering the Conversion Shares has been
declared effective by the Commission, the Corporation shall issue shares of its
Common Stock or Common Stock Equivalents (collectively, the "NEWLY ISSUED
SHARES"), other than an issuance pro rata to all holders of its outstanding
Common Stock, at a price below the Conversion Price of the Common Stock at the
time of such issuance, then following such issuance of Newly Issued Shares the
Conversion Price shall be adjusted as provided in this Section 8(j). The
Conversion Price following any such adjustment shall be determined by
multiplying the Conversion Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the sum of (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of the Newly Issued
Shares (calculated on a fully-diluted basis assuming the conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable at the time of the issuance of the Newly Issued Shares) plus (b) the
number of shares of Common Stock which the aggregate consideration, if any,
received by the Corporation for the number of Newly Issued Shares would purchase
at a price equal to the Conversion Price of the Common Stock at the time of such
issuance, and the denominator shall be the sum of (X) the number of shares of
Common Stock outstanding immediately prior to the issuance of the Newly Issued
Shares (calculated on a fully-diluted basis assuming the exercise or conversion
of all options, warrants, purchase rights or convertible securities which are
exercisable or convertible at the time of the issuance of the Newly Issued
Shares) plus (Y) the number of Newly Issued Shares. The adjustment provided for
in this Section 8(j) may be expressed as the following mathematical formula:
( O +(C / CP)) x CP
--------------
NCP = ( O + N )
where,
C = aggregate consideration received by the Corporation for the
Newly Issued Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a fully diluted
basis, as described above) immediately prior to the issuance of
the Newly Issued Shares
CP = Conversion Price immediately prior to the issuance of the Newly
Issued Shares
NCP = Conversion Price immediately after the issuance of the Newly
Issued Shares
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(2) Notwithstanding the foregoing, no adjustment shall be made under
this Section 8(j) by reason of:
(i) the issuance by the Corporation of shares of Common Stock pro
rata to all holders of the Common Stock so long as (i) any adjustment to
the Conversion Price that is required by Section 8(a) is made and (ii) the
Corporation shall have given notice of such issuance thereof to the
holders pursuant to Section 8(k);
(ii) the issuance by the Corporation of Newly Issued Shares in an
offering for cash for the account of the Corporation that is underwritten
on a firm commitment basis and is registered under the 1933 Act;
(iii) the issuance by the Corporation of shares of Common Stock upon
conversion of the Series J Preferred Stock or upon exercise of the
Warrants in accordance with the terms hereof or thereof;
(iv) the issuance by the Corporation of shares of Common Stock upon
conversion of the Series G-1 Preferred Stock, Series G-2 Preferred Stock,
Series G-3 Preferred Stock, or Series G-4 Preferred Stock currently issues
and outstanding, each in accordance with the terms thereof; and
(v) the issuance by the Corporation of shares of Common Stock as
dividends on the Series J Preferred Stock in accordance with the terms of
Section 4.
(3) Notwithstanding any other provision in this Section 8(j) to the
contrary, if a reduction in the Conversion Price pursuant to this Section 8(j)
(other than as set forth in this clause 8(j)(3)) would require the Company to
obtain shareholder approval of the transactions contemplated by the Subscription
Agreement pursuant to the rules of AMEX and such shareholder approval has not
been obtained, (i) the Conversion Price shall be reduced to the maximum extent
that would not require stockholder approval under such rules, and (ii) the
Company shall use its commercially reasonable efforts to obtain such shareholder
approval as soon as reasonably practicable, including by calling a special
meeting of shareholders to vote on such Conversion Price adjustment.
(k) In case on or after the Issuance Date:
(1) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained earnings);
or
(2) the Corporation shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any share of
any class or any other rights or warrants; or
(3) the Board of Directors shall authorize any reclassification of
the Common Stock (other than a subdivision or combination of its outstanding
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Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or any consolidation or merger or other
business combination transaction to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required, or the sale
or transfer of all or substantially all of the assets of the Corporation; or
(4) there shall be pending the voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
the Corporation shall give the holders as promptly as possible but in any event
at least ten Trading Days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the Exchange Act. Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of such dividend, distribution, reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up. In the case of
any such action of which the Corporation gives such notice to the holders or is
required to give such notice to the holders, the holders shall be entitled to
give a conversion notice which is contingent on the completion of such action.
(l) 9.9% Limitation.
(1) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired at any time by a holder
upon conversion of shares of Series J Preferred Stock shall not exceed a number
that, when added to the total number of shares of Common Stock deemed
beneficially owned by such holder (other than by virtue of the ownership of
securities or rights to acquire securities (including the Warrants) that have
limitations on the holder's right to convert, exercise or purchase similar to
the limitation set forth herein (the "EXCLUDED SHARES")), together with all
shares of Common Stock beneficially owned at such time (other than by virtue of
the ownership of Excluded Shares) by Persons whose beneficial ownership of
Common Stock would be aggregated with the beneficial ownership by such holder
for purposes of determining whether a group exists or for purposes of
determining the holder's beneficial ownership (the "AGGREGATION PARTIES"), in
either such case for purposes of Section 13(d) of the Exchange Act and
Regulation 13D-G thereunder (including, without limitation, as the same is made
applicable to Section 16 of the Exchange Act and the rules promulgated
thereunder), would result in beneficial ownership by such holder or such group
of more than 9.9% of the shares of Common Stock for purposes of Section 13(d) or
Section 16 of the Exchange Act and the rules promulgated thereunder (as the same
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may be modified by a particular holder as provided herein, the "RESTRICTED
OWNERSHIP PERCENTAGE"). A holder shall have the right (x) at any time and from
time to time to reduce its Restricted Ownership Percentage immediately upon
notice to the Corporation in the event and only to the extent that Section 16 of
the Exchange Act or the rules promulgated thereunder (or any successor statute
or rules) is changed to reduce the beneficial ownership percentage threshold
thereunder to a percentage less than 9.9% and (y) at any time and from time to
time, to increase its Restricted Ownership Percentage unless such holder shall
have, by written instrument delivered to the Company, irrevocably waived its
rights to so increase its Restricted Ownership Percentage. If at any time the
limits in this Section 8(l) make the shares of Series J Preferred Stock held by
any holder inconvertible in whole or in part, the Corporation shall not by
reason thereof be relieved of its obligation to issue shares of Common Stock at
any time or from time to time thereafter upon conversion of such shares of
Series J Preferred Stock as and when shares of Common Stock may be issued in
compliance with such restrictions.
(2) For purposes of this Section 8(l), in determining the number of
outstanding shares of Common Stock at any time a holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Corporation's then
most recent Form 10-Q, Form 10-K or other public filing with the Commission, as
the case may be, (2) a public announcement by the Corporation that is later than
any such filing referred to in the preceding clause (1) or (3) any other notice
by the Corporation or its transfer agent setting forth the number shares of
Common Stock outstanding and knowledge the holder may have about the number of
shares of Common Stock issued upon conversions or exercises of Series J
Preferred Stock or other common stock equivalents by any Person, including the
such holder, which are not reflected in the information referred to in the
preceding clauses (1) through (3). Upon the written request of any holder, the
Corporation shall within three Trading Days confirm in writing to such holder
the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of common stock equivalents, including the shares of
Series J Preferred Stock and the Warrants, by the holder or its affiliates, in
each such case subsequent to, the date as of which such number of outstanding
shares of Common Stock was reported.
Section 9. Mandatory Conversion by Corporation.
(a) Provided that
(1) the Conversion Shares to be issued on any mandatory conversion
are Freely Tradeable and expected to remain Freely Tradeable for at least
30 Trading Days;
(2) the Common Stock is listed on a Principal Market and trading on
such market or exchange shall not have been suspended; and
(3) no Optional Redemption Event or Additional Dividend Event or any
event which, with the notice or passage of time, or both, would become an
Optional Redemption Event or Additional Dividend Event, has occurred and
is continuing,
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then the Corporation may, at its option, cause all of the outstanding Series J
Preferred Stock to be converted into shares of Common Stock, in accordance with
Section 9(b), at any time and from time to time, if the average of the Market
Prices of the Common Stock over the Trading Days in any thirty (30) consecutive
calendar day period ending not more than five (5) days prior to the giving of
the notice referred to in Section 9(c) below equals or exceeds 150% of the
Conversion Price (the "TARGET PRICE"). The Target Price shall initially equal
$1.31.
(b) Each share of Series J Preferred Stock shall be converted into a
number of shares of Common Stock equal to: (x) $100.00 liquidation preference
per share of Series J Preferred Stock plus the amount of any accrued and unpaid
dividends (whether or not earned or declared) on the Series J Preferred Stock
(including an amount equal to a prorated dividend from the immediately preceding
Dividend Payment Date, or if such conversion is prior to the first Dividend
Payment Date, from the Closing Date, to the date of such conversion) divided by
(y) the Conversion Price.
Notwithstanding the preceding, the Corporation may at its sole discretion,
whether on the request of the holder or otherwise, pay any or all of the accrued
and unpaid dividends in cash. Subject to the provisions of the DGCL, no
fractional shares of Common Stock shall be issued on the mandatory conversion,
but the number of shares shall be rounded up or down to the nearest whole
number. The amount of any accrued and unpaid dividends that the Corporation
elects to pay in cash shall be promptly sent to the holder thereof by means of
check or other means provided by the Corporation.
(c) The Corporation shall give thirty (30) days notice to the holders as
provided in Section 11 hereof of its intent to convert in accordance with
Section 9(a) no later than five (5) calendar days from the end of the thirty
(30) day period described in Section 9(a) above. Upon the giving of the notice
referred to above, the Corporation shall be bound to convert the Series J
Preferred Stock as to which notice has been provided. During the 30 day notice
period, holders of the Series J Preferred Stock will retain their right to
convert their shares of Series J Preferred Stock in accordance with Section 7
above.
(d) Notwithstanding any other provision of this Certificate of
Designations or applicable law to the contrary, the Corporation and each holder
agree that, if and to the extent Section 10(l) would restrict the ability of a
holder to convert the full outstanding Stated Value of its shares of Series J
Preferred Stock in the event of a delivery of a notice in accordance with
Section 9(c) above, then notwithstanding anything to the contrary set forth in
such notice, the notice as to such holder shall be deemed automatically amended
to apply only to such portion of the Stated Value as may be converted by such
holder on the date of the notice without exceeding its Restricted Ownership
Percentage. Notwithstanding anything to the contrary contained in section 10(l),
solely for the purposes of calculating a holder's Restricted Ownership
Percentage for purposes of this Section 9(d), the shares of Common Stock
issuable upon exercise of the Warrants held by such holder shall not be deemed
to be Excluded Shares and shall be taken into account in calculating such
holder's Restricted Ownership Percentage to determine the amount of shares into
which the Corporation may force conversion pursuant to this Section 9. A holder
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will promptly notify the Corporation in writing following receipt of a notice
pursuant to Section 9(c) above if the shares to which such notice relates would
exceed its Restricted Ownership Percentage.
Section 10. Redemption Upon Optional Redemption Event.
------------------------------------------------------
(a) If an Optional Redemption Event shall occur at any time when any
shares of Series J Preferred Stock are outstanding, then, in addition to any
other rights of the holders, each holder shall have the right, at such holder's
option, to require the Corporation to redeem all of such holder's shares of
Series J Preferred Stock, or any portion thereof, on the date that is five
business days after the date such holder gives a notice with respect to such
Optional Redemption Event (the "OPTIONAL REDEMPTION DATE"). Each share of Series
J Preferred Stock required to be so redeemed shall be redeemed at a price equal
to the Optional Redemption Price.
(b) On or before the sixth business day after the occurrence of an
Optional Redemption Event, the Corporation shall give to each holder notice of
the occurrence of such Optional Redemption Event and of the redemption right set
forth herein arising as a result thereof. The notice shall set forth: (i) the
date by which the optional redemption right must be exercised, and (ii) a
description of the procedure (set forth below) which each such holder must
follow to exercise such holder's optional redemption right. To exercise its
optional redemption right, a holder shall deliver to the Corporation on or
before the 30th day after notice is given to such holder (or if no notice has
been given to such holder, within 40 days after such holder first learns of the
Optional Redemption Event) notice to the Company setting forth the name of such
holder and the number of such holder's shares of Series J Preferred Stock to be
redeemed. A holder notice may be revoked in whole or in part by the holder who
has given such holder notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the applicable
Optional Redemption Price to such holder. If a holder shall have given a holder
notice, then on the applicable Optional Redemption Date (or such later date as
such holder surrenders such holder's certificates for the shares of Series J
Preferred Stock redeemed) the Corporation shall make payment in immediately
available funds of the applicable Optional Redemption Price to such account as
specified by such holder in writing to the Corporation at least three business
days prior to the applicable Optional Redemption Date. If all of the shares of
Series J Preferred Stock evidenced by a particular certificate are to be
redeemed under this Section 10, the holder of such shares of Series J Preferred
Stock shall not be entitled to payment of the Optional Redemption Price of such
shares of Series J Preferred Stock until such holder shall have surrendered the
certificate(s) for such shares of Series J Preferred Stock to the Corporation
or, in the case of the loss, theft or destruction of any such certificate, has
agreed to indemnify the Corporation for any damages suffered by the Corporation
attributable to the loss of such certificate.
(c) If the Corporation fails to redeem on the applicable redemption date
of any share of Series J Preferred Stock as to which the redemption right of a
holder has been properly exercised pursuant to this Section 10, then the
Optional Redemption Price for such share shall bear interest to the extent not
prohibited by applicable law from the applicable redemption date until paid at
the rate of 11% per annum.
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(d) If on or before a particular Optional Redemption Date the Corporation
shall have failed to pay in full the Optional Redemption Price for all shares of
Series J Preferred Stock to be redeemed to the holder entitled thereto, then
without in any way relieving the Corporation of its obligation to pay such
amount in accordance herewith (except to the extent expressly provided in this
Section 10(d)), the holder of any such share of Series J Preferred Stock shall
continue to have the right to convert such share of Series J Preferred Stock
into Common Stock in accordance with Section 7 at any time prior to the date on
which the Corporation pays the Optional Redemption Price of such share of Series
J Preferred Stock to such holder; provided, however, that the shares of Common
Stock received by such holder upon any such conversion in certain circumstances
may be subject to restrictions on resale by such holder arising under applicable
securities laws to the extent not registered for resale by such holder pursuant
to the Securities Act. If a holder converts all or any portion of such holder's
shares of Series J Preferred Stock as permitted by this Section 10(d), the
amount of the Optional Redemption Price due to such holder with respect to the
number of shares of Series J Preferred Stock so converted shall be reduced by
$100 for each share of Series J Preferred Stock so converted.
