SECURED NOTE AND COMMON STOCK PURCHASE AGREEMENT
STRATOS
RENEWABLES CORPORATION
This
Secured Note And Common Stock Purchase Agreement (this “Agreement”) is made as of July
15, 2009, by and between Stratos Renewables Corporation, a Nevada corporation
(the “Company”), I2BF
Biodiesel, Ltd. (“I2BF”)
and of Blue Day SC Ventures, a joint venture of BlueDay Limited, a business
company existing under the laws of the British Virgin Islands and ▇▇ ▇▇▇▇▇, a
partnership (“Blue Day SC
Ventures”) (each, an “Investor” and collectively,
the “Investors”).
RECITALS:
A.
The Company and Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and
Rule 506 of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities
Act.
B.
Investors wish to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement and at one or more closings, secured
promissory notes in the form attached hereto as Exhibit A
(each, a “Note,” and
collectively, the “Notes”) and shares of common
stock, par value $0.001 per share of the Company (the “Common Stock”), each in the
amount(s) set forth opposite Investor’s name on Schedule I
hereto (the “Schedule of
Investors”).
C.
The Notes and the Common Stock are referred to herein as the “Securities.”
D.
The Company is hereby offering to the Investors: (a) a minimum of
$3,000,000 in aggregate principal of Notes issued for new cash investment in the
Company as of the date of this Agreement (the “Initial Investment”),
(b) $12,382,271 in aggregate principal amount of Notes issued concurrently
with the Initial Investment in exchange for the surrender and cancellation of
existing indebtedness and equity securities of the Company outstanding in favor
of Investors as set forth opposite such Investors’ names on the Schedule of
Investors (the “Tendered
Securities”), (c) up to an additional $1,725,000 principal amount of
Notes issued to I2BF in a subsequent closing, each in the allocations and
amounts set forth on the Schedule of Investors and (d) as consideration for
such new investment and the restructuring of the Tendered Securities, Common
Stock representing an aggregate of forty five percent (45%) of the fully diluted
equity of the Company and certain adjustment rights relating to such Common
Stock as are set forth in Section 6.2
hereof.
E.
The Company acknowledges that I2BF would not make its investment as herein
described without the cash and Tendered Securities of Blue Day SC Ventures as
required under this Agreement and that Blue Day SC Ventures would not make its
investment as herein described without the cash and Tendered Securities of I2BF
as required under this Agreement.
NOW, THEREFORE, the Company
and the Investors, severally and not jointly, hereby agree as
follows:
SECTION 1
Purchase,
Sale and Issuance of Notes and Common Stock
1.1 Sale and Issuance
of Notes and Common Stock. Subject to the terms and conditions
of this Agreement, at each Closing (as defined below), each Investor, severally
and not jointly, agrees to purchase and the Company agrees to sell and issue to
each such Investor:
(a) Notes
in the “Total Principal
Amount” column set forth opposite Investor’s name on the Schedule of
Investors and
(b) the
number of shares of Common Stock set forth in the “Common Stock Issued” column
set forth opposite Investor’s name on the Schedule of Investors.
1.2 Issuance for Cash
and Surrender of Tendered Securities. The Notes and Common
Stock to be issued to each Investor at the Initial Closing shall be issued
(a) for new cash investment by Investors and (b) against and in
exchange for the surrender by the Investors and cancellation by the Company of
the principal and accrued but unpaid interest outstanding with respect to and
the equity interests in the Company represented by the Tendered Securities (the
tendered cash and Tendered Securities together “Purchase Price”).
SECTION 2
Closing
Date and Delivery
2.1 Closing. The
purchase, sale and issuance of the Notes and Common Stock shall take place at
one or more closings (the “Closings”) at the offices of
Stratos Renewables Corporation, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
(a) Initial
Closing. The first Closing (the “Initial Closing”) shall be for
the sale of Notes in the aggregate principal amount of $15,382,271 and an
aggregate of 55,586,157 shares of the Common Stock of the Company, evidencing
not less than 39.895% of the outstanding the Common Stock determined on a fully
diluted basis, and shall be consummated simultaneously with the execution of
this Agreement (the “Closing
Date”); and
(b) Balance Closing with
I2BF. I2BF shall make an additional investment in Notes with
an aggregate principal amount of $1,725,000 and shall be issued 10,238,381
additional shares of Common Stock, and an additional Closing shall be held with
respect to such investment (the “Balance Closing”) if and as
soon as practicable following the closing of the credit facility currently under
negotiation between the Company and Banco Internacional del Perú S.A.A. (“Interbank”) and evidenced by
that certain letter of intent dated May 29, 2009 (the “Interbank Facility”), provided that the
Interbank Facility shall provide credit to the Company and its subsidiaries of
not less than $15,000,000 and shall otherwise be upon terms and conditions as
set forth in that certain letter of intent referenced above or upon terms and
conditions substantially similar to such terms and conditions, subject to the
reasonable approval of Investors, it being agreed and acknowledged that the
“Interbank Facility” may be consummated with another lender substituted for
Interbank, subject to such requirements regarding the substantive terms and
conditions. The obligation (but not the right) of I2BF to participate
in the Balance Closing shall cease in the event that the Interbank Facility is
not closed by October 15, 2009. The Balance Closing, if it
occurs, shall be on the same terms and conditions as those contained herein
without the need for an amendment to this Agreement. An additional
Note shall be issued to I2BF and certificate(s) evidencing the additional shares
of Common Stock issuable to I2BF and Blue Day SC Ventures shall be issued with
respect to the Securities purchased and issued at the Balance
Closing. The representations and warranties of the Company set forth
in Section 3 hereof
(and the Disclosure Schedule thereto) shall speak as of the Balance Closing, and
the Company shall update such disclosure as appropriate. The
representations and warranties of I2BF set forth in Section 4 hereof
shall speak as of Balance Closing.
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2.2 Delivery. At
each of the Initial Closing and the Balance Closing, (a) each Investor
shall pay the cash portion of the Purchase Price to the Company (or at the
Company’s direction as otherwise specified in this Agreement) for the Note(s)
and Common Stock to be issued and sold to Investor at such closing, by wire
transfer of immediately available funds in accordance with the Company’s written
wire instructions, (b) each Investor will evidence the exchange,
cancellation and surrender of the Tendered Securities by the execution and
delivery of this Agreement, with the original documentation evidencing the
Tendered Securities to be returned to the Company as soon as practicable
thereafter in accordance with the Notice provisions hereof (it being agreed and
acknowledged that the exchange, cancellation and surrender of the Tendered
Securities shall be effective for any and all purposes as of the date of this
Agreement and that any failure by an Investor to provide such documentation
shall not prevent, delay or otherwise affect the effectiveness of the exchange,
cancellation and surrender of the Tendered Securities), (c) the Company
will deliver to each Investor the Note(s) and a certificate evidencing the
shares of Common Stock that such Investor is entitled to receive at such
closing, as set forth opposite such Investor’s name on the Schedule of
Investors, each as duly executed on behalf of the Company and registered in the
name of such Investor.
2.3 Use of
Proceeds. Funds invested at the Initial Closing shall be used
for the satisfaction and retirement of Company indebtedness outstanding to
Whitebox Capital Partners, L.P. (“Whitebox”) as well as the
retirement of certain trade and other payables. Two Million dollars
of Cash funds invested at the Initial Closing by Blue Day SC Ventures shall be
disbursed to Whitebox directly pursuant to the terms and conditions of the pay
off letter dated July 15, 2009 between Whitebox and the
Company. Funds invested at the Balance Closing will be used for
general working capital purposes related to construction and towards the
development of business activities for the Company’s industrial plot and
sugarcane crushing assets in Chepen, Peru (the “Chepen
Project”). The Chepen Project is intended to be pursued
through the Company’s indirect subsidiary Arena Verde SAC or a newly-established
special purpose entity in which Arena Verde SAC or the Company has a direct or
indirect controlling equity position. The entity directly owning and
operating the Chepen Project is hereinafter referred to as the “Chepen Operating
Company.” The Chepen Operating Company has, and the Company
agrees that it shall ensure that the Chepen Operating Company does not form or
acquire without compliance with this Agreement and the Security Agreement, any
subsidiaries of its own. The Chepen Operating Company has, and the
Company agrees that it shall ensure that the Chepen Operating Company shall have
no active business other than the development and operation of the Chepen
Project.
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SECTION 3
Representations
and Warranties of the Company
The
Company hereby represents and warrants to Investors and each of them that,
except as set forth on the Disclosure Schedule attached as Exhibit C
to this Agreement, the following representations are true and complete as of the
date hereof and as of the Closing. The Disclosure Schedule shall be
delivered separately to Investors and each of them and shall be arranged in
sections corresponding to the numbered and lettered sections and subsections
contained in this Section 3, and
the disclosures in any section or subsection of the Disclosure Schedule shall
qualify other sections and subsections in this Section 3 if and
only to the extent that it is reasonably apparent to someone unfamiliar with the
Company and its business from the face of such disclosure that such disclosure
is applicable to such other sections and subsections.