(e) If a portion of the shares of Series J Preferred Stock represented by
a particular certificate are to be redeemed, upon surrender of such certificate
to the Corporation in accordance with the terms of this Section 10, the
Corporation shall execute and deliver to the holder of such certificate, without
service charge, a new certificate of certificates, in such denomination or
denominations as requested by such holder.
Section 11. Notice. Where this Certificate of Designations provides for
notice of any event to the holders of the Series J Preferred Stock by the
Corporation or any other Person, such notice shall be sufficiently given (unless
otherwise herein specifically provided) if sent to the registered holder of the
Series J Preferred Stock at the address of such holder on the register.
Section 12. General Provisions Relating to the Series J Preferred Stock.
(a) Form. The Series J Preferred Stock shall be issued in fully registered
form in the form satisfactory to the Corporation.
(b) Compliance with United States Securities Laws. Nothing contained
herein shall be deemed to authorize any transfers of certificates of the Series
J Preferred Stock otherwise than in accordance with the Securities Act. Neither
the Corporation or its transfer agent shall recognize or give effect to any
attempt to transfer (by book entry or otherwise) or convert any Series J
Preferred Stock or any interest therein in violation of the Securities Act. The
certificates representing the Series J Preferred Stock and the Conversion Shares
shall bear restrictive legends thereon recommended by legal counsel for the
Corporation regarding the restrictions on the transferability thereof to ensure
compliance with the Securities Act until the Series J Preferred Stock and/or the
Conversion Shares, as the case may be, become Freely Tradeable.
(c) Series J Preferred Stock Capital. The amount to be represented in the
capital account for the Series J Preferred Stock at all times for each
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outstanding share of Series J Preferred Stock shall be an amount equal to the
sum of (1) the product obtained by multiplying (A) the Stated Value times (B)
the Optional Redemption Percentage plus (2) an amount equal to the accrued and
unpaid dividends on such share of Series J Preferred Stock to the date of
determination plus (C) an amount equal to accrued and unpaid Arrearage Interest,
if any, on dividends on such share of Series J Preferred Stock to the date of
determination.
Section 13. Certain Definitions.
"Additional Dividend Event" means the occurrence of any of the
following events:
(1) For any period of five consecutive Trading Days following the
Issuance Date there shall be no reported bid for the Common Stock on any
Principal Market;
(2) The failure of the Common Stock to be listed on any Principal
Market
(3) The Corporation fails to declare or pay in full any dividend
payable on the shares of Series J Preferred Stock on the applicable
Dividend Payment Date;
(4) The acquisition by a Person or entity or group of Persons or
entities acting in concert as a partnership, limited partnership,
syndicate or group, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, of beneficial
ownership of securities of the Corporation representing 50% or more of the
combined voting power of the outstanding voting securities of the
Corporation ordinarily (and apart from voting rights accruing in special
circumstances) having the right to vote in the election of directors if
such acquisition arises from a transfer of outstanding securities of the
Corporation that have voting power and not through action taken by the
Corporation or any Subsidiary;
(5) The Corporation fails to issue or cause to be issued shares of
Common Stock to any holder of Series J Preferred upon exercise by such
holder of the conversion rights of such holder within five Trading Days
after the applicable date on which the holder exercises its right to
convert in accordance with the terms of Section 7; fails to issue any
shares of Common Stock to the holder of any Warrant upon exercise by such
holder of the purchase rights of such holder within five Trading Days
after the date such holder exercises such rights in accordance with the
terms of the Warrants; or fails to transfer any certificate for shares of
Common Stock issued to any holder upon conversion of Series J Preferred
Stock or upon exercise of any Warrant as and when required by this
Certificate of Designations, the Subscription Agreement or such Warrant,
other than any such failure which results from fire, flood, storm,
earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, or any similar event outside
the control of the Corporation (it being understood that the action or
failure to act of the Conversion Agent shall be deemed an event outside
the control of the Corporation, including but not limited to, fire, flood,
storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, acts of God, the bankruptcy,
liquidation or reorganization of the Conversion Agent under any
bankruptcy, insolvency or other similar law or any similar event outside
the control of the Conversion Agent);
-20-
(6) An involuntary case or other proceeding shall be commenced
against the Corporation or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of sixty consecutive days; and
(7) The occurrence of any transaction or event, other than pursuant
to an agreement to which the Corporation is a party and other than a
transaction or event which has been approved by the Board of Directors, in
connection with which transaction or event all or substantially all the
Common Stock shall be exchanged for, converted into, acquired for or
constitute the right to receive consideration (whether by means of an
exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise) which is not
all or substantially all common stock which is (or will, upon consummation
of or immediately following such transaction or event, will be) listed on
the AMEX or any Alternative Stock Exchange;
provided, however, that no event or circumstance that constitutes an Optional
Redemption Event shall constitute an Additional Dividend Event.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the subject Person. For purposes
of the term "Affiliate," the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
"Alternative Stock Exchange" means any other national stock exchange or
the Nasdaq National Market or the Nasdaq Smallcap Market.
"AMEX" means the American Stock Exchange, Inc.
"Arrearage Interest" means at any time interest at the rate equal to the
Dividend Rate in effect at such time plus 6% per annum (or such lesser rate
equal to the highest rate permitted by applicable law) on any dividend on shares
of Series J Preferred Stock which dividend is not paid on a Dividend Payment
Date, whether or not declared, and which shall accrue from such Dividend Payment
Date.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
-21-
"Capital Stock" of any Person means the common stock or preferred stock of
such Person. Unless otherwise stated herein or the context otherwise requires,
"Capital Stock" means Capital Stock of the Corporation
"Closing Date" means the date of which the Series J Preferred Stock is
sold to the holders thereof.
"Commission" means the Securities and Exchange Commission.
"Conversion Agent" means any Person (including the Corporation acting as
Conversion Agent) authorized by the Corporation to effect conversions of the
Series J Preferred Stock on behalf of the Corporation.
"DGCL" means the General Corporation Law of the State of Delaware.
"Dividend Payment Date" has the meaning given to it in Section 4(b)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Freely Tradeable" means, with respect to the Common Stock issuable upon
the conversion or redemption of or, if relevant, on the payment of a dividend
upon the Series J Preferred Stock, that under the Securities Act the holders
thereof may then offer and sell any amount of such outstanding securities to the
public in the United States in transactions that are not brokers' transactions
(as defined in the Securities Act) either (i) pursuant to an effective
registration statement then in effect or (ii) pursuant to Rule 144(k). For
purposes of determining whether such securities are Freely Tradeable, it shall
be assumed that no affiliate of the issuer has ever held such securities from
and after their issuance.
"Fundamental Change" means the occurrence of any transaction or event
pursuant to an agreement to which the Corporation is a party and for which such
transaction or event has been approved or permitted by the Board of Directors
and in connection with such transaction or event all or substantially all the
Common Stock shall be exchanged for, converted into, acquired for or constitute
the right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which does not consist of all or substantially
all common stock which is (or will, upon consummation of or immediately
following such transaction or event, will be) listed on the AMEX or the NYSE or
listed or approved for quotation on Nasdaq.p
"Generally Accepted Accounting Principles" for any Person means the United
States generally accepted accounting principles and practices applied by such
Person from time to time in the preparation of its audited financial statements.
"Group" means the Corporation and all its Principal Subsidiaries.
"Indebtedness" as used in reference to any Person means all indebtedness
of such Person for borrowed money, the deferred purchase price of property,
goods and services (deferred for more than 90 days) and obligations under leases
-22-
which are required to be capitalized in accordance with Generally Accepted
Accounting Principles and obligations for reimbursement of drawings under
letters of credit (whether or not a drawing has occurred at the time of
determination), and shall include all such indebtedness guaranteed in any manner
by such Person or in effect guaranteed by such Person through a contingent
agreement to purchase and all indebtedness for the payment or purchase of which
such Person has contingently agreed to advance or supply funds and all
indebtedness secured by a lien upon property owned by such Person, although such
Person has not assumed or become liable for the payment of such indebtedness,
and, for all purposes hereof, such indebtedness shall be treated as though it
has been assumed by such Person.
"Issuance Date" means the first date of original issuance of any shares of
Series J Preferred Stock.
"Majority Holders" means at any time the holders of outstanding shares of
Series J Preferred Stock which shares constitute a majority of the outstanding
shares of Series J Preferred Stock.
"Market Price" means with respect to any security on any date the VWAP of
such security on such date on the Principal Market, as reported by Bloomberg
Financial, L.P.
"Optional Redemption Event" means any one of the following events:
(1) Any Fundamental Change;
(2) The Corporation fails to declare or pay in full any dividend
payable on the shares of Series J Preferred Stock on the applicable
Dividend Payment Date, and such failure is not cured with 30 days, or
fails to pay the Optional Redemption Price, the Redemption Price or the
Company Redemption Price of any share of Series J Preferred Stock when
due;
(3) Any written representation or warranty of the Corporation made
in or pursuant to any Transaction Document shall be false or misleading in
any material respect when made or deemed made; or
(4) The Corporation or any Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due or shall admit in
writing its inability generally to pay its debts as they become due.
-23-
"Optional Redemption Percentage" means 115%.
"Optional Redemption Price" means an amount in cash equal to the greater
of (1) the sum of (A) the product obtained by multiplying (i) the Stated Value
times (ii) the Optional Redemption Percentage plus (B) an amount equal to the
accrued and unpaid dividends on the share of Series J Preferred Stock to be
redeemed to the applicable Optional Redemption Date plus (C) an amount equal to
accrued and unpaid Arrearage Interest, if any, on dividends on such share of
Series J Preferred Stock to the applicable Optional Redemption Date and (2) an
amount equal to the aggregate Market Price of the shares of Common Stock such
share of Series J Preferred Stock is convertible into on the date the holder
gives notice of its intent to redeem the Series J Preferred Stock in accordance
with Section 10.
"Person" means any individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
"Principal Market" means the American Stock Exchange or any Alternative
Stock Exchange on which the Common Stock is listed for trading which at such
time constitutes the principal securities market for the Common Stock.
"Principal Subsidiary" means a Subsidiary of either the Corporation or any
Principal Subsidiary:
(a) whose gross assets represent 10 percent or more of the consolidated
gross assets of the Group as calculated by reference to the then latest audited
financial statements of the Group; or
(b) to which is transferred all or substantially all of the business,
undertaking and assets of a Subsidiary of the Corporation which immediately
prior to such transfer is a Principal Subsidiary, whereupon the transferor
Subsidiary shall immediately cease to be a Principal Subsidiary and the
transferee Subsidiary shall cease to be a Principal Subsidiary under the
provisions of this sub-paragraph (b) (but without prejudice to the provisions of
sub-paragraph (a) above), upon publication of its next audited financial
statements.
"Property" means any kind of property or asset, whether real, personal,
mixed, or tangible or intangible, and any interest therein.
"Securities Act" means the United States Securities Act of 1933 as in
effect on the date of the filing of this Certificate with the Secretary of State
of Delaware or as such act may hereafter be amended.
"Series J Preferred Stock" means the Corporation's Series J Convertible
Preferred Stock, $1.00 par value.
"Stated Value" means $100 per share of Series J Preferred Stock.
"Subscription Agreement" means the Subscription Agreement, dated as of
April 27, 2004, by and between the Corporation and the original holder pursuant
to which the shares of Series J Preferred Stock were issued.
-24-
"Subsidiary" of any Person means any corporation of which at least a
majority of the shares of stock having by the terms thereof ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have voting power by reason of the happening of any
contingency) is directly or indirectly owned or controlled by any one of or any
combinations of the Corporation or one or more of its Subsidiaries.
"Trading Day" means any day (other than a Saturday or Sunday) on which the
American Stock Exchange or the Alternative Stock Exchange, as the case may be,
is open for business.
"Transaction Documents" means, individually or collectively, the
Subscription Agreements, this Certificate of Designations, the Warrants, the
Unit Purchase Warrant, and each other instrument statement or certificate given
in writing in connection herewith or therewith.
"Unit Purchase Warrants" means the Unit Purchase Warrants issued by the
Corporation pursuant to the Subscription Agreement.
"VWAP" of any security on any Trading Day means the volume-weighted
average closing price of such security on such Trading Day on the Principal
Market, as reported by Bloomberg Financial, L.P. (based on a Trading Day from
9:30 a.m., Eastern Time, to 4:00 p.m., Eastern Time, using the AQR Function, for
such Trading Day; provided, however, that during any period the VWAP is being
determined, the VWAP shall be subject to equitable adjustments from time to time
on terms consistent with Section 8 and otherwise reasonably acceptable to the
Majority Holders for stock splits, stock dividends, combinations, and capital
reorganizations, as applicable.
"Warrants" means the Common Stock Purchase Warrants issued by the
Corporation pursuant to the Subscription Agreement.
* * * * *
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
executed on its behalf by its undersigned Secretary this 27th day of April 2004.
HARKEN ENERGY CORPORATION,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Secretary
-25-
ANNEX II
TO
SUBSCRIPTION
AGREEMENT
NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE SECURITIES ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS PROVIDED IN SECTION 22.
No. UPW- Right to Purchase 10,000 Units
HARKEN ENERGY CORPORATION
UNIT PURCHASE WARRANT
HARKEN ENERGY CORPORATION, a Delaware corporation, hereby
certifies that, for value received, ALEXANDRA GLOBAL MASTER FUND LTD. or
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time before 5:00
p.m., New York City time, on the Expiration Date (such capitalized term and all
other capitalized terms used herein having the respective meanings provided
herein), 10,000 Units at a Exercise Price per Unit equal to the Exercise Price.
The number of Units and the Exercise Price are subject to adjustment as provided
in this Warrant.
1. DEFINITIONS.
(a) As used in this Warrant, the term "Holder" shall have the
meaning assigned to such term in the first paragraph of this Warrant.
(b) All the agreements or instruments herein defined shall
mean such agreements or instruments as the same may from time to time be
supplemented or amended or the terms thereof waived or modified to the extent
permitted by, and in accordance with, the terms thereof and of this Warrant.
(c) The following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Additional Preferred Shares" means the shares of Series J
Preferred Stock issued or issuable pursuant to this Unit Purchase
Warrant.
"Aggregate Exercise Price" means at any time an amount equal
to the product obtained by multiplying (x) the Exercise Price times (y) the
number of Units for which this Warrant may be exercised at such time.
"AMEX" means the American Stock Exchange, Inc.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
"Certificate of Designations" shall have the meaning provided
in the Subscription Agreement.
"Closing Warrants" means the Common Stock Purchase Warrants
issued pursuant to the Subscription Agreement.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Common Stock Warrant" means the Common Stock Purchase
Warrant, in the form of Annex III to the Subscription Agreement, issuable by the
Company which entitles the Holder to purchase shares of Common Stock.
"Company" shall include Harken Energy Corporation, a Delaware
corporation, and any corporation that shall succeed to or assume the obligations
of Harken Energy Corporation hereunder in accordance with the terms hereof.
"Exercise Price" means $100, subject to adjustment as provided
in this Warrant.
"Expiration Date" means April 28, 2005.
"Issuance Date" means the date of original issuance of this
Warrant or its predecessor instrument.
"Market Price" means with respect to any security on any day
the closing bid price of such security on such day on the Nasdaq or the NYSE or
the AMEX, as applicable, or, if such security is not listed or admitted to
trading on the Nasdaq, the NYSE or the AMEX, on the principal national
securities exchange or quotation system on which such security is quoted or
listed or admitted to trading, in any such case as reported by Bloomberg, L.P.
or, if not quoted or listed or admitted to trading on any national securities
exchange or quotation system, the average of the closing bid and asked prices of
such security on the over-the-counter market on the day in question, as reported
by the National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner as furnished by any
New York Stock Exchange member firm selected from time to time by the Board of
Directors for that purpose, or a price determined in good faith by the Board of
Directors.
-2-
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Other Securities" means any stock and other securities (other
than Series J Preferred Stock and Common Stock Warrants) of the Company or any
other Person which the Holder at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to the
Units, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Series J Preferred Stock and Common Stock
Warrants or Other Securities pursuant to Section 5.
"Person" means an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
"Preferred Shares" means the shares of Series J Preferred
Stock issued pursuant to the Subscription Agreement.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Statement" shall have the meaning provided in
the Agreement.
"Restricted Securities" means securities that are not eligible
for resale pursuant to Rule 144(k) under the 1933 Act (or any successor
provision).
"Reorganization Event" means the occurrence of any one or more
of the following events:
(i) any consolidation, merger or similar transaction
of the Company or any Subsidiary with or into another entity
(other than a merger or consolidation or similar transaction
of a Subsidiary into the Company or a wholly-owned
Subsidiary); or the sale or transfer of all or substantially
all of the assets of the Company and the Subsidiaries in a
single transaction or a series of related transactions; or
(ii) the occurrence of any transaction or event in
connection with which all or substantially all the Common
Stock shall be exchanged for, converted into, acquired for or
constitute the right to receive securities of any other Person
(whether by means of a Tender Offer, liquidation,
consolidation, merger, share exchange, combination,
reclassification, recapitalization, or otherwise); or
-3-
(iii) the acquisition by a Person or group of Persons
acting in concert as a partnership, limited partnership,
syndicate or group, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or
otherwise, of beneficial ownership of securities of the
Company representing 50% or more of the combined voting power
of the outstanding voting securities of the Company ordinarily
(and apart from rights accruing in special circumstances)
having the right to vote in the election of directors.
"Rule 144A" means Rule 144A as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"Series J Preferred Stock" means the Series J Preferred Stock,
$1.00 par value, of the Company.
"Subscription Agreement" means the Subscription Agreement,
dated as of April 27, 2004, by and between the Company and the original Holder
of this Warrant.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by the
Company.
"Tender Offer" means a tender offer, exchange offer or other
offer by the Company to repurchase outstanding shares of its capital stock.
"Termination Date" means the Business Day on which this
Warrant is to be terminated pursuant to Section 7(a), determined in accordance
with Section 9(a).
"Termination Notice" means the written notice from the Company
to the Holder notifying the Holder that the conditions to the Company's right to
terminate the Warrant set forth in Section 7(a) have occurred and that the
Company is exercising its right to terminate this Warrant on the Termination
Date.
"Trading Day" means a day on whichever of the national
securities exchange, the Nasdaq or the Nasdaq SmallCap which then constitutes
the principal securities market for the Common Stock is open for general
trading.
"Transaction Documents" means the Subscription Agreement, the
Certificate of Designations, the Closing Warrants, the Common Stock Warrants and
this Warrant.
"Unit" means the Unit consisting of (x) one Additional
Preferred Share and (y) a Common Stock Warrant to purchase a number of shares
equal to 50% of the number of shares of Common Stock underlying one Additional
Preferred Share.
2. EXERCISE OF WARRANT. This Warrant may be exercised by the
Holder in whole at any time or in part from time to time on or before the
Expiration Date by (x) surrendering this Warrant to the Company, (y) giving a
subscription form in the form of EXHIBIT 1 to this Warrant (duly executed by the
-4-
Holder) to the Company, and (z) making payment, in cash or by certified or
official bank check payable to the order of the Company, or by wire transfer of
funds to the account of the Company, in any such case, in the amount obtained by
multiplying (a) the number of Units designated by the Holder in the subscription
form by (b) the Exercise Price then in effect. On any partial exercise the
Company will forthwith issue and deliver to or upon the order of the Holder a
new Warrant or Warrants of like tenor, in the name of the Holder or as the
Holder (upon payment by the Holder of any applicable transfer taxes) may
request, providing in the aggregate on the face or faces thereof for the
purchase of the number of Units for which such Warrant or Warrants may still be
exercised. The subscription form may be surrendered by telephone line facsimile
transmission to such telephone number for the Company as shall have been
specified in writing to the Holder by the Company; provided, however, that if
the subscription form is given to the Company by telephone line facsimile
transmission the Holder shall send an original of such subscription form to the
Company within ten Business Days after such subscription form is so given to the
Company; provided further, however, that any failure or delay on the part of the
Holder in giving such original of any subscription form shall not affect the
validity or the date on which such subscription form is so given by telephone
line facsimile transmission.
3. DELIVERY OF STOCK CERTIFICATES AND WARRANTS, ETC., ON
EXERCISE. As soon as practicable after the exercise of this Warrant and in any
event within five Trading Days thereafter, upon the terms and subject to the
conditions of this Warrant, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be issued in the name
of and delivered to the Holder, or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Series J Preferred Stock (or
Other Securities) and Common Stock Warrants to which the Holder shall be
entitled on such exercise, in such denominations as may be requested by the
Holder, which certificate or certificates and Common Stock Warrants shall be
free of restrictive and trading legends (except to the extent permitted under
Section 5(b) of the Subscription Agreement). The Company shall pay any taxes and
other governmental charges that may be imposed under the laws of the United
States of America or any political subdivision or taxing authority thereof or
therein in respect of the issue or delivery of shares of Series J Preferred
Stock (or Other Securities) and Common Stock Warrants (other than income taxes
imposed on the Holder). The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Series J Preferred Stock (or Other
Securities) or Common Stock Warrants issuable upon exercise of this Warrant or
payment of cash to any Person other than the Holder, and in case of such
transfer or payment the Company shall not be required to deliver any certificate
for shares of Series J Preferred Stock (or Other Securities) or the Common Stock
Warrants upon such exercise or pay any cash until such tax or charge has been
paid or it has been established to the Company's reasonable satisfaction that no
such tax or charge is due. Upon exercise of this Warrant as provided herein, the
Company's obligation to issue and deliver the certificates for Series J
Preferred Stock or the Common Stock Warrants shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any Person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Company to the Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
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the Holder or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with such exercise.
4. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time on or after the
Issuance Date, all holders of Series J Preferred Stock (or Other Securities)
shall have received, or (on or after the record date fixed for the determination
of stockholders eligible to receive) shall have become entitled to receive,
without payment therefor,
(a) other or additional stock, rights, warrants or other
securities or property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock, rights, warrants or other
securities or property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
then and in each such case the Holder, on the exercise hereof as provided in
Section 2, shall be entitled to receive the amount of stock, rights, warrants
and Other Securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 4) which the Holder would hold on the
date of such exercise if on the date of such action specified in the preceding
clauses (a) through (c) (or the record date therefor) the Holder had been the
holder of record of the number of shares of Series J Preferred Stock issuable
pursuant to this Warrant and had thereafter, during the period from the date
thereof to and including the date of such exercise, retained such shares and all
such other or additional stock, rights, warrants and Other Securities and
property (including cash in the case referred to in subdivisions (b) and (c) of
this Section 4) receivable by the Holder as aforesaid during such period, giving
effect to all adjustments called for during such period by Section 5.
5. EXERCISE UPON A REORGANIZATION EVENT. In case of any
Reorganization Event the Company shall, as a condition precedent to the
consummation of the transactions constituting, or announced as, such
Reorganization Event, cause effective provisions to be made so that the Holder
shall have the right thereafter, by exercising this Warrant (in lieu of the
Units and Other Securities or property purchasable and receivable upon exercise
of the rights represented hereby immediately prior to such Reorganization Event)
to purchase the kind and amount of shares of stock and Other Securities and
property (including cash) receivable upon such Reorganization Event by a holder
of the number of shares of Common Stock that might have been received upon
conversion of the number of shares of Series J Preferred Stock and upon exercise
of the Common Stock Warrants issuable upon exercise of this Warrant immediately
prior to such Reorganization Event. Any such provision shall include provisions
for adjustments in respect of such shares of stock and Other Securities and
property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The provisions of this Section 5 shall
apply to successive Reorganization Events.
-6-
6. ADJUSTMENT FOR CERTAIN EXTRAORDINARY EVENTS. If on or after
the Issuance Date the Company shall (i) issue additional shares of the Series J
Preferred Stock as a dividend or other distribution on outstanding Series J
Preferred Stock, (ii) subdivide or reclassify its outstanding shares of Series J
Preferred Stock, or (iii) combine its outstanding shares of Series J Preferred
Stock into a smaller number of shares of Series J Preferred Stock, then, in each
such event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the Exercise Price in effect immediately prior
to such event by a fraction, the numerator of which shall be the number of
shares of Series J Preferred Stock outstanding immediately prior to such event
and the denominator of which shall be the number of shares of Series J Preferred
Stock outstanding immediately after such event, and the product so obtained
shall thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 6. The Holder shall
thereafter, on the exercise hereof as provided in Section 2, be entitled to
receive that number of Units determined by multiplying the number of Units which
would be issuable on such exercise immediately prior to such issuance,
subdivision or combination, as the case may be, by a fraction of which (i) the
numerator is the Exercise Price in effect immediately prior to such issuance and
(ii) the denominator is the Exercise Price in effect on the date of such
exercise.
7. TERMINATION. (1) In the event that the Market Price of the
Common Stock shall have been equal to or greater than 150% of the Exercise Price
for each of 20 consecutive Trading Days, the Company shall have the right to
terminate this Warrant on the applicable Termination Date so long as on the date
the Company gives the Termination Notice and at all times thereafter through the
Termination Date:
(x) the Corporation shall be in compliance in all material
respects with its obligations to the Holder (including, without
limitation, its obligations under the Transaction Documents), and
(y) the Registration Statement shall be effective and
available for use by the selling stockholders named therein and shall
reasonably be expected to remain effective and available for such use
for the 30 days following the Termination Date.
In order to exercise its rights under this Section 7, the Company shall give the
Termination Notice to the Holder not less than 30 or more than 45 days prior to
the Termination Date.
(2) The Company shall not be entitled to give the Termination
Notice with respect to any portion of this Warrant with respect to which the
Holder has exercised this Warrant under Section 2 or as to which a Subscription
Form has been given on a date which is on or prior to the date on which the
Termination Notice is given. If the Termination Notice has been given,
thereafter the proceedings for such termination shall not affect the right of
the Holder to exercise this Warrant in accordance with Section 2 at any time
prior to the Termination Date.
8. VOLUNTARY ADJUSTMENTS. The Company may make such reductions
in the Exercise Price, in addition to those required by Sections 4, 5 and 6 as
the Board of Directors considers to be advisable.
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9. MINIMUM ADJUSTMENT. No adjustment in the Exercise Price
(and no related adjustment in the number of Units which may thereafter be
purchased upon exercise of this Warrant) shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Exercise
Price; provided, however, that any adjustments which by reason of this Section 9
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All such calculations under this Warrant shall be
made by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be.
10. NOTICE OF ADJUSTMENTS. Whenever the Exercise Price is
adjusted as herein provided, the Company shall promptly, but in no event later
than five Trading Days thereafter, give a notice to the Holder setting forth the
Exercise Price and number of Units which may be purchased upon exercise of this
Warrant after such adjustment and setting forth a brief statement of the facts
requiring such adjustment but which such statement shall not include any
information which would be material non-public information for purposes of the
1934 Act. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
11. FURTHER ASSURANCES. The Company will take all action that
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens and charges with respect to the issue thereof, on the exercise of all or
any portion of this Warrant from time to time outstanding.
12. NOTICE TO HOLDER PRIOR TO CERTAIN ACTIONS. In case on or
after the Issuance Date:
(a) the Company shall declare a dividend (or any other
distribution) on its Series J Preferred Stock or Common Stock (other than in
cash out of retained earnings); or
(b) the Company shall authorize the granting to the holders of
its Series J Preferred Stock or Common Stock of rights or warrants to subscribe
for or purchase any share of any class or any other rights or warrants; or
(c) the Board of Directors shall authorize any
reclassification of the Series J Preferred Stock or Common Stock, or any
consolidation or merger or other business combination transaction to which the
Company is a party and for which approval of any stockholders of the Company is
required, or the sale or transfer of all or substantially all of the assets of
the Company; or
(d) there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
the Company shall give the Holder, as promptly as possible but in any event at
least ten Trading Days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Series J Preferred Stock or Common
Stock of record to be entitled to such dividend, distribution or rights are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, other business combination transaction, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective or occur, and the date
-8-
as of which it is expected that holders of Series J Preferred Stock or Common
Stock of record who shall be entitled to exchange their Series J Preferred Stock
or Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, other business combination transaction,
sale, transfer, dissolution, liquidation or winding-up shall be determined. Such
notice shall not include any information which would be material non-public
information for purposes of the 1934 Act. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of such dividend,
distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up. In the case of any such action of which
the Company gives such notice to the Holder or is required to give such notice
to the Holder, the Holder shall be entitled to give a subscription form to
exercise this Warrant in whole or in part that is contingent on the completion
of such action.
13. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company will at all times reserve and keep available out of its
authorized but unissued shares of capital stock, solely for issuance and
delivery on the exercise of this Warrant, a sufficient number of shares of
Series J Preferred Stock (or Other Securities) to effect the full exercise of
this Warrant and if at any time the number of authorized but unissued shares of
Series J Preferred Stock (or Other Securities) shall not be sufficient to effect
such exercise, the Company shall take such action as may be necessary to
increase its authorized but unissued shares of Series J Preferred Stock (or
Other Securities) to such number as shall be sufficient for such purposes.
14. TRANSFER OF WARRANT. This Warrant shall inure to the
benefit of the successors to and assigns of the Holder. This Warrant and all
rights hereunder, in whole or in part, are registrable at the office or agency
of the Company referred to below by the Holder in Person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed
accompanied by an assignment form in the form attached to this Warrant, or other
customary form, duly executed by the transferring Holder.
15. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder), a register in which the Company shall record the name and
address of the Person in whose name this Warrant has been issued, as well as the
name and address of each successor and prior owner of such Warrant. The Company
shall be entitled to treat the Person in whose name this Warrant is so
registered as the sole and absolute owner of this Warrant for all purposes.
16. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon
the surrender hereof by the Holder at the office or agency of the Company
referred to in Section 15, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of Units which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by the Holder at the time of such surrender.
17. REPLACEMENT OF WARRANT. On receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory in form to the
Company (and without the requirement to post any bond or other security), or (b)
-9-
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver to the Holder a new Warrant of like tenor
without charge to the Holder.
18. WARRANT AGENT. The Company may, by written notice to the
Holder, appoint the transfer agent and registrar for the Units as the Company's
agent for the purpose of issuing Series J Preferred Stock (or Other Securities)
or Common Stock Warrants on the exercise of this Warrant pursuant to Section 2,
and the Company may, by written notice to the Holder, appoint an agent having an
office in the United States of America for the purpose of exchanging this
Warrant pursuant to Section 16, and replacing this Warrant pursuant to Section
19, or any of the foregoing, and thereafter any such exchange or replacement, as
the case may be, shall be made at such office by such agent.
19. REMEDIES. The Company stipulates that the remedies at law
of the Holder in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
20. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant
shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. Nothing contained in this Warrant shall be construed
as conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder of the Company on any matters or with respect to any
rights whatsoever as a stockholder of the Company. No dividends or interest
shall be payable or accrued in respect of this Warrant or the interest
represented hereby or the Common Stock (or Other Securities) purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised in accordance with its terms.
21. NOTICES, ETC. All notices and other communications from
the Company to the Holder shall be in writing and delivered personally, by
confirmed facsimile, by a nationally recognized overnight courier service or
mailed by first class certified mail, postage prepaid, at such facsimile
telephone number or address as may have been furnished to the Company in writing
by the Holder or at such facsimile telephone number or the address shown for the
Holder on the register of Warrants referred to in Section 17.
22. TRANSFER RESTRICTIONS. This Warrant has not been and is
not being registered under the provisions of the 1933 Act or any state
securities laws and this Warrant may not be transferred prior to the end of the
holding period applicable to sales hereof under Rule 144(k) unless (1) the
transferee is an "accredited investor" (as defined in Regulation D under the
▇▇▇▇ ▇▇▇) or a QIB in a transfer that meets the requirements of Rule 144A and
(2) the Holder shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that this Warrant may be sold or transferred without registration under
the 1933 Act. Prior to any such transfer, such transferee shall have represented
in writing to the Company that such transferee has requested and received from
the Company all information relating to the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company deemed relevant by such transferee; that such transferee has been
afforded the opportunity to ask questions of the Company concerning the
-10-
foregoing and has had the opportunity to obtain and review the Registration
Statement and the prospectus related thereto, each as amended or supplemented to
the date of transfer to such transferee, and the reports and other information
concerning the Company which at the time of such transfer have been filed by the
Company with the SEC pursuant to the 1934 Act and which are incorporated by
reference in such prospectus as of the date of such transfer. If such transfer
is intended to assign the rights and obligations of the Holder the Subscription
Agreement, such transfer shall otherwise be made in compliance with the
applicable provisions of the Subscription Agreement.
23. RULE 144A INFORMATION REQUIREMENT. Within the period prior
to the expiration of the holding period applicable to sales hereof under Rule
144(k) under the 1933 Act (or any successor provision), the Company covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the 1934 Act, make available to the Holder and the
holder of any shares of Series J Preferred Stock or Common Stock Warrants issued
upon exercise of this Warrant which continue to be Restricted Securities in
connection with any sale thereof and any prospective purchaser of this Warrant
from the Holder, the information required pursuant to Rule 144A(d)(4) under the
1933 Act upon the request of the Holder and it will take such further action as
the Holder may reasonably request, all to the extent required from time to time
to enable the Holder to sell this Warrant without registration under the 1933
Act within the limitation of the exemption provided by Rule 144A, as Rule 144A
may be amended from time to time. Upon the request of the Holder, the Company
will deliver to the Holder a written statement as to whether it has complied
with such requirements.
24. LEGEND. The provisions of Section 5(b) of the Subscription
Agreement and the related definitions of capitalized terms used therein and
defined in the Subscription Agreement are by this reference incorporated herein
as if set forth in full at this place.
25. AMENDMENT; WAIVER. This Warrant and any terms hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
26. MISCELLANEOUS. This Warrant shall be construed and
enforced in accordance with and governed by the internal laws of the State of
New York. The headings, captions and footers in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
27. ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
[Signature Page Follows]
-11-
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed on its behalf by one of its officers thereunto duly authorized.
Dated: HARKEN ENERGY CORPORATION
By:
--------------------------
Name:
Title:
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ASSIGNMENT
For value _____________ hereby sell(s), assign(s) and
transfer(s) unto ____________________ (Please insert social security or other
Taxpayer Identification Number of assignee: ________________) the attached
original, executed Warrant to purchase _________________ share of Common Stock
of Harken Energy Corporation, a Delaware corporation (the "Company"), and hereby
irrevocably constitutes and appoints _______________________ attorney to
transfer the Warrant on the books of the Company, with full power of
substitution in the premises.
In connection with any transfer of the Warrant within the period prior
to the expiration of the holding period applicable to sales thereof under Rule
144(k) under the 1933 Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
1933 Act), the undersigned confirms that such Warrant is being transferred:
|_| To the Company or a subsidiary thereof; or
|_| To a QIB pursuant to and in compliance with Rule 144A; or
|_| To an "accredited investor" (as defined in Regulation D under
the ▇▇▇▇ ▇▇▇) pursuant to and in compliance with the 1933 Act;
or
|_| Pursuant to and in compliance with Rule 144 under the 1933
Act;
and unless the box below is checked, the undersigned confirms that, to the
knowledge of the undersigned, such Warrant is not being transferred to an
"affiliate" (as defined in Rule 144 under the ▇▇▇▇ ▇▇▇) of the Company.
|_| The transferee is an affiliate of the Company.
Capitalized terms used in this Assignment and not defined in
this Assignment shall have the respective meanings provided in the Warrant.
Dated: NAME:
---------------- ---------------------------------
---------------------------------
Signature(s)
EXHIBIT 1
FORM OF SUBSCRIPTION
Harken Energy Corporation
(To be signed only on exercise of Warrant)
TO: Harken Energy Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
Units (the "Exercise Units") consisting of (x) ____________ shares of Series J
Preferred Stock and (y) Common Stock Warrants to purchase __________ shares of
Common Stock of Harken Energy Corporation, a Delaware corporation (the
"Company").
2. The undersigned Holder elects to pay the Aggregate Exercise Price
for such Exercise Units (i) in lawful money of the United States or by the
enclosed certified or official bank check payable in United States dollars to
the order of the Company in the amount of $ , or (ii) by wire transfer of United
States funds to the account of the Company in the amount of $ , which transfer
has been made before or simultaneously with the delivery of this Form of
Subscription pursuant to the instructions of the Company.
3. Capitalized terms used herein but not otherwise defined herein still
have the meaning assigned to such terms in the Warrant.
4. Please issue a stock certificate or certificates representing the
appropriate number of shares of Series J Preferred Stock and Common Stock
Warrants in the name of the undersigned or in such other name(s) as is specified
below:
Name:
----------------------------------------------------------
Address:
----------------------------------------------------------
Social Security or Tax Identification Number (if any):
----------------------------------------------------------
I-1
Dated:
--------------------------------------------
(Signature must conform to name of Holder
as specified on the face of the Warrant)
--------------------------------------------
--------------------------------------------
(Address)
I-2
ANNEX III
TO
SUBSCRIPTION
AGREEMENT
NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE SECURITIES ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS PROVIDED IN SECTION 25.
No. W- Right to Purchase 2,873,563 Shares of Common
Stock of Harken Energy Corporation
HARKEN ENERGY CORPORATION
COMMON STOCK PURCHASE WARRANT
HARKEN ENERGY CORPORATION, a Delaware corporation, hereby certifies
that, for value received, ALEXANDRA GLOBAL MASTER FUND LTD. or registered
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time or from time to time before 5:00 p.m., New
York City time, on the Expiration Date (such capitalized term and all other
capitalized terms used herein having the respective meanings provided herein),
2,873,563 paid and nonassessable shares of Common Stock at a purchase price per
share equal to the Exercise Price. The number of such shares of Common Stock and
the Exercise Price are subject to adjustment as provided in this Warrant.
1. DEFINITIONS.
(a) As used in this Warrant, the term "Holder" shall have the
meaning assigned to such term in the first paragraph of this Warrant.
(b) All the agreements or instruments herein defined shall mean such
agreements or instruments as the same may from time to time be supplemented or
amended or the terms thereof waived or modified to the extent permitted by, and
in accordance with, the terms thereof and of this Warrant.
(c) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Additional Preferred Stock" means the shares of Series J Preferred
Stock issued or issuable pursuant to the Unit Purchase Warrants.
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject Person. For
purposes of this definition, "control" (including, with correlative
meaning, the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"Aggregate Exercise Price" means at any time an amount equal to the
product obtained by multiplying (x) the Exercise Price times (y) the
number of shares of Common Stock for which this Warrant may be exercised
at such time.
"Aggregation Parties" shall have the meaning provided in Section
2(c).
"AMEX" means the American Stock Exchange, Inc.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
"Certificate of Designations" shall have the meaning provided in the
Subscription Agreement.
"Common Stock" includes the Company's Common Stock, par value $.01
per share, (and any purchase rights issued with respect to the Common
Stock in the future) as authorized on the date hereof, and any other
securities into which or for which the Common Stock (and any such rights
issued with respect to the Common Stock) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets or otherwise and any stock (other than Common Stock) and other
securities of the Company or any other Person which the Holder at any time
shall be entitled to receive, or shall have received, on the exercise of
this Warrant, in lieu of or in addition to Common Stock.
"Common Stock Equivalents" means any warrant, option, subscription
or purchase right with respect to shares of Common Stock, any security
convertible into, exchangeable for, or otherwise entitling the holder
thereof to acquire, shares of Common Stock or any warrant, option,
subscription or purchase right with respect to any such convertible,
exchangeable or other security.
"Company" shall include Harken Energy Corporation, a Delaware
corporation, and any corporation that shall succeed to or assume the
obligations of Harken Energy Corporation hereunder in accordance with the
terms hereof.
-2-
"Current Fair Market Value" means when used with respect to the
Common Stock as of a specified date with respect to each share of Common
Stock, the average of the closing prices of the Common Stock sold on all
securities exchanges (including the AMEX, the Nasdaq and the Nasdaq
SmallCap) on which the Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end
of such day, or, if on such day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq
System as of 4:00 p.m., New York City time, or, if on such day the Common
Stock is not quoted in the Nasdaq System, the average of the highest bid
and lowest asked price on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of ten
Trading Days consisting of the day as of which the Current Fair Market
Value of Common Stock is being determined (or if such day is not a Trading
Day, the Trading Day next preceding such day) and the nine consecutive
Trading Days prior to such day. If on the date for which Current Fair
Market Value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the Current Fair Market Value of Common Stock shall be the highest
price per share which the Company could then obtain from a willing buyer
(not an employee or director of the Company at the time of determination)
in an arms'-length transaction for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith
by the Board of Directors.
"Excluded Shares" shall have the meaning provided in Section 2(c).
"Exercise Price" means $.98, subject to adjustment as provided in
this Warrant.
"Expiration Date" means [PRIOR TO ISSUANCE, INSERT THE DATE WHICH IS
ONE YEAR AFTER DATE OF ISSUANCE], 2005.
"Extended Redemption Date" means with respect to any portion of this
Warrant to which Section 9(b) applies, the date that is 60 days after the
latest date on which such Holder's Restricted Ownership Percentage no
longer restricts such Holder's right to exercise the remaining
unexercisable portion of this warrant.
"Issuance Date" means the date of original issuance of this Warrant
or its predecessor instrument.
"Market Price" means with respect to any security on any day the
closing bid price of such security on such day on the Nasdaq or the NYSE
or the AMEX, as applicable, or, if such security is not listed or admitted
to trading on the Nasdaq, the NYSE or the AMEX, on the principal national
securities exchange or quotation system on which such security is quoted
or listed or admitted to trading, in any such case as reported by
Bloomberg, L.P. or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average of the
closing bid and asked prices of such security on the over-the-counter
market on the day in question, as reported by the National Quotation
Bureau Incorporated, or a similar generally accepted reporting service, or
-3-
if not so available, in such manner as furnished by any New York Stock
Exchange member firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the Board of
Directors.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
"Other Securities" means any stock (other than Common Stock) and
other securities of the Company or any other Person which the Holder at
any time shall be entitled to receive, or shall have received, on the
exercise of this Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange
for or in replacement of Common Stock or Other Securities pursuant to
Section 5.
"Other Warrants" shall mean the Common Stock Purchase Warrants
(other than this Warrant) issued or issuable pursuant to the Unit Purchase
Warrants.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization, governmental authority or any other form of
entity not specifically listed herein.
"Preferred Shares" means the shares of Series J Preferred Stock
issued pursuant to the Subscription Agreements.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Redemption Date" means the Business Day on which a portion or all
of this Warrant is to be redeemed pursuant to Section 9(a), determined in
accordance with Section 9(a).
"Redemption Notice" means the written notice from the Company to the
Holder notifying the Holder that the conditions to the Company's right to
redeem the Warrant set forth in Section 9(a) have occurred and that the
Company is exercising its right to redeem this Warrant on the Redemption
Date.
"Redemption Price" means an amount equal to $.01 for each share of
Common Stock underlying the portion of this Warrant to be redeemed on the
applicable Redemption Date.
-4-
"Registration Statement" shall have the meaning provided in the
Subscription Agreement.