3.1 Due
Incorporation, Qualification, etc. The Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation; (b) has the power and authority to own,
lease and operate its properties and carry on its business as now conducted and
as proposed to be conducted by the Company in the SEC Documents (as defined
below); and (c) is duly qualified, licensed to do business and in good
standing as a foreign corporation in each jurisdiction where it does business
except where the failure to be so qualified or licensed could reasonably be
expected to have a Material Adverse Effect. For the purposes of this
Agreement, “Material Adverse
Effect” shall mean a material adverse effect on (i) the business,
assets, operations, prospects or financial or other condition of the Company and
its Subsidiaries (as defined below) considered together; (ii) the ability
or authority of the Company to pay or perform its obligations under this
Agreement in accordance with the terms of this Agreement and the other
Transaction Documents (as defined below) and to avoid an event of default, or an
event which, with the giving of notice or the passage of time or both, would
constitute an event of default, under any Transaction Document; or
(iii) the rights and remedies of an Investor under this Agreement, the
other Transaction Documents or any related document, instrument or
agreement.
3.2 Subsidiaries. The
Company has no direct or indirect Subsidiaries other than those listed in Section 3.2 of
the Disclosure Schedule. Except as disclosed in Section 3.2 of
the Disclosure Schedule, the Company owns, directly or indirectly, all of the
capital stock or comparable equity interests of each Subsidiary free and clear
of any and all liens, charges, claims, security interests, encumbrances, rights
of first refusal or other restrictions other than the liens created by the
Security Agreement (as defined below) (collectively, “Liens”) and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights. Each Subsidiary (a) is a duly
formed and organized entity, validly existing and in good standing under the
laws of its state or country of formation; (b) has the power and authority
to own, lease and operate its properties and carry on its business as now
conducted and as proposed to be conducted by the Company in the SEC Documents;
and (c) is duly qualified, licensed to do business and in good standing as
an entity in each jurisdiction where it does business except where the failure
to be so qualified or licensed could reasonably be expected to have a Material
Adverse Effect. For the purposes of this Agreement, “Subsidiary” shall mean, with
respect to any Person, each corporation or other entity of which (a) such
Person or any other Subsidiary of such Person is a general partner or a manager
(b) or at least 50% of the securities or other ownership interests having
by their terms ordinary voting power to elect at least 50% of the board of
directors or other Persons performing similar functions is directly or
indirectly owned or controlled by such Person, by any one or more of its
Subsidiaries or by such Person and one or more of its
Subsidiaries. For the purposes of this Agreement, “Person” shall mean and include
an individual, a partnership, a corporation (including a business trust), a
joint stock company, a limited liability company, an unincorporated association,
a joint venture or other entity or a governmental authority.
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3.3 Authority. The
execution, delivery and performance by the Company of this Agreement, the Notes
and all such other documents required by the terms of this Agreement to be
executed by the Company (collectively, the “Transaction Documents”), the
consummation of the transactions contemplated hereby and thereby, the issuance
of the Notes, the Common Stock and the Adjustment Shares (as defined in Section 6.2) and
the reservation and issuance of the Common Stock and the Adjustment Shares,
(a) are within the power of the Company and (b) have been duly
authorized by all necessary actions on the part of the Company and no further
filing, consent or authorization is required by the Company, its Board of
Directors or its stockholders in connection with any of the
foregoing.
3.4 Enforceability. Each
Transaction Document has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors’ rights generally and general principles
of equity.
3.5 Non-Contravention. The
execution and delivery by the Company of the Transaction Documents and the
performance and consummation of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Notes, the Common Stock and
the Adjustment Shares and the reservation for issuance and issuance of the
Common Stock and the Adjustment Shares) do not and will not (a) violate the
Company’s Articles of Incorporation or Bylaws, as amended, as the case may be
(“Charter Documents”),
or any material judgment, order, writ, decree, statute, rule or regulation
applicable to the Company or any of its Subsidiaries; (b) violate any
provision of, or result in the termination, amendment, cancellation or breach or
the acceleration of, or entitle any other Person to accelerate (whether after
the giving of notice or lapse of time or both), any material mortgage,
indenture, agreement, instrument or contract to which the Company or any of its
Subsidiaries is a party or by which it is bound; or (c) result in the
creation or imposition of any lien upon any property, asset or revenue of the
Company or any of its Subsidiaries (except as contemplated by the Security
Agreement) or the suspension, revocation, impairment, forfeiture, or nonrenewal
of any material permit, license, authorization or approval applicable to the
Company or any of its Subsidiaries, their respective businesses or operations,
or any of their respective assets or properties.
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3.6 Approvals. Neither
the Company nor any of the Subsidiaries is required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof other than such as have been made or obtained
and except for the filing of Form D pursuant to Regulation D or any “blue
sky” filing.
3.7 Title to
Assets. The Company and its Subsidiaries have good and
marketable title to all real property owned by them that is material to the
business of the Company and the Company and its Subsidiaries have good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens that do not, individually or in the aggregate, have or
result in a Material Adverse Effect. To the Company’s knowledge, any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid and subsisting leases of which the
Company and the Subsidiaries are in material compliance.
3.8 No Violation or
Default. Each of the Company and its Subsidiaries, as
applicable, is not in violation of or in default with respect to (i) its
Charter Documents or any material judgment, order, writ, decree, statute, rule
or regulation applicable to it; (ii) any material mortgage, indenture,
agreement, instrument or contract to which it is a party or by which it is bound
(nor is there any waiver in effect which, if not in effect, would result in such
a violation or default), (iii) any order of any court, arbitrator or
governmental body or (iv) any material statute, rule or regulation of any
governmental authority, where, in each case, such violation or default,
individually, or together with all such violations or defaults, could reasonably
be expected to have a Material Adverse Effect.
3.9 Litigation. No
actions (including, without limitation, derivative actions), suits, proceedings
or investigations are pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries at law or in equity
in any court or before any other governmental authority that if adversely
determined (a) would (alone or in the aggregate) reasonably be expected to
have a Material Adverse Effect or (b) seeks to enjoin, either directly or
indirectly, the execution, delivery or performance by the Company of the
Transaction Documents or the transactions contemplated thereby.
3.10 Taxes. Within
the times and in the manner prescribed by law, the Company and each of its
Subsidiaries (i) has filed all foreign, federal, state and local income and
all other material tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes, assessments
and penalties due and payable that are material in amount, shown or determined
to be due on such returns, reports and declarations, except those being
contested in good faith or those set forth in the Disclosure
Schedule 3.17(d) and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. Except
those disclosed in Schedule 3.17(d), there are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and, to the knowledge of the Company, there is no basis for any such
claim.
3.11 OTCBB
Compliance. The Company is in compliance with all requirements
for, and its Common Stock is quoted on the Electronic Over-the-Counter Bulletin
Board system.
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3.12 SEC
Documents. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the “Exchange
Act”). Such reports, schedules, forms, statements and other
documents together with any materials filed or furnished by the Company under
the Exchange Act, whether or not any such reports were required, are
collectively referred to herein as the “SEC Documents.” As
of their respective dates, the SEC Reports filed by the Company complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, and none of
the SEC Documents, when filed by the Company, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved (except
(a) as may be otherwise indicated in such financial statements or the notes
thereto, or (b) in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit
adjustments). All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or identified in the SEC
Documents, to the extent such agreements are required to be included or
identified pursuant to the rules and regulations of the SEC.
3.13 Absence of
Certain Changes. Since March 31, 2009, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations or prospects of the Company and its Subsidiaries, considered
together. Since March 31, 2009, the Company has not declared or
paid any dividends. Neither the Company nor any of its Subsidiaries
have taken any steps to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do
so.
3.14 Internal
Accounting Controls. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
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3.15 ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act. The Company is in compliance with applicable requirements
of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and applicable rules and regulations
promulgated by the SEC thereunder.
3.16 Disclosure
Controls and Procedures. The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 of the
General Rules and Regulations under the Exchange Act) that comply with the
requirements of the Exchange Act; such disclosure controls and procedures have
been designed to provide reasonable assurance that information required to be
disclosed by the Company and its Subsidiaries is accumulated and communicated to
the Company’s management, including the Company’s principal executive officer
and principal financial officer by others within those entities, and such
disclosure controls and procedures are effective.
3.17 Capitalization. The
authorized capital stock of the Company currently consists of 250,000,000 shares
of Common Stock of which 64,976,189 shares are issued and outstanding and
50,000,000 shares of Preferred Stock, $.001 par value (the “Preferred Stock”) of which
8,400,009 shares are issued and outstanding. All outstanding shares
of capital stock of the Company have been duly authorized, validly issued, and
are fully paid and non assessable.
(a) Except
as set forth in Section 3.17(a)
of the Disclosure Schedule, there are no outstanding shares of Common Stock,
Preferred Stock, options, rights, warrants, debentures, instruments, convertible
securities or other agreements or commitments obligating the Company to issue
any additional shares of its capital stock of any class. As of the
date of this Agreement, the Company’s Preferred Stock is convertible in Common
Stock at a ratio of one share of Preferred Stock for one share of Common
Stock.
(b) Except
as set forth in Section 3.17(b)
of the Disclosure Schedule, there are no (i) outstanding debt securities,
notes, credit agreements, credit facilities or other agreements, documents or
instruments evidencing indebtedness of the Company or by which the Company is or
may become bound; (ii) financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company; (iii) agreements or arrangements under which the Company is
obligated to register the sale of any of its securities under the Securities
Act; (iv) there are no outstanding securities or instruments of the Company
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem a security of the Company
(c) Except
as set forth on Section 3.17(c)
of the Disclosure Schedule, and except for customary adjustments as a result of
stock dividends, stock splits, combinations of shares, reorganizations,
recapitalizations, reclassifications or other similar events, (or in any
agreement providing rights to security holders) and 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 Investors) and will not result in
a right of any holder of securities to adjust the exercise, conversion, exchange
or reset price under such securities. To the knowledge of the
Company, except as disclosed in the SEC Documents and any Schedules filed with
the SEC pursuant to Rule 13d-1 of the Exchange Act by reporting persons or
in Section 3.17 of
the Disclosure Schedule, no Person or group of related Persons beneficially owns
(as determined pursuant to Rule 13d-3 under the Exchange Act), or has the
right to acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common
Stock.