"Restricted Ownership Percentage" shall have the meaning provided in
Section 2(c).
"Restricted Securities" means securities that are not eligible for
resale pursuant to Rule 144(k) under the 1933 Act (or any successor
provision).
"Reorganization Event" means the occurrence of any one or more of
the following events:
(i) any consolidation, merger or similar transaction of the
Company or any Subsidiary with or into another entity (other than a
merger or consolidation or similar transaction of a Subsidiary into
the Company or a wholly-owned Subsidiary); or the sale or transfer
of all or substantially all of the assets of the Company and the
Subsidiaries in a single transaction or a series of related
transactions; or
(ii) the occurrence of any transaction or event in connection
with which all or substantially all the Common Stock shall be
exchanged for, converted into, acquired for or constitute the right
to receive securities of any other Person (whether by means of a
Tender Offer, liquidation, consolidation, merger, share exchange,
combination, reclassification, recapitalization, or otherwise); or
(iii) the acquisition by a Person or group of Persons acting
in concert as a partnership, limited partnership, syndicate or
group, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, of
beneficial ownership of securities of the Company representing 50%
or more of the combined voting power of the outstanding voting
securities of the Company ordinarily (and apart from rights accruing
in special circumstances) having the right to vote in the election
of directors.
"Rule 144A" means Rule 144A as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"Series J Preferred Stock" means the Series J Preferred Stock, $1.00
par value, of the Company.
"Subscription Agreement" means the Subscription Agreement, dated as
of April 27, 2004, by and between the Company and the original Holder of
this Warrant.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other
Persons performing similar functions are at the time directly or
indirectly owned by the Company.
-5-
"Tender Offer" means a tender offer, exchange offer or other offer
by the Company to repurchase outstanding shares of its capital stock.
"Trading Day" means a day on whichever of the national securities
exchange, the Nasdaq or the Nasdaq SmallCap which then constitutes the
principal securities market for the Common Stock is open for general
trading.
"Transaction Documents" means the Subscription Agreement, the
Certificate of Designations, the Unit Purchase Warrants and this Warrant.
"Unexercisable Portion" shall have the meaning provided in Section
9(b)(1).
"Unit Purchase Warrant" means the Unit Purchase Warrants issued
pursuant to the Subscription Agreement.
2. EXERCISE OF WARRANT.
(A) EXERCISE. This Warrant may be exercised by the Holder in whole
at any time or in part from time to time on or before the Expiration Date by (x)
surrendering this Warrant to the Company, (y) giving a subscription form in the
form of EXHIBIT 1 to this Warrant (duly executed by the Holder) to the Company,
and (z) making payment, in cash or by certified or official bank check payable
to the order of the Company, or by wire transfer of funds to the account of the
Company, in any such case, in the amount obtained by multiplying (a) the number
of shares of Common Stock designated by the Holder in the subscription form by
(b) the Exercise Price then in effect. On any partial exercise the Company will
forthwith issue and deliver to or upon the order of the Holder a new Warrant or
Warrants of like tenor, in the name of the Holder or as the Holder (upon payment
by the Holder of any applicable transfer taxes) may request, providing in the
aggregate on the face or faces thereof for the purchase of the number of shares
of Common Stock for which such Warrant or Warrants may still be exercised. The
subscription form may be surrendered by telephone line facsimile transmission to
such telephone number for the Company as shall have been specified in writing to
the Holder by the Company; provided, however, that if the subscription form is
given to the Company by telephone line facsimile transmission the Holder shall
send an original of such subscription form to the Company within ten Business
Days after such subscription form is so given to the Company; provided further,
however, that any failure or delay on the part of the Holder in giving such
original of any subscription form shall not affect the validity or the date on
which such subscription form is so given by telephone line facsimile
transmission.
(B) NET EXERCISE. Notwithstanding anything to the contrary contained
in Section 2(a), if at any time after one year from the date of issuance of this
Warrant there is no effective Registration Statement registering the resale of
the Warrant Shares by the Holder, then the Holder may elect to exercise this
Warrant, in whole at any time or in part from time to time, by receiving shares
of Common Stock equal to the net issuance value (as determined below) of this
Warrant, or any part hereof, upon surrender of the subscription form annexed
hereto (duly executed by the Holder) to the Company (followed by surrender of
this Warrant to the Company within three Trading Days after surrender of such
subscription form), in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
-6-
X = Y x (A - B)
A
where,
X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the Current Fair Market Value of one share of Common Stock
calculated as of the last Trading Day immediately preceding
the exercise of this Warrant
B = the Exercise Price
(C) 9.9% LIMITATION.
(1) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Holder upon
exercise pursuant to the terms hereof at any time shall not exceed a number
that, when added to the total number of shares of Common Stock deemed
beneficially owned by the Holder (other than by virtue of the ownership of
securities or rights to acquire securities that have limitations on the Holder's
right to convert, exercise or purchase similar to the limitation set forth
herein (the "Excluded Shares"), together with all shares of Common Stock deemed
beneficially owned at such time (other than by virtue of the ownership of the
Excluded Shares) by Persons whose beneficial ownership of Common Stock would be
aggregated with the beneficial ownership by the Holder for purposes of
determining whether a group exists or for purposes of determining the Holder's
beneficial ownership (the "Aggregation Parties"), in either such case for
purposes of Section 13(d) of the 1934 Act and Regulation 13D-G thereunder
(including, without limitation, as the same is made applicable to Section 16 of
the 1934 Act and the rules promulgated thereunder), would result in beneficial
ownership by the Holder or such group of more than 9.9% of the shares of Common
Stock for purposes of Section 13(d) or Section 16 of the 1934 Act and the rules
promulgated thereunder (as the same may be modified by the Holder as provided
herein, the "Restricted Ownership Percentage"). The Holder shall have the right
at any time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company in the event and only to the extent that
Section 16 of the 1934 Act or the rules promulgated thereunder (or any successor
statute or rules) is changed to reduce the beneficial ownership percentage
threshold thereunder to a percentage less than 9.9%. If at any time the limits
in this Section 2(c) make this Warrant unexercisable in whole or in part, the
Company shall not by reason thereof be relieved of its obligation to issue
shares of Common Stock at any time or from time to time thereafter upon exercise
of this Warrant as and when shares of Common Stock may be issued in compliance
with such restrictions.
-7-
(2) For purposes of this Section 2(c), in determining the number of
outstanding shares of Common Stock at any time the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's then
most recent Form 10-Q, Form 10-K or other public filing with the SEC, as the
case may be, (2) a public announcement by the Company that is later than any
such filing referred to in the preceding clause (1) or (3) any other notice by
the Company or its transfer agent setting forth the number shares of Common
Stock outstanding and knowledge the Holder may have about the number of shares
of Common Stock issued upon conversion or exercise of Common Stock Equivalents
by any Person, including the Holder, which are not reflected in the preceding
clauses (1) through (3). Upon the written request of the Holder, the Company
shall within three Business Days confirm in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion
or exercise of Common Stock Equivalents, including the Notes and the Warrants,
by the Holder or its affiliates, in each such case subsequent to, the date as of
which such number of outstanding shares of Common Stock was reported.
3. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. (a) As soon as
practicable after the exercise of this Warrant and in any event within five
Trading Days thereafter, upon the terms and subject to the conditions of this
Warrant, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder, or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such
denominations as may be requested by the Holder, which certificate or
certificates shall be free of restrictive and trading legends (except to the
extent permitted under Section 5(b) of the Subscription Agreement), plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Current Fair Market Value of
one full share of Common Stock, together with any other stock or Other
Securities or any property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 2 or otherwise. In
lieu of delivering physical certificates for the shares of Common Stock or
(Other Securities) issuable upon any exercise of this Warrant, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
Holder, the Company shall use commercially reasonable efforts to cause its
transfer agent electronically to transmit such shares of Common Stock (or Other
Securities) issuable upon conversion to the Holder (or its designee), by
crediting the account of the Holder's (or such designee's) broker with DTC
through its Deposit Withdrawal Agent Commission system (provided that the same
time periods herein as for stock certificates shall apply). The Company shall
pay any taxes and other governmental charges that may be imposed under the laws
of the United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery of shares of Common Stock
(or Other Securities) or payment of cash upon exercise of this Warrant (other
than income taxes imposed on the Holder). The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock (or Other
Securities) issuable upon exercise of this Warrant or payment of cash to any
Person other than the Holder, and in case of such transfer or payment the
Company shall not be required to deliver any
-8-
certificate for shares of Common Stock (or Other Securities) upon such exercise
or pay any cash until such tax or charge has been paid or it has been
established to the Company's reasonable satisfaction that no such tax or charge
is due. Upon exercise of this Warrant as provided herein, the Company's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any Person or any action to enforce
the same, any failure or delay in the enforcement of any other obligation of the
Company to the Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law by
the Holder or any other Person, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in connection
with such exercise.
(b) If in any case the Company shall fail to issue and deliver or
cause to be delivered the shares of Common Stock to the Holder within five
Trading Days of a particular exercise of this Warrant, in addition to any other
liabilities the Company may have hereunder and under applicable law, (A) the
Company shall pay or reimburse the Holder on demand for all out-of-pocket
expenses, including, without limitation, reasonable fees and expenses of legal
counsel, incurred by the Holder as a result of such failure; (B) if as a result
of such failure the Holder shall suffer any direct damages or liabilities from
such failure (including, without limitation, margin interest and the cost of
purchasing securities to cover a sale (whether by the Holder or the Holder's
securities broker) or borrowing of shares of Common Stock by the Holder for
purposes of settling any trade involving a sale of shares of Common Stock made
by the Holder during the period beginning on the Issuance Date and ending on the
date the Company delivers or causes to be delivered to the Holder such shares of
Common Stock), then the Company shall upon demand of the Holder pay to the
Holder an amount equal to the actual, direct, demonstrable out-of-pocket damages
and liabilities suffered by the Holder by reason thereof which the Holder
documents to the reasonable satisfaction of the Company, and (C) the Holder may
by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing), given at any time prior to delivery to the Holder of the shares of
Common Stock issuable in connection with such exercise of the Holder's right,
rescind such exercise and the subscription form relating thereto, in which case
the Holder shall thereafter be entitled to exercise that portion of this Warrant
as to which such exercise is so rescinded and to exercise its other rights and
remedies with respect to such failure by the Company. Notwithstanding the
foregoing the Company shall not be liable to the Holder under clauses (A) or (B)
of the immediately preceding sentence to the extent the failure of the Company
to deliver or to cause to be delivered such shares of Common Stock results from
fire, flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, acts of God, or any similar event
outside the control of the Company (it being understood that the action or
failure to act of the Company's Transfer Agent shall not be deemed an event
outside the control of the Company except to the extent resulting from fire,
flood, storm, earthquake, shipwreck, strike, war, acts of terrorism, crash
involving facilities of a common carrier, acts of God, or any similar event
outside the control of such Transfer Agent or the bankruptcy, liquidation or
reorganization of such Transfer Agent under any bankruptcy, insolvency or other
similar law). The Holder shall notify the Company in writing (or by telephone
conversation, confirmed in writing) as promptly as practicable following the
third Trading Day after the Holder exercises this Warrant if the Holder becomes
aware that such shares of Common Stock so issuable have not
-9-
been received as provided herein, but any failure so to give such notice shall
not affect the Holder's rights under this Warrant or otherwise.
4. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time on or after the
Issuance Date, all holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock, rights, warrants or other securities
or property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock, rights, warrants or other securities
or property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
other than (i) additional shares of Common Stock (or Other Securities) issued as
a stock dividend or in a stock-split (adjustments in respect of which are
provided for in Section 6) and (ii) rights or warrants to subscribe for Common
Stock at less than the Current Fair Market Value (adjustments in respect of
which are provided in Section 7), then and in each such case the Holder, on the
exercise hereof as provided in Section 2, shall be entitled to receive the
amount of stock, rights, warrants and Other Securities and property (including
cash in the cases referred to in subdivisions (b) and (c) of this Section 4)
which the Holder would hold on the date of such exercise if on the date of such
action specified in the preceding clauses (a) through (c) (or the record date
therefor) the Holder had been the holder of record of the number of shares of
Common Stock called for on the face of this Warrant and had thereafter, during
the period from the date thereof to and including the date of such exercise,
retained such shares and all such other or additional stock, rights, warrants
and Other Securities and property (including cash in the case referred to in
subdivisions (b) and (c) of this Section 4) receivable by the Holder as
aforesaid during such period, giving effect to all adjustments called for during
such period by Section 5.
5. EXERCISE UPON A REORGANIZATION EVENT. In case of any
Reorganization Event the Company shall, as a condition precedent to the
consummation of the transactions constituting, or announced as, such
Reorganization Event, cause effective provisions to be made so that the Holder
shall have the right thereafter, by exercising this Warrant (in lieu of the
shares of Common Stock of the Company and Other Securities or property
purchasable and receivable upon exercise of the rights represented hereby
immediately prior to such Reorganization Event) to purchase the kind and amount
of shares of stock and Other Securities and property (including cash) receivable
-10-
upon such Reorganization Event by a holder of the number of shares of Common
Stock that might have been received upon exercise of this Warrant immediately
prior to such Reorganization Event. Any such provision shall include provisions
for adjustments in respect of such shares of stock and Other Securities and
property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The provisions of this Section 5 shall
apply to successive Reorganization Events.
6. ADJUSTMENT FOR CERTAIN EXTRAORDINARY EVENTS. If on or after the
Issuance Date the Company shall (i) issue additional shares of the Common Stock
as a dividend or other distribution on outstanding Common Stock, (ii) subdivide
or reclassify its outstanding shares of Common Stock, or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then, in each such event, the Exercise Price shall, simultaneously with
the happening of such event, be adjusted by multiplying the Exercise Price in
effect immediately prior to such event by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event, and the product so obtained
shall thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 6. The Holder shall
thereafter, on the exercise hereof as provided in Section 2, be entitled to
receive that number of shares of Common Stock determined by multiplying the
number of shares of Common Stock which would be issuable on such exercise
immediately prior to such issuance, subdivision or combination, as the case may
be, by a fraction of which (i) the numerator is the Exercise Price in effect
immediately prior to such issuance and (ii) the denominator is the Exercise
Price in effect on the date of such exercise.
7. ISSUANCE OF RIGHTS OR WARRANTS TO COMMON STOCKHOLDERS AT LESS
THAN CURRENT FAIR MARKET VALUE. If the Company shall on or after the Issuance
Date issue rights or warrants to all holders of its outstanding shares of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Fair Market Value on the record date fixed
for the determination of stockholders entitled to receive such rights or
warrants, then
(a) the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the Exercise Price in effect at
the opening of business on the day after such record date by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on such record date plus the number
of shares which the aggregate offering price of the total number of shares
so offered would purchase at such Current Fair Market Value, and the
denominator shall be the number of shares of Common Stock outstanding on
the close of business on such record date plus the total number of
additional shares of Common Stock so offered for subscription or purchase;
and
(b) the number of shares of Common Stock which the Holder may
thereafter purchase upon exercise of this Warrant at the opening of
business on the day after such record date shall be increased to a number
equal to the quotient obtained by dividing (x) the Aggregate Exercise
Price in effect immediately prior to such adjustment in the Exercise Price
pursuant to clause (a) of this Section 7 by (y) the Exercise Price in
effect immediately after such adjustment in the Exercise Price pursuant to
clause (a) of this Section 7.
-11-
Such adjustment shall become effective immediately after the opening of business
on the day following the record date fixed for determination of stockholders
entitled to receive such rights or warrants. To the extent that shares of Common
Stock are not delivered pursuant to such rights or warrants, upon the expiration
or termination of such rights or warrants, the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made on the
basis of delivery of only the number of shares of Common Stock actually
delivered and the number of shares of Common Stock for which this Warrant may
thereafter be exercised shall be readjusted (subject to proportionate adjustment
for any intervening exercises of this Warrant) to the number which would then be
in effect had the adjustments made upon the issuance of such rights or warrants
been made on the basis of delivery of only the number of shares of Common Stock
actually delivered. In the event that such rights or warrants are not so issued,
the Exercise Price shall again be adjusted to be the Exercise Price which would
then be in effect if such record date had not been fixed and the number of
shares of Common Stock for which this Warrant may thereafter be exercised shall
again be adjusted (subject to proportionate adjustment for any intervening
exercises of this Warrant) to be the number which would then be in effect if
such record date had not been fixed. In determining whether any rights or
warrants entitle the Holder to subscribe for or purchase shares of Common Stock
at less than such Current Fair Market Value, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into account
any consideration received for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of Directors.
8. ADJUSTMENTS FOR CERTAIN ISSUANCES OF NEWLY ISSUED SHARES.
(a) In case at any time on or after the Issuance Date the Company
shall issue shares of its Common Stock or Common Stock Equivalents
(collectively, the "Newly Issued Shares"), other than an issuance pro rata
to all holders of its outstanding Common Stock, at a price below the
Exercise Price in effect immediately prior to such issuance, then
following such issuance of Newly Issued Shares the Exercise Price shall be
reduced as provided in Section 8(b) and the number of shares of Common
Stock which may be issued upon exercise of this Warrant shall be increased
as provided in Section 8(c).
(b) The reduction in the Exercise Price following any such
adjustment shall be determined by multiplying the Exercise Price
immediately prior to such adjustment by a fraction, of which the numerator
shall be the sum of (i) the number of shares of Common Stock outstanding
immediately prior to the issuance of the Newly Issued Shares (calculated
on a fully-diluted basis assuming the exercise or conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable or convertible at the time of the issuance of the Newly Issued
Shares) plus (ii) the number of shares of Common Stock which the aggregate
consideration, if any, received by the Company for the number of Newly
Issued Shares would purchase at a price equal to the Exercise Price in
effect immediately prior to such issuance, and the denominator shall be
the sum of (X) the number of shares of Common Stock outstanding
immediately prior to the issuance of the Newly Issued Shares (calculated
on a fully-diluted basis assuming the exercise or conversion of all
options, warrants, purchase rights or convertible securities which are
exercisable or convertible at the time of the issuance of the Newly Issued
Shares) plus (Y) the number of Newly Issued Shares. The adjustment
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provided for in this Section 8(b) may be expressed as the following
mathematical formula:
( O +(C / PP)) x PP
-----------------
NPP = ( O + N )
where,
C = aggregate consideration received by the Company
for the Newly Issued Shares
N = number of Newly Issued Shares
O = number of shares of Common Stock outstanding (on a
fully diluted basis, as described above) immediately
prior to the issuance of the Newly Issued Shares
PP = Exercise Price immediately prior to the issuance
of the Newly Issued Shares
NPP = Exercise Price immediately after the issuance of
the Newly Issued Shares
(c) If the Exercise Price is reduced in connection with the issuance
of Newly Issued Shares as provided in Section 8(b), then the number of
shares of Common Stock for which this Warrant may thereafter be exercised
shall be increased at the time of such reduction in the Exercise Price to
a number equal to the quotient obtained by dividing (x) the Aggregate
Exercise Price in effect immediately prior to such issuance of Newly
Issued Shares by (y) the Exercise Price in effect immediately after such
issuance of Newly Issued Shares after such reduction in the Exercise Price
pursuant to Section 8(b).
(d) Notwithstanding the foregoing, no adjustment shall be made under
this Section 8 by reason of:
(1) the issuance by the Company of shares of Common Stock pro
rata to all holders of the Common Stock so long as (i) any
adjustment required by Section 6 is made and (ii) the Company shall
have given notice thereof to the Holder pursuant to Section 15;
(2) the issuance by the Company of Newly Issued Shares in an
offering for cash for the account of the Company that is
underwritten on a firm commitment basis and is registered with the
SEC under the 1933 Act;
(3) the issuance by the Company of the Preferred Stock, the
Additional Preferred Stock, the Unit Purchase Warrants or the Other
Warrants or shares of Common Stock upon conversion of the Preferred
Stock, Additional preferred Stock or upon exercise of this Warrant
or the Other Warrants in accordance with the terms hereof and
thereof;
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(4) the issuance by the Company of shares of Common Stock in
lieu of payment of dividends on the Preferred Stock and the
Additional Preferred Stock in accordance with the terms of the
Certificate of Designations;
(5) the issuance by the Company of Newly Issued Shares upon
grant or exercise of options for employees, directors and
consultants under the Company's 1993 Stock Option and Restricted
Stock Plan and the Company's 1996 Stock Option and Restricted Stock
Plan; and
(6) the issuance by the Company of Newly Issued Shares to the
lessor or vendor in any equipment lease or similar equipment
financing transaction in which the Company or any Subsidiary obtains
the use of equipment for its business.
(e) Notwithstanding any other provision in this Section 8 to the
contrary, if a reduction in the Purchase price pursuant to this Section 8
(other than as set forth in this clause 8(e)) would require the Company to
obtain stockholder approval of the transactions contemplated by the
Subscription Agreement pursuant to the rules of AMEX and such stockholder
approval has not been obtained, (i) the Exercise Price shall be reduced to
the maximum extent that would not require stockholder approval under such
rules, and (ii) the Company shall use its commercially reasonable efforts
to obtain such shareholder approval as soon as reasonably practicable,
including by calling a special meeting of shareholders to vote on such
Exercise Price adjustment.
9. REDEMPTION AT OPTION OF COMPANY.
(a) Redemption. (1) The Company shall have the right to redeem this
Warrant on the applicable Redemption Date so long as on the date the Company
gives the Redemption Notice and at all times thereafter through the Redemption
Date:
(x) the Corporation shall be in compliance in all material respects
with its obligations to the Holder (including, without limitation, its
obligations under the Transaction Documents),
(y) the Registration Statement shall be effective and available for
use by the selling stockholders named therein and shall reasonably be
expected to remain effective and available for such use for the 30 days
following the Redemption date, and
(z) the Market Price of the Common Stock shall have been equal to or
greater than 150% of the Exercise Price for each of 5 consecutive Trading
Days.
Any redemption of this Warrant shall be made at the Redemption Price. In order
to exercise its right of redemption under this Section 9, the Company shall give
the Redemption Notice to the Holder not less than 30 or more than 45 Business
Days prior to the Redemption Date.
(2) On the Redemption Date (or such later date as a particular
Holder shall surrender to the Company this Warrant), the Company shall pay to or
upon the order of each Holder by wire transfer of immediately available funds to
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such account as shall be specified for such purpose by the Holder an amount
equal to the Redemption Price. The Holder shall not be entitled to payment of
the Redemption Price until the Holder shall have surrendered a portion of this
Warrant to the Company or, in the case of the loss, theft or destruction of any
such certificate, given indemnity in accordance with Section 20.
(3) The Company shall not be entitled to give the Redemption Notice
with respect to, or to redeem, any portion of this Warrant with respect to which
the Holder has exercised this Warrant under Section 2 or as to which a
Subscription Form has been given on a date which is on or prior to the date on
which the Redemption Notice is given. If the Redemption Notice has been given,
thereafter the proceedings for such redemption shall not affect the right of the
Holder to exercise this Warrant in accordance with Section 2 at any time prior
to the Redemption Date. The assignment of this Warrant relating to the number of
shares of Common Stock (or Other Securities) to be redeemed from the Holder, as
stated in the Redemption Notice given to the Holder, shall be reduced by
exercises of shares of this Warrant for which such Holder gives a Subscription
Form in accordance with Section 2 at any time on or after the date the Company
gives such Redemption Notice to the Holder and prior to the Redemption Date. If
on the Redemption Date the Company fails to pay the Redemption Price of this
Warrant in full to the Holder, the Holder shall be entitled to exercise this
Warrant in accordance with Section 2 at any time after such Redemption Date and
prior to the date on which the Company pays the Redemption Price in full to the
Holder and in the case of any such exercise of this Warrant upon delivery to the
exercising Holder of the shares of Common Stock issuable upon such exercise the
Company shall have no further liability in respect of the Redemption Price of
such portion of this Warrant.
(B) LIMITATION ON REDEMPTION. (1) Notwithstanding any other
provision of this Warrant or applicable law to the contrary, in case the Company
shall give a Redemption Notice to the Holder, and on the date the Company gives
such Redemption Notice or at any time thereafter to and including the applicable
Redemption Date, the Holder shall be restricted in exercising any portion of
this Warrant by reason of the Holder's Restricted Ownership Percentage (the
"Unexercisable Portion"), then the Redemption Date for the Unexercisable Portion
of this Warrant held by the Holder, so called for redemption by the Company and
which the Holder may not exercise at any such time during such period from the
date the Company gives such Redemption Notice to the applicable Redemption Date
shall be extended to be the Extended Redemption Date. On the applicable Extended
Redemption Date, the Company shall pay the Redemption Price for any portion of
this Warrant redeemed on such Extended Redemption Date. Any portion of this
Warrant for which there is an Extended Redemption Date shall remain exercisable
by the Holder in accordance with Section 2 at any time to and including the day
prior to the applicable Extended Redemption Date.
(2) Notwithstanding anything to the contrary contained in Section
2(c) solely for the purposes of calculating the Holder's Restricted Ownership
Percentage for purposes of this Section 9(b), the shares of Common Stock
issuable upon exercise of the Warrants held by the Holder shall not be deemed to
be Excluded Shares and shall be taken into account in calculating the Holder's
Restricted Ownership Percentage to determine the amount of the Holder's
Unexercisable Portion.
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10. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. (a)
If any of the following events occur, namely:
(i) any reclassification or change of the outstanding shares of
Common Stock (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a
subdivision or combination),
(ii) any consolidation, merger statutory exchange or combination of
the Company with another corporation as a result of which holders of
Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for
such Common Stock, or
(iii) any sale or conveyance of the properties and assets of the
Company as, or substantially as, an entirety to any other Person as a
result of which holders of Common Stock shall be entitled to receive
stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock,
then the Company or the successor or purchasing Person, as the case may be,
shall execute with the Holder a written agreement providing that:
(x) this Warrant shall thereafter entitle the Holder to purchase the
kind and amount of shares of stock and Other Securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, statutory exchange, combination, sale or conveyance
by the holder of a number of shares of Common Stock issuable upon exercise
of this Warrant (assuming, for such purposes, a sufficient number of
authorized shares of Common Stock available to exercise this Warrant)
immediately prior to such reclassification, change, consolidation, merger,
statutory exchange, combination, sale or conveyance assuming such holder
of Common Stock did not exercise such holder's rights of election, if any,
as to the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, combination, sale or
conveyance (provided that, if the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purposes of this Section 10
the kind and amount of securities, cash or other property receivable upon
such consolidation, merger, statutory exchange, sale or conveyance for
each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares),
(y) in the case of any such successor or purchasing Person, upon
such consolidation, merger, statutory exchange, combination, sale or
conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the
Company's obligations under this Warrant and the Subscription Agreement
and
(z) if registration or qualification is required under the 1933 Act
or applicable state law for the public resale by the Holder of such shares
of stock and Other Securities so issuable upon exercise of this Warrant,
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such registration or qualification shall be completed prior to such
reclassification, change, consolidation, merger, statutory exchange,
combination or sale.
Such written agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. If, in the case of any such reclassification, change, consolidation,
merger, statutory exchange, combination, sale or conveyance, the stock or other
securities or other property or assets receivable thereupon by a holder of
shares of Common Stock includes shares of stock, other securities, other
property or assets of a Person other than the Company or any such successor or
purchasing Person, as the case may be, in such reclassification, change,
consolidation, merger, statutory exchange, combination, sale or conveyance, then
such written agreement shall also be executed by such other Person and shall
contain such additional provisions to protect the interests of the Holder as the
Board of Directors shall reasonably consider necessary by reason of the
foregoing.
(b) The above provisions of this Section 10 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
(c) If this Section 10 applies to any event or occurrence, Section 5
shall not apply.
11. TAX ADJUSTMENTS. The Company may make such reductions in the
Exercise Price, in addition to those required by Sections 4, 5, 6, 7, 8 and 9 as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
12. MINIMUM ADJUSTMENT. (a) No adjustment in the Exercise Price (and
no related adjustment in the number of shares of Common Stock which may
thereafter be purchased upon exercise of this Warrant) shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Exercise Price; provided, however, that any adjustments which by reason of this
Section 12 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All such calculations under this Warrant
shall be made by the Company and shall be made to the nearest cent or to the
nearest one hundredth of a share, as the case may be.
(b) No adjustment need be made for a change in the par value of the
Common Stock or from par value to no par value or from no par value to par
value.