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3.18 Issuance of
Notes, Common Stock and Adjustment Shares. The Notes are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
validly issued and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof. As of the Closing, the
Company shall have duly authorized and reserved for issuance a number of shares
of Common Stock which equals the number of shares of Common Stock issuable at
Closings pursuant to this Agreement. When issued, the Adjustment
Shares will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a holder of
Common Stock. The issuance by the Company of the Securities is exempt
from registration under the Securities Act.
3.19 Related Party
Transactions. No affiliate, officer, director, or any Related
Party is a party to any agreement with the Company. No employee of
the Company or any Related Party is indebted in any amount to the Company and,
except for accrued payroll obligations, the Company is not indebted to any of
its employees or any Related Party. For purposes of this Agreement,
“Related Party” shall
mean with respect to any specified Person (i) each Person who, together
with its affiliates, owns of record or beneficially at least five percent (5%)
of the outstanding capital stock of the specified Person as of the date of this
Agreement; (ii) each individual who is, or who has at any time been, an
officer or director of the specified Person; (iii) each affiliate of the
Persons referred to in clauses (i) and (ii) above; (iv) any trust or
other entity (other than the specified Person) in which any one of the Persons
referred to in clauses (i), (ii) and (iii) above holds (or in which more
than one of such Persons collectively hold), beneficially or otherwise, a
voting, proprietary or equity interest; and (v) any trust or other entity
(other than the specified Person) with which any of such Persons is
affiliated.
3.20 Off Balance Sheet
Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance
sheet entity that is required to be disclosed by the Company in its Exchange Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.
3.21 Patents and
Trademarks. To the Company’s knowledge, the Company and its
Subsidiaries own, or possess adequate rights or licenses to use, all trademarks,
trade names, service marks, service ▇▇▇▇ registrations, service names, patents,
patent applications, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now
conducted. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or its Subsidiaries regarding its Intellectual Property
Rights.
3.22 Insurance. The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses and location in which the Company and the
Subsidiaries are engaged. Neither the Company nor any of its
subsidiaries has sustained since the date of the latest unaudited financial
statements included in the SEC Documents any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the SEC Documents
Prospectus that would individually or in the aggregate result in a Material
Adverse Effect.
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3.23 Regulatory
Permits. To the Company’s knowledge, the Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Documents (“Material Permits”), except
where the failure to possess such permits does not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, and neither the Company nor any Subsidiary has received any written
notice of proceedings relating to the revocation or modification of any Material
Permit.
3.24 Employee
Relations. Neither the Company nor any of its Subsidiaries is
a party to any collective bargaining agreement or, to the Company’s knowledge,
employs any member of a union. No current executive officer of the
Company or any of its Subsidiaries has notified in writing the Company or any
such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or
any such Subsidiary. To the knowledge of the Company or any such
Subsidiary, no executive officer of the Company or any of its Subsidiaries is in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
such Subsidiary to any liability with respect to any of the foregoing
matters.
3.25 Labor
Matters. The Company and its Subsidiaries are in compliance in
all material respects with all federal, state, local and foreign laws and
regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
3.26 Environmental
Laws. To the Company’s knowledge, the Company and its
Subsidiaries (i) are in compliance in all material respects with any and
all Environmental Laws (as hereinafter defined), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance in all material respects with all terms and conditions of any such
permit, license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved
thereunder.
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3.27 Foreign Corrupt
Practices. Neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, any director, officer, agent, employee or
other Person acting on behalf of the Company or any of its Subsidiaries has, in
the course of its actions for, or on behalf of, the Company (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made or offered to
make any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or (iv) made or offered to make any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
3.28 Application of
Takeover Protections. Except as described in Section 3.28 of
the Disclosure Schedule, there is no control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Charter
Documents or the laws of its state of incorporation that is or could become
applicable to any of the Investors as a result of the Investors and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including, without limitation, as a result of the Company’s issuance
of the Securities and the Investors’ ownership of the Securities.
3.29 Regulation M
Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company.
3.30 General
Solicitation. Neither the Company, nor any of its affiliates,
nor any Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D
promulgated under the Securities Act) in connection with the offer or sale of
the Notes. As provided in Section 9.4
hereof, the Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commission (other than for
persons engaged by any Investor or its investment advisor) relating to or
arising out of the issuance of the Securities pursuant to this
Agreement.
3.31 No
Integration. Neither the Company nor any of its affiliates
nor, any Person acting on the Company’s behalf has, directly or indirectly, at
any time within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that would
(i) eliminate the availability of the exemption from registration under
Regulation D under the Securities Act in connection with the offer and sale
by the Company of the Securities as contemplated hereby or (ii) cause the
offering of the Securities pursuant to the Transaction Documents to be
integrated with prior offerings by the Company for purposes of any applicable
stockholder approval provisions. The Company is not required to be
registered as, and is not an affiliate of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended. The
Company is not required to be registered as a United States real property
holding corporation within the meaning of the Foreign Investment in Real
Property Tax Act of 1980.
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3.32 Private
Placement. Assuming the accuracy of the representations and
warranties of Investor contained in Section 4 of
this Agreement and the compliance by Investor with the provisions set forth
herein, it is not necessary, in connection with the issuance and sale of any
Securities, in the manner contemplated by the Transaction Documents, to register
any Securities under the Securities Act.
3.33 Registration
Rights. Except as described in Section 3.33 of
the Disclosure Schedule, the Company has not granted or agreed to grant to any
Person any rights (including “piggy-back” registration rights) to have any
securities of the Company registered with the SEC or any other governmental
authority that have not been satisfied or waived.
3.34 Disclosure;
Accuracy of Information Furnished. The Company confirms that
neither it nor any officers, directors or affiliates, has provided any of the
Investor or its agents or counsel with any information that constitutes or might
constitute material, nonpublic information (other than the existence and terms
of the issuance of Securities, as contemplated by this
Agreement). The Company understands and confirms that the Investor
may rely on the foregoing representations in effecting transactions in
securities of the Company. None of the Transaction Documents and none
of the other certificates, statements or information furnished to the Investor
by or on behalf of the Company in connection with the Transaction Documents or
the transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company acknowledges and
agrees that Investor makes or has made no representations or warranties with
respect to the transactions contemplated hereby other than those set forth in
the Transaction Documents.
3.35 Undisclosed
Liabilities. The Company has not undertaken or incurred any
liability or obligation, direct or contingent, except for liabilities or
obligations disclosed in the SEC Documents.
SECTION 4
Representations
and Warranties of the Investors
Each
Investor represents and warrants with respect to itself only that:
4.1 Authority and
Binding Obligation. The execution, delivery and performance by
Investor of the Transaction Documents and the consummation of the transactions
contemplated thereby (a) are within the power of Investor and (b) have
been duly authorized by all necessary actions on the part of the
Investor. Each Transaction Document has been, or will be, duly
executed and delivered by the Investor and constitutes, or will constitute, a
legal, valid and binding obligation of the Investor, enforceable against the
Investor in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors’ rights generally and general principles of
equity.
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4.2 No Public Sale or
Distribution. Investor is (i) acquiring the Notes and
Common Stock and (ii) upon the issuance of Adjustment Shares, will acquire
such Adjustment Shares, as applicable, in the ordinary course of business for
its own account and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act and Investor does not have a present
arrangement to effect any distribution of the Securities to or through any
person or entity; provided, however, that by
making the representations herein, Investor does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities
Act. Investor is acquiring the Securities hereunder in the ordinary
course of its business. Investor does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
4.3 Securities Law
Compliance. Investor understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and Investor’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of Investor to acquire the
Securities. Investor has not been formed solely for the purpose of
making this investment and is purchasing the Securities for its own account for
investment, not as a nominee or agent, and not with a view to, or for resale in
connection with, the distribution thereof. The Investor has such
knowledge and experience in financial and business matters that the Investor is
capable of evaluating the merits and risks of such investment, is able to incur
a complete loss of such investment and is able to bear the economic risk of such
investment for an indefinite period of time. Investor is an
accredited investor as such term is defined in Rule 501 of
Regulation D under the Securities Act.
4.4 Access to
Information. Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by Investor. Investor and its advisors, if
any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence
investigations conducted by Investor or its advisors, if any, or its
representatives shall modify, amend or affect Investor’s right to rely on the
Company’s representations and warranties contained herein. Investor
understands that its investment in the Securities involves a high degree of risk
and is able to afford a complete loss of such investment. Investor
has sought such accounting, legal and tax advice as it has considered necessary
to make an informed investment decision with respect to its acquisition of the
Securities.
4.5 No Governmental
Review. Investor understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
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4.6 Transfer or
Resale. Investor understands that except as provided in Section 5.1
(Registration Rights) hereof: (i) the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) Investor shall have
delivered to the Company an opinion of counsel, in a form reasonably acceptable
to the Company, to the effect that such Securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) Investor provides the Company with reasonable
assurance that such Securities can be sold, assigned or transferred pursuant to
Rule 144 or Rule 144A promulgated under the Securities Act
(collectively, “Rule 144”); (ii) any
sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. Notwithstanding the foregoing, the Securities may be
pledged in connection with a bona fide margin account or other loan secured by
the Securities and such pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and Investor in
effecting a pledge of Securities shall not be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document, including, without
limitation, this Section 4.6;
provided, that
in order to make any sale, transfer or assignment of Securities, Investor and
its pledgee makes such disposition in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.
4.7 Legends. Investor
understands that the certificates or other instruments representing the Notes
and certificates evidencing the Common Stock and Adjustment Shares, except as
set forth below, shall bear any legend as required by the “blue sky” laws of any
state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):
THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
4.8 Residency. Investor
is a resident of that jurisdiction specified below its address on the Schedule
of Investors.
4.9 Broker-Dealer
Status. Investor is a not a registered
broker-dealer.
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4.10 Foreign
Investors. If Investor is not a United States person (as
defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended (the “Code”)),
Investor hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the Securities or any use of this Agreement, including
(a) the legal requirements within its jurisdiction for the purchase of the
Securities, (b) any foreign exchange restrictions applicable to such
purchase, (c) any governmental or other consents that may need to be
obtained, and (d) the income tax and other tax consequences, if any, that
may be relevant to the purchase, holding, redemption, sale, or transfer of the
Securities. Investor’s subscription and payment for and continued
beneficial ownership of the Securities will not violate any applicable
securities or other laws of the Investor’s jurisdiction.
SECTION 5
Certain
Agreements
5.1 Piggyback
Registration Rights.
(a) Registration
Requirements. If, at any time, the Company files a
registration statement after the execution of this Agreement if, the Company
proposes to register any of its securities under the Securities Act (other than
pursuant to Form ▇-▇, ▇▇▇▇ ▇-▇ or any successor form of limited purpose), the
Company will give notice at least 20 days prior to the filing of each such
registration statement to the Investor (or any transferee of Investor’s
interests hereunder) of its intention to effect such a registration and will
include in such registration all Common Stock and Adjustment Shares with respect
to which the Company has received requests for inclusion therein within 10 days
after receipt of the Company’s notice. In connection with any
offering involving an underwriting of shares of the Company’s capital stock, the
Company shall not be required to include any of the Common Stock and Adjustment
Shares in such underwriting unless Investor accepts the terms of the
underwriting as agreed upon between the Company and its underwriters, and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If
the total number of securities, including the Common Stock and Adjustment
Shares, requested by stockholders to be included in such offering exceeds the
amount of securities to be sold other than by the Company that the underwriters
determine in their reasonable discretion is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including the Common Stock and Adjustment
Shares, which the underwriters and the Company determine in their sole
discretion will not jeopardize the success of the offering.
(b) The
Company shall use its best efforts to:
(i) furnish
to the Investor with respect to the Common Stock and Adjustment Shares
registered under the registration statement such number of copies of the
registration statement and the prospectus (including supplemental prospectuses)
filed with the SEC in conformance with the requirements of the Securities Act
and other such documents as the Investor may reasonably request, in order to
facilitate the public sale or other disposition of all or any of the Common
Stock and Adjustment Shares by the Investor;
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(ii) make
any necessary blue sky filings to permit the Common Stock and Adjustment Shares
to be sold in any state requested by the Investor;
(iii) pay
the expenses incurred by the Company and the Investor in complying with this
Section 5.1,
including, all registration and filing fees, FINRA fees, exchange listing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (and including attorneys’ fees of one counsel to
Investor, but excluding any and all underwriting discounts and selling
commissions applicable to the sale of Common Stock and Adjustment Shares by
Investor);
(iv) advise
Investor, promptly after it shall receive notice or obtain knowledge of the
issuance of any stop order by the SEC delaying or suspending the effectiveness
of the registration statement or of the initiation of any proceeding for that
purpose; and it will promptly use its commercially reasonable best efforts to
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued; and
(v) with
a view to making available to the Investor the benefits of Rule 144 and any
other rule or regulation of the SEC that may at any time permit the Investor to
sell Common Stock and Adjustment Shares to the public without registration, the
Company covenants and agrees to use its commercially reasonable best efforts
to: (i) make and keep public information available, as those
terms are understood and defined in Rule 144, until the earlier of
(A) such date as all of the Common Stock and Adjustment Shares qualify to
be resold pursuant to Rule 144 within any 90 day period without restriction
or any other rule of similar effect or (B) such date as all of the Common
Stock and Adjustment Shares shall have been resold; (ii) file with the SEC
in a timely manner all reports and other documents required of the Company under
the Securities Act and under the Exchange Act; and (iii) furnish to the
Investor upon request, as long as the Investor owns any Common Stock or
Adjustment Shares, (A) a written statement by the Company as to whether it
has complied with the reporting requirements of the Securities Act and the
Exchange Act, (B) a copy of the Company’s most recent Annual Report on Form
10-K or Quarterly Report on Form 10-Q, and (C) such other information as
may be reasonably requested in order to avail the Investor of any rule or
regulation of the SEC that permits the selling of any such Common Stock or
Adjustment Shares without registration.
The
Company understands that the Investor disclaims being an underwriter, but
acknowledges that a determination by the SEC that the Investor is deemed an
underwriter shall not relieve the Company of any obligations it has
hereunder.
(c) For
the purpose of this Section 5.1:
(i) the
term “Selling
Shareholder” shall mean the Investor, its executive officers and
directors and each person, if any, who controls the Investor within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act;
(ii) the
term “Registration
Statement” shall include any final prospectus, exhibit, supplement or
amendment included in or relating to, and any document incorporated by reference
in, the Registration Statement (or deemed to be a part thereof) referred to in
this section; and
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(iii) the
term “untrue statement”
shall mean any untrue statement or alleged untrue statement of a material fact,
or any omission or alleged omission to state in the Registration Statement a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(d) The
Company agrees to indemnify and hold harmless each Selling Shareholder from and
against any losses, claims, damages or liabilities to which such Selling
Shareholder may become subject (under the Securities Act or otherwise) insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon (i) any untrue statement
of a material fact contained in the Registration Statement, (ii) any
inaccuracy in the representations and warranties of the Company contained in
this Agreement or the failure of the Company to perform its obligations
hereunder or (iii) any failure by the Company to fulfill any undertaking
included in the Registration Statement, and the Company will reimburse such
Selling Shareholder for any reasonable legal expense or other actual accountable
out-of-pocket expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; provided, however, that the
Company shall not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an untrue statement
made in such Registration Statement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Selling
Shareholder specifically for use in preparation of the Registration Statement or
the failure of such Selling Shareholder to comply with its covenants and
agreements contained herein or any statement or omission in any prospectus that
is corrected in any subsequent prospectus that was delivered to the Selling
Shareholder prior to the pertinent sale or sales by the Selling
Shareholder.
(e) The
Investor agrees to indemnify and hold harmless the Company (and each person, if
any, who controls the Company within the meaning of Section 15 of the
Securities Act, each officer of the Company who signs the Registration Statement
and each director of the Company) from and against any losses, claims, damages
or liabilities to which the Company (or any such officer, director or
controlling person) may become subject (under the Securities Act or otherwise),
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any
failure by that Investor to comply with the covenants and agreements contained
herein or (ii) any untrue statement of a material fact contained in the
Registration Statement if, and only if, such untrue statement was made in
reliance upon and in conformity with written information furnished by or on
behalf of the Investor specifically for use (and identified as such) in
preparation of the Registration Statement, and the Investor will reimburse the
Company (or such officer, director or controlling person, as the case may be),
for any reasonable legal expense or other reasonable actual accountable
out-of-pocket expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim. The
obligation to indemnify shall be limited to the net amount of the proceeds
received by the Investor from the sale of the Common Shares pursuant to the
Registration Statement.
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(f) Promptly
after receipt by any indemnified person of a notice of a claim or the beginning
of any action in respect of which indemnity is to be sought against an
indemnifying person pursuant to this Section 5.1,
such indemnified person shall notify the indemnifying person in writing of such
claim or of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party under this Section 5.1
(except to the extent that such omission materially and adversely affects the
indemnifying party’s ability to defend such action) or from any liability
otherwise than under this Section 5.1(f). Subject
to the provisions hereinafter stated, in case any such action shall be brought
against an indemnified person, the indemnifying person shall be entitled to
participate therein, and, to the extent that it shall elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, shall be entitled to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified
person. After notice from the indemnifying person to such indemnified
person of its election to assume the defense thereof (unless it has failed to
assume the defense thereof and appoint counsel reasonably satisfactory to the
indemnified party), such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however, that if
there exists or shall exist a conflict of interest that would make it
inappropriate, in the reasonable opinion of counsel to the indemnified person,
for the same counsel to represent both the indemnified person and such
indemnifying person or any affiliate or associate thereof, the indemnified
person shall be entitled to retain its own counsel (who shall not be the same as
the opining counsel) at the expense of such indemnifying person; provided, however, that no
indemnifying person shall be responsible for the fees and expenses of more than
one separate counsel (together with appropriate local counsel) for all
indemnified parties. In no event shall any indemnifying person be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could reasonably have been a party and indemnification
could have been sought hereunder by such indemnified person, unless such
settlement includes an unconditional release of such indemnified person from all
liability on claims that are the subject matter of such proceeding.
(g) If
the indemnification provided for in this Section 5.1 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (d) or (e) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Investor on
the other in connection with the statements or omissions or other matters which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, in the
case of an untrue statement, whether the untrue statement relates to information
supplied by the Company on the one hand or the Investor on the other and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement. The Company and Investor
agree that it would not be just and equitable if contribution pursuant to this
subsection (g) were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to above in this subsection (g). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (g) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this subsection (g), Investor shall not be required to
contribute any amount in excess of the amount by which the net amount received
by the Investor from the sale of the Common Stock and/or Adjustment Shares to
which such loss relates exceeds the amount of any damages which the Investor has
otherwise been required to pay to the Company by reason of such untrue
statement. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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(h) The
Company, and the Investor by its acceptance of this Agreement, hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 5.1, and
are fully informed regarding said provisions. They further
acknowledge that the provisions of this Section 5.1
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement as required by the Securities Act and the Exchange
Act.
(i) The
Company may request the Investor to furnish the Company with such information
with respect to the Investor and the Investor’s proposed distribution of
securities being purchased hereunder pursuant to the Company Registration
Statement, as applicable, as the Company may from time to time reasonably
request in writing or as shall be required by law or by the SEC in connection
therewith, and the Investor agrees to furnish the Company with such information
as a condition to the inclusion of any of the Investor’s Securities in such
Company Registration Statement.
(j) The
obligations of the Company and of the Investor under this Section 5.1
shall survive completion of any offering of Common Stock or Adjustment Shares in
such Registration Statement for a period of two years from the effective date of
the Registration Statement. No indemnifying party, in the defense of
any such claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
5.2 Certain Covenants
and Agreements.
(a) Defined
Terms. When used herein, the following terms shall have the
respective meanings indicated:
(i) “Capital Expenditures” means
all amounts paid by the Chepen Operating Company in connection with the purchase
of plant, machinery or equipment (including vehicles) or other similar
expenditures (including leases of any of the foregoing) which, in accordance
with GAAP, would be required to be capitalized and shown on the balance sheet of
Chepen Operating Company, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed
(i) from insurance proceeds (or other similar recoveries) paid on account
of the loss of or damage to the assets being replaced or restored or
(ii) with awards of compensation arising from the taking by eminent domain
or condemnation of the assets being replaced.
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(ii) “Change of Control” means
(i) any “person” or “group” (within the meaning of Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of more than 50% of the
outstanding voting securities of the Company having the right to vote for the
election of members of the Board of Directors, (ii) any reorganization,
merger or consolidation of the Company, other than a transaction or series of
related transactions in which the holders of the voting securities of the
Company outstanding immediately prior to such transaction or series of related
transactions retain, immediately after such transaction or series of related
transactions, at least a majority of the total voting power represented by the
outstanding voting securities of the Company or such other surviving or
resulting entity or (iii) a sale, lease or other disposition of all or
substantially all of the assets of the Company.
(iii) “Debt” means, with respect to
the Chepen Operating Company, at the specified time of determination, the sum of
the following, but without duplication, in accordance with GAAP:
(1) all
obligations for borrowed money, including obligations evidenced by bonds,
debentures, notes or other similar instruments and accruals for interest not yet
earned, but excluding any and all indebtedness incurred in the ordinary course
of business owed to or for, trade creditors, financial institutions, vendors,
employees, consultants, professionals, taxes, supplies, raw material and for
other similar purposes;
(2) every
reimbursement obligation with respect to letters of credit, bankers’ acceptances
or similar facilities that is issued to support an obligation for borrowed money
or that creates an obligation under a credit facility pursuant to which
obligations for borrowed money are created; and
(3) every
obligation as a guarantor with respect to the items referenced in
(1)-(2).
(iv) “Excess Cash Flow” for the
Chepen Operating Company means, the Net Income for such period plus, without
duplication:
(1) depreciation,
amortization (including amortization of intangibles but excluding amortization
of prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of the Chepen
Operating Company for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such Net
Income; plus
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(2) non-cash
items decreasing such Net Income for such period, other than (a) the
accrual of revenue in the ordinary course of business and (b) the reversal
in such period of an accrual of, or cash reserve for, cash expenses in a prior
period, to the extent such accrual or reserve did not decrease Excess Cash Flow
in a prior period; minus
(3) any
other Selling, General and Administrative Expenses not included in the
calculation of Net Income with respect to such period; minus
(4) the
cash portion of Fixed Charges and the cash portion of any related one-time,
non-recurring expenses or charges related to any equity offering, investment,
acquisition, disposition, recapitalization, restructuring, integration or Debt
with respect to such period; minus
(5) Capital
Expenditures for such period to the extent not deducted in computing Net Income;
minus
(6) any
reduction in the principal amount of Debt resulting from principal payments made
thereon during such period in accordance with the terms of such Debt to the
extent not deducted in computing Net Income;
in each
case, on a consolidated basis with respect to the Chepen Operating Company and
its subsidiaries, if any, and determined in accordance with GAAP.
(v) “GAAP” means generally accepted
accounting principles as in effect from time to time in the United States of
America, applied on a consistent basis.
(vi) “Issuer Party” means the
Company or any Subsidiary of the Company and “Issuer Parties” means all of
them.
(vii) “Net Income” means the net
income (loss) of the Chepen Operating Company for a given period determined in
accordance with GAAP and before any reduction in respect of dividends,
redemptions or distributions to equity holders.
(b) So
long as the Notes are outstanding and until the Notes have been repaid in
full:
(i) The
Company shall operate its business and that of its Subsidiaries in accordance
with the business plan and budget presented to Investors and set forth at Exhibit B
hereto and, in any event, up until the closing of the Interbank Facility with
monthly cash expenditures no greater than $230,000 (excluding any salary
deferral taken by five (5) of the highest paid employees of Company) without the
consent of the Investors. Not withstanding the foregoing, from the
Closing until the closing of the Interbank Facility, the Company shall be
permitted to undertake up to $55,000 in deferred overhead expenses on a monthly
basis without the consent of the Investors;
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(ii) Without
limiting the foregoing, the Company shall obtain the consent of Investors prior
to undertaking any material expenditure of Company or Company Subsidiary funds
and prior to undertaking any disposition of material assets, which consent shall
not be unreasonably withheld or delayed;
(iii) The
Company shall deliver to Investors, (i) unaudited monthly financial
reports, (ii) a bi-weekly accounting of the Company’s cash balance in a
format reasonably acceptable to the Company and Investors and (iii) when
and for so long as available and until the expiration of Blue Day SC Ventures’
right to receive Participation Payments described in Section 5.2(f)
below, monthly calculations of Excess Cash Flow from the Chepen Project, in each
case with such information to be received and held by Investors subject to the
terms of a reasonably acceptable confidentiality agreement and applicable
securities laws;
(iv) Neither
the Company nor any of its Subsidiaries shall incur or agree to incur any
indebtedness for borrowed money or financed equipment, or any sort of trade debt
in excess of $50,000 individually or $100,000 in the aggregate without the
consent of Investors, except in the case of the Interbank Facility;
and
(v) Neither
the Company nor any of its Subsidiaries shall pledge, encumber or grant any
security interest in any of their respective assets to any party without
obtaining the consent of Investors, except in the case of the Interbank
Facility.
(c) Until
the closing of the Interbank Facility, neither the Company nor any of its
Subsidiaries shall increase the compensation, benefits or other remuneration
payable to any employee or contractor to the Company or hire any new employee or
contractor with annual compensation in excess of $50,000 without the consent of
Investors.
(d) Further
Assurances on Perfection of Security Interests. The Company
and its Subsidiaries agree to execute such further documents and instruments and
to take such further actions that Investors or either of them might reasonably
request to carry out the purposes and intent of this Agreement and the Security
Agreement in creating first priority security interests in favor of Investors
over all of the assets of the Company and its Subsidiaries, including taking
such actions as required to perfect the security interests of Investors in the
assets of the Company and its Subsidiaries (including, for the avoidance of
doubt, the Chepen Operating Company and its majority owned subsidiaries, if
any); provided,
however that
the Investors agree to subordinate their security interests to Interbank if and
when the Interbank Facility closes. In addition, the Company, on its
own behalf and on behalf of its Subsidiaries, hereby designates and appoints
Investors and each of them as duly authorized agents and attorneys-in-fact to
act for and on behalf of the Company and its Subsidiaries and to execute and
file any document and to do all other lawfully permitted acts necessary to
perfect Investors’ rights under this Agreement and the Security Agreement with
the same legal force and effect as if executed by the Company or such
Subsidiary(ies) as applicable. In addition to and not in limitation
of the foregoing, the Company and its subsidiaries shall take such actions as
required to (i) create valid and perfected security interests in favor of
Investors in all assets in which Interbank takes a security interest in
connection with the Interbank Facility, such security interests in favor of
Investors to be of second rank and priority, subject only to the first ranking
security interests created in favor of Interbank, (ii) to extinguish or
subordinate to the security interests of Investors (and Interbank, as
applicable) security interests existing as of the date of this Agreement,
including that security interest held by Grey K LP, a Delaware limited
partnership, Grey K Offshore Fund, Ltd., a Cayman Island exempt company,
and Grey K Offshore Leveraged Fund, Ltd., a Cayman Island exempt company
(collectively, “Grey K”) in the
environmental attributes of the Company and its Subsidiaries and (iii) to
provide notice to Investors prior to the formation of any new Company direct or
indirect Subsidiaries, to have such Subsidiaries assume the obligations of the
Transaction Documents as if an original party thereto and to provide such
documents, instruments and agreements to permit the perfection of the Investors’
security interests over the assets of such Subsidiaries.
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(e) Prepayment of the
Notes from Chepen Project Excess Cash Flows. From and after
March 15, 2011, the Company shall direct ninety percent (90%) of the monthly
Excess Cash Flow of the Chepen Operating Company to the prepayment of the Notes
pro rata in accordance with their terms. Prepayments of the Notes
from Excess Cash Flow shall be made quarterly in arrears no later than ten (10)
days after the end of each quarter.
(f) Blue Day SC
Ventures Cash Flow Participation in Chepen Project Excess Cash
Flow. For a period of five (5) years from and after the date
that all Obligations (as defined in the Notes) with respect to the Notes are
satisfied (the “Cash Flow
Payment Term”), Blue Day SC Ventures or its designee shall be entitled to
receive payments (the “Participation Payments”) from
the Chepen Operating Company equal to fifteen percent (15%) of the Excess Cash
Flow of the Chepen Operating Company. Such payments from Excess Cash
Flow shall be made quarterly in arrears no later than ten (10) days after the
end of each quarter. In the event that there has not been a Change of
Control of the Company or the Chepen Operating Company during the Cash Flow
Payment Term, then Blue Day SC Ventures’ right to receive Participation Payments
automatically shall be extended for one additional year. In the event
that there is a Change of Control of the Company or the Chepen Operating Company
during the initial Cash Flow Payment Term, Blue Day SC Ventures will be entitled
to receive a one time payment in the amount equal to fifteen percent (15%) of
eighty percent (80%) of the projected Excess Cash Flow from the Chepen Project
(as set forth in the business plan and budget presented to Investors and set
forth at Exhibit B
hereto) for the remaining portion of the Cash Flow Payment Term.
(g) Funding of Phase
1 of the Chepen Project. The parties understand and agree that
the Chepen Operating Company is contemplated to be a special purpose vehicle to
which funds from the Interbank Facility, and certain additional funds (the
“Additional Chepen
Financing”) will be directed as required to meet capital needs of the
Chepen Project. In the event that investors in the Additional Chepen
Financing receive, individually or in the aggregate and in one or a series of
transactions, an equity position or equity participation in the Chepen Operating
Company of greater than twenty (20%) on a fully diluted basis (the “Protected Threshold”), then
the aggregate principal amount of the Notes purchased by the Investors in the
Initial Closing shall be increased by a formula:
(i) in
the case of I2BF equal to $250,000 for each percentage point by which the equity
sold to investors in the Chepen Operating Company exceeds the Protected
Threshold multiplied by a fraction, the numerator of which is (1) the
principal amount of the Notes purchased by I2BF at the Initial Closing and the
Balance Closing, if any, pursuant to the terms hereof and (2) the
denominator of which is the sum of (a) the principal amount of the Notes
purchased by I2BF at the Initial Closing and (b) $1,725,000;
and
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(ii) in
the case of Blue Day SC Ventures equal to $200,000 for each percentage point by
which the equity sold to investors in the Chepen Operating Company exceeds the
Protected Threshold.
The
increase in the aggregate principal of such Notes shall be evidenced by a
certificate setting forth the increase, executed and delivered by the Secretary
of the Company within three (3) business days of the consummation of the
transaction or series of transactions giving rise to such increase, and such
certificate shall be appended to the Note. The increase in principal
amount shall be effective from the date of the closing of the transaction giving
rise to the adjustment, and interest shall accrue from such time.
(h) Assurance on
Share Percentages. The parties hereto agree and acknowledge
that Investors and the Company have agreed to the issuance of Common Stock based
on negotiated percentage ownership stakes in the Company. In the
event that the representations and warranties of the Company are incorrect or in
the event that, as a result of inconsistencies, errors in this Agreement or the
records of the Company or otherwise, the grants of Common Stock to Investors do
not represent the percentage stakes set out in this Agreement for each such
Investor, the Company will take any and all such actions, including, but not
limited to authorizing and issuing additional shares to Investor(s), as required
to provide the Investors with the percentage ownership agreed upon, subject to
dilution, if any and as applicable, for subsequent transactions and
issuances.
SECTION 6
ANTIDILUTION
6.1 Defined
Terms. When used herein, the following terms shall have the
respective meanings indicated:
(a) “Additional Shares of Common”
shall mean all shares of Common Stock issued (or, pursuant to Section 6.3
below, deemed to be issued) by the Company after the Initial Closing, other than
issuances or deemed issuances of:
(i) shares
of Common Stock and options, warrants or other rights to purchase Common Stock
issued or issuable to employees, officers or directors of, or consultant or
advisors to the Company or any Subsidiary and currently authorized and reserved
for issuance pursuant to stock grants, restricted stock purchase agreements,
option plans, purchase plans, incentive programs or similar arrangements in
place as of the Initial Closing;
(ii) shares
of Common Stock issued upon the exercise or conversion of options or Convertible
Securities outstanding as of the Initial Closing;
(iii) shares
of Common Stock issued or issuable as a dividend or distribution on the Common
Stock; and
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(iv) shares
of Common Stock specifically excluded from this definition after the Initial
Closing by the written consent of the Investors.
(b) “Convertible Securities” shall
mean any evidences of indebtedness, shares or other securities convertible into
or exchangeable for Common Stock.
(c) “Dilutive Issuance” means any
issuance (or, pursuant to Section 6.3
below, any deemed issuance) of Additional Shares of Common at a purchase price
per share less than the Protected Price.
(d) “Options” shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities.
(e) “Protected Price” means $0.40
per share of Common Stock, as adjusted for stock splits, stock dividends,
combinations, recapitalizations and similar transactions.
(f) “Qualified Financing” is a bona
fide transaction or series of transactions led by one or more new outside
investor(s) considered and approved by the Board of Directors and pursuant to
which the Company issues and sells equity securities for aggregate gross
proceeds of at least $35,000,000 (excluding all proceeds from the incurrence of
indebtedness that is converted into such equity securities, or otherwise
cancelled in consideration for the issuance of such equity securities) at a
pre-money valuation of the Company of at least $80,000,000 and with the
principal purpose of raising capital.
6.2 Adjustment
Shares. Until the earliest to occur of (i) the date that
is five (5) years from the date of the Initial Closing, (ii) a Change of
Control or (iii) a Qualified Financing, Investors shall be entitled to
receive, on the term set forth below, additional shares of Common Stock (the
“Adjustment Shares”) in
the event of any Dilutive Issuance. Concurrent with any Dilutive
Issuance, each Investor shall be entitled to receive Adjustment Shares in such
number that, immediately following the Dilutive Issuance, such Investor’s
percentage ownership of the Company shall be equal to Investor’s percentage
ownership of the Company immediately prior to such Dilutive Issuance, in each
case on a fully diluted, as converted and as exercised basis.
6.3 Deemed Issuance
of Additional Shares of Common. In the event the Company at
any time or from time to time after the Initial Closing shall issue any Options
or Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities, the
conversion or exchange of such Convertible Securities or, in the case of Options
for Convertible Securities, the exercise of such Options and the conversion or
exchange of the underlying securities, shall be deemed to have been issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that in any
such case in which shares are deemed to be issued no further Adjustment Shares
shall be issued upon the subsequent issue of Convertible Securities or shares of
Common Stock in connection with the exercise of such Options or conversion or
exchange of such Convertible Securities.
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6.4 Determination of
Purchase Price Per Share. For the purpose of determining the
purchase price per share of Additional Shares of Common issued or deemed to be
issued (and therefore, whether or not a given issuance or deemed issuance of
Additional Shares of Common is a Dilutive Issuance), the consideration to the
Company shall be computed as described below and divided by the number of
Additional Shares of Common issued or deemed to be issued pursuant to Section 6.3:
(a) Cash and
Property. Consideration to the Company shall:
(i) insofar
as it consists of cash, be computed at the aggregate amount of cash received by
the Company before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with such issuance;
(ii) insofar
as it consists of property other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in good faith by the Board of
Directors; and
(iii) in
the event Additional Shares of Common are issued together with other shares or
securities or other assets of the Company for consideration which covers both,
be the proportion of such consideration so received, computed as provided in
clauses (i) and (ii) above, as reasonably determined in good faith by the
Board of Directors.
(b) Options and Convertible
Securities. The consideration per share received by the
Company for Additional Shares of Common deemed to have been issued pursuant to
Section 6.3
shall be determined by dividing:
(i) the
total amount, if any, received or receivable by the Company as consideration for
the issue of such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities by
(ii) the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
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6.5 Issuance of
Adjustment Shares. The Adjustment Shares issuable with respect
to a Dilutive Issuance shall be deemed to have been issued immediately prior to
the close of business on the date of the closing of such Dilutive Issuance, and
the Investor entitled to receive such Adjustment Shares shall be treated for all
purposes as the holder of record of such Adjustment Shares as of the close of
business on such date. As promptly as reasonably practicable on or
after such date, the Company shall issue and deliver to the Investor or
Investors entitled to receive the same a certificate or certificates for that
number of Adjustment Shares issuable to such Investor with respect to the
Dilutive Transaction. No fractional shares or scrip representing
fractional shares shall be issued as Adjustment Shares in connection with any
Dilutive Issuance. In lieu of such fractional share to which Investor
would otherwise be entitled, the number of Adjustment Shares shall be rounded up
to the next whole number of shares.
6.6 Limitations. Investors
acknowledge that the Company may be limited in the number of Adjustment Shares
it may issue at any given time by the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded
(collectively, the “Cap
Regulations”). Without limiting the other provisions hereof,
(i) the Company will take all steps reasonably necessary to be in a
position to issue Adjustment Shares without violating the Cap Regulations,
including convening a stockholder’s meeting for the approval of share issuances
and recommending formally to the stockholders the adoption of such proposals,
and (ii) if, despite taking such steps, the Company still can not issue
such shares of Adjustment Shares without violating the Cap Regulations, the
Adjustment Shares at any time being issued to an Investor shall be reduced to
comply with Cap Regulations with (i) the balance of the Adjustment Shares
held in reserve and (ii) Investor being issued such number of additional
Adjustment Shares to bring Investor to its full original entitlement thereto as
soon as and at such time as sufficient shares are available to be issued in
accordance with the Cap Regulations.
SECTION 7
Conditions
to the Investors’ Obligation to Close
Each
Investor’s obligations at the Closing are subject to the fulfillment, on or
prior to the Closing Date, of all of the following conditions, any of which may
be waived in whole or in part by the Investor:
7.1 Representations
and Warranties. The representations and warranties made by the
Company in Section 3 hereof
shall have been true and correct when made, and shall be true and correct on the
Closing Date.
7.2 Performance. The
Company shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by the Company on or before such
Closing.
7.3 Governmental
Approvals and Filings. The Company shall have obtained all
governmental approvals required in connection with the lawful sale and issuance
of the Notes, the Common Stock and the Adjustment Shares.
7.4 Legal
Requirements. At the Closing, the sale and issuance by the
Company, and the purchase by the Investors, of the Notes and the Common Stock
shall be legally permitted by all laws and regulations to which the Investors or
the Company are subject.
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7.5 Proceedings and
Documents. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Investors.
7.6 Transaction
Documents. The Company shall have duly executed and delivered
to the Investor each of the Transaction Documents, including the Security
Agreement in the form attached hereto as Exhibit D.
7.7 Salary
Deferral. As of the Initial Closing, the Company shall have
deferred the salaries of five (5) of highest paid employees salaries by fifty
percent (50%) from their May 1, 2009 levels until the closing of the
Interbank Facility. ▇▇▇ ▇▇▇▇▇▇’▇ salary is expressly excluded from
this Deferral.
7.8 Whitebox
Restructuring. The Company shall have received from Whitebox a
binding, unconditional payoff letter in form and substance acceptable to
Investors, which shall provide for the complete satisfaction and release by
Whitebox of all obligations of the Company and its Subsidiaries to Whitebox and
the extinguishment of all equity interests of Whitebox in the Company upon the
payment to Whitebox by or on behalf of the Company of two million dollars
($2,000,000).
7.9 Waiver of
Participation Rights. The Company shall have obtained waivers
from all parties having rights to participate in the offering, contractual or
otherwise.
7.10 Compliance
Certificate. The President of the Company shall deliver to the
Investors at Closing a certificate certifying that the conditions specified in
Sections 7.1 and 7.2 have been fulfilled.
7.11 Secretary’s
Certificate. The Secretary of the Company shall deliver to the
Investors at Closing a certificate attaching and certifying to the truth and
correctness of the resolutions of the Company’s Board of Directors adopted in
connection with the transactions contemplated by this Agreement.
7.12 Good Standing
Certificates. The Company shall have delivered to Investors
(i) a certificate of the Secretary of State of the State of Nevada, with
respect to the good standing of the Company, (ii) a certificate of good
standing from the applicable governmental entity in each jurisdiction where the
Company is required to be qualified to do business, and (iii) with respect
to each of the Company’s Subsidiaries, (X) a certificate of good standing
(or equivalent document) from the Secretary of State (or equivalent governmental
entity) of the jurisdiction of incorporation or organization of such Subsidiary,
and (Y) a certificate of good standing from the applicable governmental
entity in each jurisdiction where it is required to be qualified to do business,
all of which are dated within five (5) Business Days prior to the
Closing.
7.13 Opinion. The
Investor shall have received from counsel for the Company, an opinion, dated as
of the Closing Date, in form and substance reasonably satisfactory to the
Investor and as attached hereto as Exhibit E.
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7.14 Amended and
Restated Certificate of Designations. The Board of Directors
of the Company and the requisite stockholders of the Company shall have
approved, and the Company shall have duly filed with the Secretary of State of
the State of Nevada, the Amended and Restated Certificate of Designation,
Powers, Preferences and Rights of Series A Preferred Stock, substantially in the
form set forth at Exhibit
F.
SECTION 8
Conditions
to Company’s Obligation to Close
The
Company’s obligation to issue and sell the Notes and the Common Stock at the
Closing is subject to the fulfillment, on or prior to the Closing Date, of the
following conditions, any of which may be waived in whole or in part by the
Company:
8.1 Representations
and Warranties. The representations and warranties made by the
Investor in Section 4 shall
be true and correct when made, and shall be true and correct on the Closing
Date.
8.2 Performance. Investor
shall have performed and complied with all covenants, agreements, obligations
and conditions contained in this Agreement that are required to be performed or
complied with by them on or before such Closing.
8.3 Governmental
Approvals and Filings. The Company shall have obtained all
governmental approvals required in connection with the lawful sale and issuance
of the Notes and the Common Stock.
8.4 Legal
Requirements. At the Closing, the sale and issuance by the
Company, and the purchase by the Investor, of the Notes and Common Stock shall
be legally permitted by all laws and regulations to which the Investor or the
Company are subject.
8.5 Purchase
Price. Investor shall have delivered to the Company the
Purchase Price.
SECTION 9
Miscellaneous
9.1 Fees and Expenses
of I2BF Counsel. Upon the Closing, the Company shall pay the
reasonable fees and expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.,
the counsel for I2BF, in an amount not to exceed, in the aggregate, $45,000,
which fees and expenses shall be documented by I2BF prior to payment of such
fees and expenses. At the Closing, the Company will remit such amount
by wire transfer directly to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. on
behalf of the Company.
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9.2 Fees and Expenses
of Marc Investment’ Counsel. Upon the Closing, the Company
shall pay the reasonable fees and expenses of Law Offices of ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ & Associates, the counsel for Blue Day SC Ventures, in an
amount not to exceed, in the aggregate, $10,000, which fees and expenses shall
be documented by Blue Day SC Ventures prior to payment of such fees and
expenses. At the Closing, the Company will remit such amount by wire
transfer directly to Law Offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ & Associates
on behalf of the Company. Except for the amounts payable herein and
above, the Company shall not be liable for and shall have no obligation to pay
the fees and expenses of counsel to any other Investor
9.3 Fees and Expenses
of Company Counsel. Upon the Closing, the Company shall pay
the fees and expenses of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ PLLC, the counsel for Company, in an
amount of $25,000 plus
any expenses, which any expenses shall be documented by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, PLLC
prior to payment of such and expenses. At the Closing, the Company
will remit such amount by wire transfer directly to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, PLLC. on
behalf of the Company.
9.4 Finder’s Fees and
Commissions. Except for the placement agent commission payable
by the Company to Citation Capital Management Limited, an investment advisory
company authorized and regulated by the Financial Services Authority of the
United Kingdom in the amount of approximately eighty seven thousand dollars
($87,000), each party represents that it neither is nor will be obligated for
any finder’s fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finder’s or broker’s fee arising out of this transaction (and the costs and
expenses of defending against such liability or asserted liability) for which
any Investor of its officers, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless
Investors and each of them from any liability for any commission or compensation
in the nature of a finder’s or broker’s fee arising out of this transaction (and
the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.5 Public
Announcements. Except as otherwise required by applicable
laws, rules or regulations, neither the Company, nor the Investor shall make any
public announcement with respect to this Agreement or the transactions
contemplated hereby, without the written consent of the Company and Investors;
provided, however, that the
Company shall not be required to obtain such consent if a governmental entity
specifically requests disclosure.
9.6 Waivers and
Amendments. Any provision of this Agreement may be amended,
waived or modified only upon the written consent of the Company and the
Investor.
9.7 Delays or
Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to either party to this
Agreement upon any breach or default of the other party under this Agreement
shall impair any such right, power or remedy of such non-defaulting party, nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring, nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any party to this
Agreement, shall be cumulative and not alternative.
-30-
9.8 Attorney’s
Fees. In the event that any suit or action is instituted to
enforce any provisions in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
9.9 Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of Los
Angeles. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
Los Angeles for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of this Agreement), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party
hereto (including its affiliates, agents, officers, directors and employees)
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or proceeding to
enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
9.10 Survival. The
representations, warranties, covenants and agreements made herein shall survive
the execution and delivery of this Agreement.
9.11 Successors and
Assigns. This Agreement, and any and all rights, duties and
obligations hereunder, shall not be assigned, transferred, delegated or
sublicensed by (i) the Company without the prior written consent of the
Investors or (ii) any Investor without the prior written consent of the
Company; provided, that the
Investors or either of them may assign their respective rights hereunder
(including, for the avoidance of doubt, the rights set forth in Section 5
hereto) to any of their respective affiliates, partners or former partners
without the Company’s prior consent. Except as set forth in the
previous sentence, any attempt by an Investor without such permission to assign,
transfer, delegate or sublicense any rights, duties or obligations that arise
under this Agreement shall be void. Subject to the foregoing and
except as otherwise provided herein, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
-31-
9.12 Registration,
Transfer and Replacement of the Notes, Common Stock and Adjustment
Shares. The Notes, the Common Stock and the Adjustment Shares
shall be registered on the books of the Company. The Company will
keep, at its principal executive office, books for the registration and
registration of transfer of the Notes, the Common Stock and the Adjustment
Shares. Prior to presentation of any Note, Common Stock or Adjustment
Shares for registration of transfer, the Company shall treat the Person in whose
name such Note or Common Stock or Adjustment Shares is registered as the owner
and holder of such Note or Common Stock or Adjustment Shares for all purposes
whatsoever, whether or not such Note shall be overdue, and the Company shall not
be affected by notice to the contrary. Subject to any restrictions on
or conditions to transfer set forth in any Note or on any certificate evidencing
Common Stock or Adjustment Shares, the holder of any Note or such certificate,
at its option, may in person or by duly authorized attorney surrender the same
for exchange at the Company’s chief executive office, and promptly thereafter
and at the Company’s expense, except as provided below, receive in exchange
therefor one or more new Note(s) or certificates, each in the principal amount
or percentage allocation requested by such holder, and, in the case of Notes,
dated the date to which interest shall have been paid on the Note so surrendered
or, if no interest shall have yet been so paid, dated the date of the Note so
surrendered and registered in the name of such Person or Persons as shall have
been designated in writing by such holder or its attorney for the same principal
amount as the then unpaid principal amount of the Note so
surrendered. Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note or share certificate and (i) in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to it; or
(ii) in the case of mutilation, upon surrender thereof, the Company, at its
expense, will execute and deliver in lieu thereof a new Note or share
certificate executed in the same manner as the Note or share certificate being
replaced, in the case of Notes, in the same principal amount as the unpaid
principal amount of such Note and dated the date to which interest shall have
been paid on such Note or, if no interest shall have yet been so paid, dated the
date of such Note.
9.13 Entire
Agreement. This Agreement together with the other Transaction
Documents constitute and contain the entire agreement between the Company and
the Investor and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications among the parties, whether
written or oral, respecting the subject matter hereof.
9.14 Notices. All
notices, requests, demands, consents, instructions or other communications
required or permitted hereunder shall in writing and faxed, mailed or delivered
to each party as follows: (a) if to the Investor, at the
Investor’s address or facsimile number set forth on the signature page hereto,
or at such other address as the Investor shall have furnished the Company in
writing, or (b) if to the Company, at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇, or at such other address or facsimile number as the Company
shall have furnished to the Investor in writing. All such notices and
communications will be deemed effectively given the earlier of (i) when
received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation),
(iv) one business day after being deposited inside the United States with
an overnight courier service of recognized standing for delivery within the
United States, (v) three business day after being deposited within the
United States with an express courier service of recognized standing for
delivery outside of the United States or vice versa or (vi) four days after
being deposited in the U.S. mail, first class with postage prepaid, provided that first
class mail shall not be used for the delivery of notice outside of the United
States.
-32-
9.15 Severability. If
any provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, portions of such provision,
or such provision in its entirety, to the extent necessary, shall be severed
from this Agreement, and such court will replace such illegal, void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the same economic, business and other
purposes of the illegal, void or unenforceable provision. The balance
of this Agreement shall be enforceable in accordance with its
terms.
9.16 Further
Assurances. Each party hereto agrees to execute and deliver,
by the proper exercise of its corporate, limited liability company, partnership
or other powers, all such other and additional instruments and documents and do
all such other acts and things as may be reasonably necessary to more fully
effectuate this Agreement.
9.17 Counterparts. This
Agreement may be executed in one or more counterparts, each of which will be
deemed an original, but all of which together will constitute one and the same
agreement. Facsimile copies of signed signature pages will be deemed
binding originals.
9.18 No Strict
Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any
party.
-33-
IN WITNESS WHEREOF, Investor
and the Company have caused their respective signature pages to this Secured
Note and Common Stock Purchase Agreement to be duly executed as of the date
first written above.
|
COMPANY:
|
||
|
STRATOS
RENEWABLES CORPORATION
|
||
|
By:
|
||
|
▇▇▇▇▇▇
▇▇▇▇▇▇
|
||
|
President
and Chief Executive
Officer
|
||
[Signature
Page to Securities Purchase Agreement]
Execution
Copy
IN WITNESS WHEREOF, Investor
and the Company have caused their respective signature pages to this Secured
Note and Common Stock Purchase Agreement to be duly executed as of the date
first written above.
|
INVESTORS:
|
||
|
I2BF
BIODIESEL LIMITED
|
||
|
▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇
|
||
|
Director
|
||
|
Address:
|
||
|
▇/▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
|
||
|
▇▇▇▇▇
▇▇▇,
|
||
|
One
▇▇▇▇▇▇ ▇▇▇▇▇▇
|
||
|
▇▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇ ▇▇▇
|
||
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
||
|
BLUE
DAY SC VENTURES
|
||
|
By:
BlueDay Limited
|
||
|
By:
|
||
|
Name:
|
||
|
Title:
|
||
|
Address:
|
||
|
▇▇▇
▇▇▇▇▇
|
||
|
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
|
||
|
PO
Box 3342
|
||
|
Road
Town
|
||
|
Tortola
|
||
|
British
Virgin Islands
|
||
|
With
a copy to:
|
||
|
▇▇▇▇
▇▇▇▇▇▇▇▇
|
||
|
Senior
Private Banker
|
||
|
SG
Hambros Bank (Channel Islands) Limited
|
||
|
St.
Julian’s Avenue, St ▇▇▇▇▇ Port,
|
||
|
Guernsey,
GY1
3AE
|
||
[Signature
Page to Note and Common Stock Purchase Agreement]
SCHEDULE
I
SCHEDULE
OF INVESTORS
|
Initial Investment: July 15,
2009
|
||||||||||
|
Investor
|
Address and Facsimile
Number
|
Cash
Investment
|
Tendered Securities
|
Total Principal Amount of
Note(s)
Issued
|
Common Stock Issued
|
|||||
|
I2BF
BioDiesel Limited
|
▇/▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇,
One
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇ ▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
$1,000,000
|
Unsecured Convertible Promissory
Note, dated August 27, 2008
Principal:
$5,000,000
Interest:
$442,466
Total:
$5,442,466
Promissory Note, dated June 1,
2009
Principal:
$275,000
Interest:
$5,086
Total:
$280,086
Warrants
for the purchase of 2,500,000 shares of Common Stock
|
$6,722,551
|
27,685,772
shares of Common Stock, representing 19.895% of the fully diluted equity
of the Company on an as-converted, as-exercised basis.
|
|||||
|
Blue
Day SC Ventures
|
c/o
BlueDay Limited
▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
PO
Box 3342
Road
Town
Tortola
British
Virgin Islands
With
a copy to:
▇▇▇▇
▇▇▇▇▇▇▇▇
Senior
Private Banker
SG
Hambros Bank (Channel Islands) Limited
St.
Julian’s Avenue, St ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇
|
$2,000,000
|
Unsecured Convertible Promissory
Note, dated November 14, 2007
Principal:
$5,000,000
Interest:
$835,616
Total:
$5,835,616
Unsecured Convertible Promissory
Note, dated May 28, 2008
Principal:
$700,000
Interest:
$124,103
Total:
$824,103
7,142,857
Shares of Series A Preferred Stock
Warrants
for the purchase of 1,785,714 shares of Common Stock
|
$8,659,719
|
27,900,386
shares of Common Stock, representing 20% of the fully diluted equity of
the Company on an as-converted, as-exercised
basis.
|
|||||
|
Balance Closing: September [__],
2009
|
||||||||||
|
Investor
|
Address and Facsimile Number
|
Cash
Investment
|
Tendered
Securities
|
Total Principal Amount of
Note(s)
Issued
|
Common Stock Issued
|
|||||
|
I2BF
BioDiesel Limited
|
▇/▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇,
One
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇ ▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇
|
$1,725,000
|
-
|
$1,725,000
|
10,238,381
additional shares of Common Stock, which, when combined with shares issued
to Investor at the Initial Closing, will aggregate to holdings of 25% of
the fully diluted equity of the Company on an as-converted, as-exercised
basis as of the Balance Closing.
|
|||||
|
Blue
Day SC Ventures
|
c/o
BlueDay Limited
▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
PO
Box 3342
Road
Town
Tortola
British
Virgin Islands
With
a copy to:
▇▇▇▇
▇▇▇▇▇▇▇▇
Senior
Private Banker
SG
Hambros Bank (Channel Islands) Limited
St.
Julian’s Avenue, St ▇▇▇▇▇ Port,
Guernsey,
GY1 3AE
|
-
|
-
|
-
|
2,445,912
additional shares of Common Stock, which, when combined with shares issued
to Investor at the Initial Closing, will aggregate to holdings of 20% of
the fully diluted equity of the Company on an as-converted, as-exercised
basis as of the Balance
Closing.
|
|||||
-2-
EXHIBIT
A
FORM
OF SECURED PROMISSORY NOTE
See
attached
EXHIBIT
B
BUSINESS
PLAN AND BUDGET
AS
PROVIDED TO INVESTORS
See
attached
EXHIBIT
C
DISCLOSURE
SCHEDULE
See
attached
EXHIBIT
D
SECURITY
AGREEMENT
See
attached
EXHIBIT
E
FORM
OF LEGAL OPINION
See
attached
EXHIBIT
F
AMENDED
AND RESTATED
CERTIFICATE
OF RIGHTS, PREFERENCES AND PRIVILEGES
OF
SERIES A PREFERRED STOCK
See
attached
STRATOS
RENEWABLES CORPORATION
JULY
15, 2009