13. NOTICE OF ADJUSTMENTS. Whenever the Exercise Price is adjusted
as herein provided, the Company shall promptly, but in no event later than five
Trading Days thereafter, give a notice to the Holder setting forth the Exercise
Price and number of shares of Common Stock which may be purchased upon exercise
of this Warrant after such adjustment and setting forth a brief statement of the
facts requiring such adjustment but which such statement shall not include any
information which would be material non-public information for purposes of the
1934 Act. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
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14. FURTHER ASSURANCES. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
15. NOTICE TO HOLDER PRIOR TO CERTAIN ACTIONS. In case on or after
the Issuance Date:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock (other than in cash out of retained earnings); or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any share of any
class or any other rights or warrants; or
(c) the Board of Directors shall authorize any reclassification of
the Common Stock (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or any consolidation or merger or other
business combination transaction to which the Company is a party and for which
approval of any stockholders of the Company is required, or the sale or transfer
of all or substantially all of the assets of the Company; or
(d) there shall be pending the voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
the Company shall give the Holder, as promptly as possible but in any event at
least ten Trading Days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of any such action
of which the Company gives such notice to the Holder or is required to give such
notice to the Holder, the Holder shall be entitled to give a subscription form
to exercise this Warrant in whole or in part that is contingent on the
completion of such action.
16. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
The Company will at all times reserve and keep available out of its authorized
but unissued shares of capital stock, solely for issuance and delivery on the
exercise of this Warrant, a sufficient number of shares of Common Stock (or
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Other Securities) to effect the full exercise of this Warrant and the exercise,
conversion or exchange of all other Common Stock Equivalents from time to time
outstanding (or Other Securities), and if at any time the number of authorized
but unissued shares of Common Stock (or Other Securities) shall not be
sufficient to effect such exercise, conversion or exchange, the Company shall
take such action as may be necessary to increase its authorized but unissued
shares of Common Stock (or Other Securities) to such number as shall be
sufficient for such purposes.
17. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of
the successors to and assigns of the Holder. This Warrant and all rights
hereunder, in whole or in part, are registrable at the office or agency of the
Company referred to below by the Holder in Person or by his duly authorized
attorney, upon surrender of this Warrant properly endorsed accompanied by an
assignment form in the form attached to this Warrant, or other customary form,
duly executed by the transferring Holder.
18. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder), a register in which the Company shall record the name and
address of the Person in whose name this Warrant has been issued, as well as the
name and address of each successor and prior owner of such Warrant. The Company
shall be entitled to treat the Person in whose name this Warrant is so
registered as the sole and absolute owner of this Warrant for all purposes.
19. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the office or agency of the Company referred
to in Section 17, for one or more new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by the Holder at the time of such surrender.
20. REPLACEMENT OF WARRANT. On receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory in form to the
Company (and without the requirement to post any bond or other security), or (b)
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver to the Holder a new Warrant of like tenor
without charge to the Holder.
21. WARRANT AGENT. The Company may, by written notice to the Holder,
appoint the transfer agent and registrar for the Common Stock as the Company's
agent for the purpose of issuing Common Stock (or Other Securities) on the
exercise of this Warrant pursuant to Section 2, and the Company may, by written
notice to the Holder, appoint an agent having an office in the United States of
America for the purpose of exchanging this Warrant pursuant to Section 18, and
replacing this Warrant pursuant to Section 20, or any of the foregoing, and
thereafter any such exchange or replacement, as the case may be, shall be made
at such office by such agent.
-19-
22. REMEDIES. The Company stipulates that the remedies at law of the
Holder in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
23. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall
not entitle the Holder to any voting rights or other rights as a stockholder of
the Company. Nothing contained in this Warrant shall be construed as conferring
upon the Holder the right to vote or to consent or to receive notice as a
stockholder of the Company on any matters or with respect to any rights
whatsoever as a stockholder of the Company. No dividends or interest shall be
payable or accrued in respect of this Warrant or the interest represented hereby
or the Common Stock (or Other Securities) purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised in accordance with
its terms.
24. NOTICES, ETC. All notices and other communications from the
Company to the Holder shall be in writing and delivered personally, by confirmed
facsimile, by a nationally recognized overnight courier service or mailed by
first class certified mail, postage prepaid, at such facsimile telephone number
or address as may have been furnished to the Company in writing by the Holder or
at such facsimile telephone number or the address shown for the Holder on the
register of Warrants referred to in Section 18.
25. TRANSFER RESTRICTIONS. This Warrant has not been and is not
being registered under the provisions of the 1933 Act or any state securities
laws and this Warrant may not be transferred prior to the end of the holding
period applicable to sales hereof under Rule 144(k) unless (1) the transferee is
an "accredited investor" (as defined in Regulation D under the ▇▇▇▇ ▇▇▇) or a
QIB in a transfer that meets the requirements of Rule 144A and (2) the Holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
this Warrant may be sold or transferred without registration under the 1933 Act.
Prior to any such transfer, such transferee shall have represented in writing to
the Company that such transferee has requested and received from the Company all
information relating to the business, properties, operations, condition
(financial or other), results of operations or prospects of the Company deemed
relevant by such transferee; that such transferee has been afforded the
opportunity to ask questions of the Company concerning the foregoing and has had
the opportunity to obtain and review the Registration Statement and the
prospectus related thereto, each as amended or supplemented to the date of
transfer to such transferee, and the reports and other information concerning
the Company which at the time of such transfer have been filed by the Company
with the SEC pursuant to the 1934 Act and which are incorporated by reference in
such prospectus as of the date of such transfer. If such transfer is intended to
assign the rights and obligations of the Holder the Subscription Agreement, such
transfer shall otherwise be made in compliance with the applicable provisions of
the Subscription Agreement.
26. RULE 144A INFORMATION REQUIREMENT. Within the period prior to
the expiration of the holding period applicable to sales hereof under Rule
144(k) under the 1933 Act (or any successor provision), the Company covenants
and agrees that it shall, during any period in which it is not subject to
Section 13 or 15(d) under the 1934 Act, make available to the Holder and the
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holder of any shares of Common Stock issued upon exercise of this Warrant which
continue to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of this Warrant from the Holder, the information required
pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of the Holder
and it will take such further action as the Holder may reasonably request, all
to the extent required from time to time to enable the Holder to sell this
Warrant without registration under the 1933 Act within the limitation of the
exemption provided by Rule 144A, as Rule 144A may be amended from time to time.
Upon the request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
27. RESTRICTIVE LEGENDS. The provisions of Section 5(b) of the
Subscription Agreement and the related definitions of capitalized terms used
therein and defined in the Subscription Agreement are by this reference
incorporated herein as if set forth in full at this place.
28. AMENDMENT; WAIVER. This Warrant and any terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. Notwithstanding anything to the contrary contained
herein, no amendment or waiver shall increase or eliminate the Restricted
Ownership Percentage, whether permanently or temporarily, unless, in addition to
complying with the other requirements of this Warrant, such amendment or waiver
shall have been approved in accordance with the General Corporation Law of the
State of Delaware and the Company's By-laws by holders of the outstanding shares
of Common Stock entitled to vote at a meeting or by written consent in lieu of
such meeting.
29. MISCELLANEOUS. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of New York. The
headings, captions and footers in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
30. ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed on its behalf by one of its officers thereunto duly authorized.
Dated: HARKEN ENERGY CORPORATION
By:
-----------------------------------
Name:
Title:
-22-
ASSIGNMENT
For value hereby sell(s), assign(s) and transfer(s) unto (Please
insert social security or other Taxpayer Identification Number of assignee: )
the attached original, executed Warrant to purchase share of Common Stock of
Harken Energy Corporation, a Delaware corporation (the "Company"), and hereby
irrevocably constitutes and appoints attorney to transfer the Warrant on the
books of the Company, with full power of substitution in the premises.
In connection with any transfer of the Warrant within the period prior to
the expiration of the holding period applicable to sales thereof under Rule
144(k) under the 1933 Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
1933 Act), the undersigned confirms that such Warrant is being transferred:
[ ] To the Company or a subsidiary thereof; or
[ ] To a QIB pursuant to and in compliance with Rule 144A; or
[ ] To an "accredited investor" (as defined in Regulation D under
the ▇▇▇▇ ▇▇▇) pursuant to and in compliance with the 1933
Act; or
[ ] Pursuant to and in compliance with Rule 144 under the 1933
Act;
and unless the box below is checked, the undersigned confirms that, to the
knowledge of the undersigned, such Warrant is not being transferred to an
"affiliate" (as defined in Rule 144 under the ▇▇▇▇ ▇▇▇) of the Company.
[ ] The transferee is an affiliate of the Company.
Capitalized terms used in this Assignment and not defined in this
Assignment shall have the respective meanings provided in the Warrant.
Dated: NAME:
--------------------------------- ---------------------------
---------------------------------
Signature(s)
EXHIBIT 1
FORM OF SUBSCRIPTION
Harken Energy Corporation
(To be signed only on exercise of Warrant)
TO: Harken Energy Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
shares (the "Exercise Shares") of Common Stock, as defined in the Warrant, of
Harken Energy Corporation, a Delaware corporation (the "Company").
2. The undersigned Holder (check one):
[_] (a) elects to pay the Aggregate Exercise Price for such
shares of Common Stock (i) in lawful money of the United
States or by the enclosed certified or official bank check
payable in United States dollars to the order of the Company
in the amount of $ , or (ii) by wire
--------------------------
transfer of United States funds to the account of the Company
in the amount of $ , which transfer
----------------------------
has been made before or simultaneously with the delivery of this
Form of Subscription pursuant to the instructions of the Company;
or
[_] (b) elects to receive shares of Common Stock having a value equal to
the value of the Warrant calculated in accordance with Section 2(b)
of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other name(s) as is specified below:
Name:
---------------------------------------------------
Address:
---------------------------------------------------
Social Security or Tax Identification Number (if any):
I-1
Dated:
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(Signature must conform to name of Holder as
specified on the face of the Warrant)
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(Address)
I-2
ANNEX IV
TO
SUBSCRIPTION
AGREEMENT
April __, 2004
Alexandria Global Master Fund Ltd.
c/o Alexandria Investment Management, LLC
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Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Gentlemen:
This opinion is being furnished pursuant to Section 7(g) of that
certain Subscription Agreement, dated as of April __, 2004 (the "Agreement"),
among Harken Energy Corporation, a Delaware corporation (the "Company"), and
Alexandria Global Master Fund Ltd, a British Virgin Islands company (the
"Buyer"), pursuant to which the Buyer has agreed to purchase the number of
Preferred Shares set forth on the signature page to the Agreement together with
the Closing Warrants for an aggregate Purchase Price of $5,000,000. Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings ascribed to them in the Agreement.
We have acted as counsel to the Company in connection with the
preparation, execution and delivery of the Agreement and the other Transaction
Documents (as defined below). As such counsel, we have examined and are familiar
with and have relied upon the following documents:
(a) the Certificate of Incorporation and By-laws, each as amended
to date, of the Company;
(b) a certificate of the Secretary of State of the State of
Delaware, dated April __, 2004, attesting to the continued
legal existence and corporate good standing of the Company in
Delaware (the "Delaware Certificate");
(c) the Agreement;
(d) the Certificate of Designations, the Warrants, and the Unit
Purchase Warrants (together with the Agreement, the
"Transaction Documents");
(e) an Officer's Certificate from the Company to McGuireWoods LLP,
dated as of the date hereof (the "Officer's Certificate"), a
copy of which is attached hereto as Exhibit A; and
(f) such other records of meetings, documents, instruments and
certificates (including but not limited to certificates of
public officials and officers of the Company) as we have
considered necessary for purposes of this opinion.
In our examination of the documents described above, we have assumed
the genuineness of all signatures, the legal capacity of all individual
signatories, the completeness of all corporate records provided to us, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, and the
authenticity of the originals of such latter documents.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of public officials and officers of
the Company and upon the representations and warranties made by the Company and
the Buyer in the Agreement. We have not attempted to verify independently such
facts, although nothing has come to our attention which would lead us to
question the accuracy of such certificates or representations and warranties. We
have also assumed, without independent investigation that no addressee of this
opinion letter has any actual knowledge that any of our factual assumptions or
opinions is inaccurate.
Any reference herein to "our knowledge," or to any matter "known to
us," "coming to our attention" or "of which we are aware," or any variation of
any of the foregoing shall mean the conscious awareness of the attorneys in this
firm who have rendered substantive attention to this transaction (including the
preparation of the Transaction Documents and the transactions contemplated
thereby) of the existence or absence of any facts which would contradict our
opinions set forth below. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company. Without limiting the foregoing, we
have not conducted a search of any electronic databases or the dockets of any
court, administrative or regulatory body, agency or other filing office in any
jurisdiction.
For purposes of this opinion, we have assumed that the Transaction
Documents have been duly authorized, executed and delivered by all parties
thereto other than the Company, and that all such other parties have all
requisite power and authority to effect the transactions contemplated by the
Transaction Documents. We have also assumed that the Transaction Documents are
the valid, binding and enforceable obligations of each party thereto other than
the Company. We do not render any opinion as to the application of any federal
or state law or regulation to the power, authority or compliance of any party to
the Transaction Documents other than the Company.
Our opinions set forth below are qualified to the extent that they may
be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws relating to or
affecting the rights of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing, and (iii) duties and standards imposed on creditors and parties to
contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
2
availability of any equitable or specific remedy upon any breach of any of the
agreements as to which we are opining herein, or any of the agreements,
documents or obligations referred to therein, or to the successful assertion of
any equitable defenses, inasmuch as the availability of such remedies or the
success of any equitable defense may be subject to the discretion of a court. We
are expressing no opinion herein as to the enforceability of Article 9 of the
Agreement or any other provision of any agreement or document as to which we are
opining herein which purports to indemnify any person against his, her or its
own negligence or intentional misconduct.
Our opinions expressed in paragraph 1 below, insofar as they relate to
the due organization, valid existence and good standing of the Company, are
based solely on the Delaware Certificate, and are limited accordingly, and, as
to such matters, our opinions are rendered as of the respective dates of such
certificates. We express no opinion as to the tax good standing of the Company
in any jurisdiction.
We are expressing no opinion herein with respect to compliance by the
Company with state securities or "blue sky" laws, or with any state or federal
securities antifraud laws.
We are opining herein solely as to the state laws of the State of New
York, the Delaware General Corporation Law statute and the federal laws of the
United States of America. To the extent that any other laws govern any of the
matters as to which we are opining below, we have assumed, with your permission
and without independent investigation, that such laws are identical to the state
laws of the State of New York, and we express no opinion as to whether such
assumption is reasonable or correct.
For purposes of our opinions rendered below, we have assumed that the
facts and law governing the future performance by the Company of its obligations
under the Transaction Documents will be identical to the facts and law governing
its performance on the date of this opinion.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and
has all requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents, to carry
out the transactions contemplated by the Transaction Documents and
to conduct its business as it is, to our knowledge, currently
conducted.
2. The execution and delivery by the Company of the Transaction
Documents, and the consummation by the Company of the transactions
contemplated thereby, have been duly authorized by all necessary
corporate action on the part of the Company, and the Transaction
Documents have been duly executed and delivered by the Company.
Each of the Transaction Documents constitutes the valid and
binding obligation of the Company, enforceable against the Company
in accordance with its terms.
3
3. The Shares have been duly authorized and the Preferred Shares,
when issued and paid for in accordance with the Agreement and the
Additional Preferred Shares, when issued and paid for in
accordance with the Unit Purchase Warrants, and the Conversion
Shares, when issued upon conversion of the Preferred Shares and
the Additional Preferred Shares, and the Warrant Shares, when
issued upon due exercise of the Warrants, in each such case will
be duly authorized, validly issued, fully paid and non-assessable.
The issuance of the Shares will not be subject to any preemptive
or similar statutory right under the Delaware General Corporation
Law statute or, to our knowledge, similar contractual rights
granted by the Company.
4. The execution and delivery by the Company of the Transaction
Documents, and the consummation by the Company of the transactions
contemplated thereby, do not violate the provisions of the
Certificate of Incorporation or By-laws of the Company, each as
amended to date.
5. Based in part on the Buyer's representations in Article 3 of the
Agreement, the offer, issuance and sale of the Securities pursuant
to the Agreement are exempt from registration under the Securities
Act of 1933, as amended.
6. To our knowledge, neither the execution, delivery and performance
by the Company of any Transaction Document to which it is a party,
nor the compliance by the Company with the terms and provisions
thereof: (i) violates any present law, statute or regulation that,
in each case, is applicable to the Company; or (ii) results in any
breach of any of the terms of, or constitutes a default under, any
agreement to which the Company is a party.
7. Except as contemplated by the Transaction Documents, no consent,
approval or authorization of, or filing with, any governmental
authority that, in each case, is applicable to the Company is
required for (i) the due execution, delivery and performance by
the Company of any Transaction Document to which it is a party or
(ii) the validity, binding effect or enforceability of any
Transaction Document to which the Company is a party, except (A)
in each case as have previously been made or obtained and (B)
consents, approvals, authorizations or filings as may be required
to be obtained or made by Buyer as a result of its involvement in
the transactions contemplated by the Transaction Documents.
This opinion is provided to you as a legal opinion only and not as a
guaranty or warranty of the matters discussed herein. This opinion is based upon
currently existing statutes, rules, regulations and judicial decisions and is
rendered as of the date hereof, and we disclaim any obligation to advise you of
4
any change in any of the foregoing sources of law or subsequent developments in
law or changes in facts or circumstances which might affect any matters or
opinions set forth herein.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions contemplated by Agreement. This opinion may not
be relied upon by you for any other purpose, nor may this opinion be provided
to, quoted to or relied upon by any other person or entity for any purpose
without our prior written consent.
Very truly yours,
5
EXHIBIT A
HARKEN ENERGY CORPORATION
Officers Certificate
Pursuant Section 7(d) of the Subscription Agreement (the "Agreement")
dated as of April __, 2004, among Harken Energy Corporation, a Delaware
corporation (the "Company"), and Alexandria Global Master Fund Ltd, a British
Virgin Islands company (the "Buyer"), the undersigned does hereby certify to the
Buyer, and to McGuireWoods LLP for purposes of rendering the opinion set forth
in Section 7(g) of the Agreement, on behalf of the Company as follows:
1. As of the date hereof, no legal action, suit or proceeding is pending or
threatened which seeks to restrain or prohibit the transactions contemplated by
the Agreement;
2. The representations and warranties of the Company contained in Article 4 of
the Agreement, and each other agreement or instrument executed and delivered by
the Company in connection with the Agreement, are true and correct at and as of
the date hereof as though now made and as of the date hereof, the Company has
performed all of the covenants required to be performed by it as of the date
hereof pursuant to Article 5 of the Agreement;
3. As of the date hereof, no event which, if the Preferred Shares were
outstanding, would constitute an Optional Redemption Event or, with the giving
of notice or the passage of time or both, would constitute an Optional
Redemption Event, has occurred and is continuing;
4. Capitalized terms used but not defined in this certificate have the meaning
ascribed to such terms in the Agreement.
IN WITNESS WHEREOF, the undersigned on behalf of, and solely in his
capacity as an officer of, the Company has signed this Certificate on the __th
day of April, 2004.
HARKEN ENERGY CORPORATION
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: General Counsel
6
ANNEX V
TO
SUBSCRIPTION
AGREEMENT
[Letterhead of Company Counsel]
[SEC Effective Date]
To the Person Listed on
Schedule A Hereto
RE: HARKEN ENERGY CORPORATION
Ladies and Gentlemen:
We have acted as counsel to Harken Energy Corporation, a
Delaware corporation (the "Company"), in connection with the preparation and
filing of the Company's Registration Statement on Form S-_ (File No. 333-______)
(the "Registration Statement") with the Securities and Exchange Commission (the
"SEC"), in connection with the issuance by the Company to the Buyer listed on
Schedule A hereto (the "Buyer") of an aggregate of [50,000] shares (the
"Preferred Shares") of the Company's Series J Convertible Preferred Stock, $1.00
par value (the "Preferred Stock"), Common Stock Purchase Warrants (the
"Warrants") to purchase shares of Common Stock, $.01 par value (the "Common
Stock"), of the Company and Unit Purchase Warrants (the "Unit Purchase
Warrants") to purchase units consisting of additional shares of Preferred Stock
and additional Warrants. The Preferred Shares, the Warrants and the Unit
Purchase Warrants were acquired by the Buyer pursuant to the Subscription
Agreement, dated as of April __, 2004, by and between the Company and the Buyer
(the "Agreement"). Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings assigned to such terms in the
Agreement.
Pursuant to the Agreement, the Company agreed with the Buyer,
among other things, to register for resale (i) the shares of Common Stock
issuable upon conversion of the Preferred Shares (the "Conversion Shares"), (ii)
the shares of Common Stock issuable in payment of dividends on the Preferred
Shares (the "Dividend Shares"), and (iii) the shares of Common Stock issuable
upon exercise of the Warrants (the "Warrant Shares" and, together with the
Conversion Shares and the Dividend Shares, the "Shares") under the Securities
Act of 1933, as amended (the "1933 Act"), upon the terms provided in the
Agreement. On ___________ ___, ____, the Company filed the Registration
Statement with the SEC relating to the Shares, which names the Buyer as a
selling stockholder thereunder.
[OTHER INTRODUCTORY STATEMENTS ACCEPTABLE TO THE BUYER MAY BE
INCLUDED PRIOR TO EXECUTION OF SUBSCRIPTION AGREEMENT]
Based upon the foregoing, it is our opinion that:
V-1
(1) Since the Closing Date, the Company has, to our knowledge,
timely filed with the SEC all forms, reports and other documents
required to be filed with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and all of such forms, reports and
other documents complied as to form, when filed, in all material
respects, with all applicable requirements of the 1933 Act and the 1934
Act;
(2) The Registration Statement and the Prospectus contained
therein (the "Prospectus") (other than the financial statements and
schedules and other financial and statistical information contained or
incorporated by reference therein, as to which we have not been
requested to and do not express any opinion) comply as to form in all
material respects with the applicable requirements of the 1933 Act and
the rules and regulations promulgated thereunder; and
(3) The Registration Statement has become effective under the
1933 Act, to our knowledge, no stop order proceedings with respect
thereto have been instituted or threatened by the SEC, and the
Prospectus may be used by the selling stockholders named therein for
resale of the Shares in accordance with the 1933 Act and the "Plan of
Distribution" contained in the Prospectus.
This opinion is intended solely for your benefit and is not to
be made available to or be relied upon by any other person, firm or entity
without our prior written consent.
Very truly yours,
V-2
SCHEDULE A
Alexandra Global Master Fund Ltd.
c/o Alexandra Investment Management, LLC
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V-3
ANNEX VI
TO
SUBSCRIPTION
AGREEMENT
Name: Alexandra Global Master Fund Ltd.
PROSPECTIVE PURCHASER QUESTIONNAIRE
(CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHER ENTITIES)
HARKEN ENERGY CORPORATION
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Ladies and Gentlemen:
The information contained herein is being furnished so that HARKEN
ENERGY CORPORATION, a Delaware corporation (the "Company"), may determine
whether (1) the sale of Series J Convertible Preferred Stock, $1.00 par value
(the "Preferred Stock"), of the Company which will be convertible into shares of
Common Stock, $.01 par value (the "Common Stock"), of the Company, (2) the
issuance of Common Stock Purchase Warrants (the "Warrants") to purchase shares
of Common Stock of the Company, (3) the issuance of Unit Purchase Warrants (the
"Unit Purchase Warrants") to purchase units consisting of shares of Preferred
Stock and Warrants and (4) the offer of shares of Common Stock issuable on
conversion of the Preferred Stock and exercise of the Warrants may be made to
the undersigned without registration under the Securities Act of 1933, as
amended (the "Act"), and applicable state securities or "blue sky" laws in
connection with the Company's offering (the "Offering") of the Preferred Stock,
the Unit Purchase Warrants and the Warrants.
The undersigned understands that (i) the Company will rely upon the
accuracy and completeness of the information contained herein for purposes of
such determination, and (ii) the offer and sale of the Preferred Stock and the
offer of the Unit Purchase Warrants and the Warrants and the Common Stock will
not be registered under the Act in reliance upon exemptions from registration
thereunder.
The undersigned (i) represents and warrants that the information
contained herein is complete and accurate as of the date set forth on the
signature page hereto and will be complete and accurate as of the date of
acceptance by the Company of the undersigned's subscription and (ii) agrees to
notify the Company in writing immediately of any material changes in any such
information occurring prior to the acceptance by the Company of the
undersigned's purchase of the Preferred Stock and acquisition of the Unit
Purchase Warrants and the Warrants.
The undersigned also understands and agrees that, although the Company
will use its best efforts to keep confidential the information provided in
answers to this Questionnaire, the Company may present this Questionnaire and
the information provided in answers thereto to such parties as it deems
HARKEN ENERGY CORPORATION
Prospective Purchaser Questionnaire
Page 2
advisable (a) if called upon to establish either the availability under any
federal or state securities laws of an exemption from registration of the
Offering or compliance with any other legal requirement, or (b) if the contents
hereof are relevant to any issue in any action, investigation, suit or
proceeding to which the Company is a party, is subject, or by which it is or may
be bound. Further, the undersigned understands that the Offering will be
reported to the U.S. Securities and Exchange Commission pursuant to the
requirements of applicable federal law and to various state securities or "blue
sky" commissioners pursuant to applicable laws.
HARKEN ENERGY CORPORATION
Prospective Purchaser Questionnaire
Page 3
ANSWER ALL QUESTIONS. ANSWER "N/A" IF NOT APPLICABLE.
A. GENERAL INFORMATION
1. THE INVESTING ENTITY
Name Alexandra Global Master Fund Ltd.
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Principal place of business c/o Alexandra Investment Management, LLC
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Telephone number ▇▇▇-▇▇▇-▇▇▇▇ Facsimile or telecopy number ▇▇▇-▇▇▇-▇▇▇▇
Form of entity British Virgin Islands international business company
State or other jurisdiction in which incorporated or formed British
Virgin Islands Date of incorporation or formation December 17, 2001
2. CONTACT PERSON FOR THE ENTITY
Name of contact person ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
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Telephone number ▇▇▇-▇▇▇-▇▇▇▇
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B. INVESTOR ACCREDITATION
1. The Preferred Stock will be sold and the Unit Purchase Warrant and the
Warrants will be issued only to investors who are "accredited
investors" (as defined in Regulation D promulgated under the Act).
Please indicate the basis of "accredited investor" status of the
undersigned entity by checking the applicable statement or statements.
The undersigned entity is (indicate any which apply):
__ (i) a bank, as defined in Section 3(a)(2) of the Act, or any savings
and loan association or other institution, as defined in Section
3(a)(5)(A) of the Act, whether acting in its individual or fiduciary
capacity, or (ii) an insurance company, as defined in Section 2(13) of
the Act;
__ an investment company registered under the Investment Company Act of
1940;
__ (i) a business development company, as defined in Section 2(a)(48) of
the Investment Company Act of 1940, or (ii) a Small Business Investment
Company licensed by the United States Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of
1958;
HARKEN ENERGY CORPORATION
Prospective Purchaser Questionnaire
Page 4
__ an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (a)
the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of ERISA, which is either a bank, a savings and loan
association, an insurance company or a registered investment adviser,
or (b) the employee benefit plan has total assets in excess of
$5,000,000;
__ a private business development company, as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
X a corporation, partnership, Massachusetts trust or similar business
trust, or an organization described in section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"), with total
assets in excess of $5,000,000, and not formed for the specific purpose
of acquiring the Preferred Stock and the Warrants;
__ a trust with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Preferred Stock and the Warrants,
whose purchase is directed by a person who either alone or with his
purchaser representative has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and
risks of the prospective investment; or
__ an entity in which each and every one of the equity owners is an
accredited investor, which means that each such owner meets one of the
categories listed above in this Question 1 or is an individual:
(a) whose individual net worth* or whose individual net worth combined
with that of such individual's spouse, is in excess of $1,000,000;
or
(b) whose individual annual income** in each of the two most recent
years was in excess of $200,000 and who reasonably expects his or
her individual income in the current year to be in excess of
$200,000; or
(c) whose individual annual income, combined with his or her spouse's
individual annual income, in each of the two most recent years was
in excess of $300,000 and who reasonably expects his or her
individual annual income, combined with his or spouse's individual
annual income, for the current year to be in excess of $300,000.
HARKEN ENERGY CORPORATION
Prospective Purchaser Questionnaire
Page 5
* The term "net worth" means total assets (including all residences)
less total liabilities (including mortgages).
** The term "income" for these purposes means gross income (reported
on the Federal tax return) increased by adding back any deduction
taken for long term capital gains under section 1202 of the Code,
and deduction for depletion under sections 611 et seq. of the
Code, any exclusion for interest under section 103 of the Code,
and any losses of a partnership allocated to the individual
limited partner as reported on Schedule E of Form 1040.
2. The net worth of the undersigned entity is in excess of $
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Date: April 27, 2004 NAME OF HOLDER:
ALEXANDRA GLOBAL MASTER FUND LTD.
BY: ALEXANDRA INVESTMENT
MANAGEMENT, LLC, AS INVESTMENT ADVISOR
By:
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Name:
Title: