COVOL TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of September 17, 1999
TABLE OF CONTENTS
Page
Article I - DEFINITIONS.....................................................1
1.1 Definitions; Interpretation...................................1
Article II - ISSUANCE AND SALE OF THE SECURITIES............................7
2.1 Authorization of the Securities...............................7
2.2 Issuance and Sale of the Securities...........................8
2.3 Additional Issuances and Sales of the Securities..............8
2.4 Option to Acquire Additional Securities.......................9
Article III - CLOSING; CLOSING DELIVERIES...................................9
3.1 Closing.......................................................9
3.2 Payment for and Delivery of the Securities....................9
Article IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................10
4.1 Existence; Qualification; Subsidiaries.......................10
4.2 Authorization and Enforceability; Issuance of the
Securities, the Conversion Shares and the Warrant Shares....10
4.3 Capitalization...............................................11
4.4 Private Sale.................................................12
4.5 Financial Statements; Disclosure.............................12
4.6 Absence of Certain Changes...................................13
4.7 Litigation...................................................14
4.8 Licenses, Compliance with Law, Other Agreements, Etc.......14
4.9 Third-Party Approvals........................................15
4.10 No Undisclosed Liabilities..................................15
4.11 Tangible Assets.............................................15
4.12 Inventory...................................................15
4.13 Owned Real Property.........................................15
4.14 Real Property Leases........................................15
4.15 Agreements..................................................16
4.16 Intellectual Property.......................................16
4.17 Employees...................................................17
4.18 ERISA; Employee Benefits....................................17
4.19 Environmental Laws..........................................17
4.20 Transactions With Affiliates..............................18
4.21 Taxes.......................................................18
4.22 Other Investors.............................................19
4.23 Year 2000 Representations..................................19
4.24 Investment Company.........................................19
i
4.25 Certain Fees................................................19
4.26 Solicitation Materials.....................................20
4.27 Form S-3 Filing............................................20
4.28 Listing and Maintenance Requirements Compliance.............20
4.29 Registration Rights; Rights of Participation................20
4.30 Synthetic Fuel Facilities...................................20
Article V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................21
5.1 Authorization and Enforceability.............................21
5.2 Purchaser's Ability to Perform...............................21
5.3 Restrictions on Sale.........................................21
Article VI - COMPLIANCE WITH SECURITIES LAWS...............................22
6.1 Investment Intent of the Purchaser..........................22
6.2 Status of Securities........................................22
6.3 Accredited Investor Status..................................22
6.4 Access to Information.......................................22
6.5 Transfer of Securities, Conversion Shares and Warrant
Shares.......................................................23
Article VII - CONDITIONS PRECEDENT.........................................23
7.1 Conditions Precedent........................................23
Article VIII - COVENANTS OF THE COMPANY....................................26
8.1 Restricted Actions..........................................26
8.2 Required Actions............................................27
8.3 Reservation of Common Stock..................................29
8.4 Payments Free of Withholding.................................30
Article IX - REGISTRATION RIGHTS...........................................30
9.1 Registration Rights..........................................30
9.2 Piggyback Registration Rights................................30
Article X - SURVIVAL.......................................................31
10.1 Survival....................................................31
Article XI - INDEMNIFICATION...............................................31
11.1 Indemnification.............................................31
Article XII - GENERAL PROVISIONS...........................................32
12.1 Successors and Assigns......................................32
12.2 Entire Agreement...........................................32
12.3 Notices.....................................................32
12.4 Purchaser Fees and Expenses.................................33
ii
12.5 Amendment and Waiver.......................................34
12.6 Counterparts................................................34
12.7 Headings....................................................34
12.8 Remedies Cumulative........................................34
12.9 GOVERNING LAW...............................................34
12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.....34
12.11 No Third Party Beneficiaries...............................35
12.12 Severability...............................................35
iii
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September
17, 1999, by and between COVOL TECHNOLOGIES, INC.(the "Company"), a Delaware
corporation with an address at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇; and
ASPEN CAPITAL RESOURCES, LLC or its assigns (the "Purchaser"), a Utah limited
liability company with an address at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇.
The Company desires to issue to the Purchaser and the Purchaser desires
to purchase from the Company, upon the terms and subject to the conditions set
forth herein (i) the Convertible Secured Debentures of the Company and (ii) the
Warrants.
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
Article I - DEFINITIONS
1.1 Definitions; Interpretation. For purposes of this Agreement, the
following terms have the indicated meanings:
"Affiliate" of a Person means any officer, director or employee of the
Company and any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with such
Person. For purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (i) vote 10% or more of the Capital Stock
having ordinary voting power for the election of directors of such Person or
(ii) direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Capital Stock" of any Person shall mean any and all shares, interests
(including membership and economic interests in a limited liability company),
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, but excluding any debt
securities convertible into such equity prior to such conversion.
"Capitalized Lease" means any lease which is required under GAAP to be
capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means obligations for the payment of
rent for any Capitalized Lease; for purposes hereof, the amount of any such
obligation shall be the capitalized amount thereof determined in accordance with
GAAP.
"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Company's Common Stock, $.001
par value per share, and any Capital Stock of any class of the Company hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Confidential Information" means any proprietary information concerning
the Company's business other than information that (i) was already known to the
Person having a duty to keep confidential such information on a nonconfidential
basis prior to the time of disclosure, (ii) is or becomes generally available to
the public through no act or omission of such Person or (iii) becomes available
to such Person on a nonconfidential basis from a source other than any party
hereto (or any agent or representative thereof) if such source was not under a
prohibition against disclosing the information or otherwise bound by a
confidentiality agreement with respect thereto.
"Conversion Shares" means shares of Common Stock issued or issuable
upon conversion of the Debentures, whether or not a Debenture is presently
convertible; provided, that if there is a change such that the securities
issuable upon conversion of the Debentures are issued by an entity other than
the Company or there is a change in the securities so issuable, then the term
"Conversion Shares" shall mean shares or the security issuable upon conversion
of the Debentures if such securities are issuable in shares, or shall mean the
equivalent units in which such security is issuable if such security is not
issuable in shares.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at June 30, 1999.
"Debentures" has the meaning set forth in Section 2.1.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and any employee benefit plan
as defined in Section 3(3) of ERISA, maintained or contributed to by the
Company, or any predecessor or Subsidiary or any ERISA Affiliate at any time
during the 5-calendar years immediately preceding the date of this Agreement.
2
"Environmental Actions" refers to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or Releases of Hazardous
Materials (i) from any assets, properties or businesses of the Company or any of
its Subsidiaries, licensees or predecessors in interest; (ii) from adjoining
properties or business; or (iii) from or onto any facilities which received
Hazardous Materials generated by the Company or any of its Subsidiaries,
licensees or predecessors in interest.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the Hazardous
Materials Transpiration Act (49 U.S.C. 42 ss. 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251, et seq.), the Clean Air Act (42
U.S.C. ss. 7401, et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601,
et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.),
as such laws may be amended or supplemented from time to time, and any other
present or future federal (United States or Canada), state, provincial, local or
foreign statute, ordinance, rule, regulation, order, judgment, decree, permit,
license or other binding determination of any Governmental Agency imposing
liability or establishing standards of conduct for protection of the
environment.
"Environmental Liabilities and Costs" means all liabilities (including
strict liabilities), monetary obligations, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including all reasonable out-of-pocket fees, disbursements and expenses of
counsel, out-of-pocket expert and consulting fees, and out-of-pocket costs for
environmental site assessments, remedial investigations and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
Environmental Action filed by any Governmental Agency or any third party, which
relate to any violations of Environmental Laws, Remedial Actions, Releases or
threatened Releases of Hazardous Materials from or onto (i) any property
presently or formerly owned by the Company or any of its Subsidiaries, licensees
or predecessors in interest or (ii) any facility which received Hazardous
Materials generated by the Company or any of its Subsidiaries, licensees or
predecessors in interest.
"Environmental Lien" means any Lien in favor of any Governmental Agency
for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, and regulations thereunder
in each case as in effect from time to time. References to sections of ERISA
shall be construed also to refer to any successor sections.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" has the meaning set forth in Section 4.2.
"Facilities" has the meaning set forth in Section 4.30.
3
"Fair Market Value" means the closing bid price of a share of Common
Stock quoted on the NASDAQ Stock Market System.
"Family Group" means, with respect to an individual Purchaser, such
Purchaser, such Purchaser's spouse, siblings, descendants and/or ancestors
(whether natural, by marriage or adopted) and any trust solely for the benefit
of such Purchaser and/or such Purchaser's spouse, siblings, their respective
ancestors and/or descendants (whether natural, by marriage or adopted).
"Financial Statements" means (i) the unaudited balance sheets of the
Company as at December 31, 1998 and 1997, March 31, 1999 and 1998, and June 30,
1999 and 1998, and the related unaudited statements of income and consolidated
cash flow for the quarterly periods then ended, and (ii) the audited balance
sheets of the Company as at September 30, 1998 and 1997, and the related audited
statements of income and consolidated cash flow for the fiscal year periods then
ended, all as filed with the Securities and Exchange Commission on the date of
this Agreement.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time, consistently applied.
"Governmental Agency" means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body and
the National Association of Securities Dealers.
"Hazardous Materials" includes (a) any element, compound or chemical
that is defined, listed or otherwise classified as a contaminant, pollutant,
toxic pollutant, toxic or hazardous substance, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under Environmental
Laws; (b) petroleum and its refined products; (c) poly-chlorinated biphenyls;
(d) any substance exhibiting a hazardous waste characteristic, including but not
limited to corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components, including but not limited to asbestos-containing materials and
manufactured products containing hazardous substances.
"Hedging Agreement" means any interest rate swap, collar, cap, floor or
forward rate agreement or other agreement regarding the hedging of interest rate
risk exposure executed in connection with hedging the interest rate exposure of
the Company, and any confirming letter executed pursuant to such agreement, all
as amended, supplemented, restated or otherwise modified from time to time.
"includes" and "including" mean includes and including, without
limitation.
4
"Indebtedness" means, without duplication, as to any Person (i)
indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in the
ordinary course of business and payable in accordance with customary practices);
(iii) indebtedness evidenced by bonds, notes, debentures or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the ordinary course of business); (iv) obligations and liabilities
secured by a Lien upon property owned by such Person, whether or not owing by
such Person and even though such Person has not assumed or become liable for the
payment thereof; (v) obligations and liabilities directly or indirectly
guaranteed by such Person; (vi) obligations or liabilities created or arising
under any conditional sales contract or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights
and remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property; (vii) Capitalized Lease Obligations; (viii) all
liabilities in respect of letters of credit, acceptances and similar obligations
created for the account of such Person; (ix) net liabilities of such Person
under Hedging Agreements and foreign currency exchange agreements, as calculated
on a basis satisfactory to the Purchaser and in accordance with accepted
practice; and (x) the Debentures issued hereunder valued at the Optional
Redemption Price (as defined in the Debentures) for purposes hereof.
"Initial Closing" and "Additional Closing" have the meanings set forth
in Section 3.1.
"Initial Closing Date" and "Additional Closing Dates" have the meanings
set forth in Section 3.1.
"Intellectual Property" means all domestic and foreign patents, patent
applications, disclosures, industrial designs, discoveries and inventions;
trademarks, service marks, trade dress, trade names, d/b/a's, Internet domain
names and corporate names and all goodwill associated therewith; published and
unpublished works of authorship, copyrights; registrations, applications and
renewals for any of the foregoing; trade secrets, Confidential Information,
know-how, technical and computer data, databases, proprietary information,
documentation and software, financial, business and marketing plans, customer
and supplier lists and all other intellectual property and proprietary rights;
and all copies and tangible embodiments of the foregoing.
"IRS" means the Internal Revenue Service.
"knowledge" or "know" when used with respect to the Company means the
knowledge of the senior management (vice president or senior) of the Company, or
any other management personnel that has had significant involvement in the
business and affairs of the Company.
"Liability" means any liability or obligation (whether absolute or
contingent, liquidated or unliquidated or due or to become due).
5
"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance, security arrangement, restriction, covenant,
encroachment or other title imperfection of any nature whatsoever, including but
not limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), prospects or results of operations
of the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means any material adverse effect on (i) the
business, condition (financial or otherwise), prospects or results of operations
of the Company and its Subsidiaries taken as a whole, or (ii) any of the
transactions contemplated hereby or by the Related Documents.
"ordinary course of business" means the ordinary course of business of
the Company consistent with past practice (including with respect to quantity,
quality and frequency).
"Permitted Liens" has the meaning set forth in Section 8.1(l).
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or other entity.
"RCRA" shall mean the federal Resource Conservation and Recovery Act,
as amended.
"Related Documents" means all documents and instruments to be executed
or adopted by the Company in connection herewith, including without limitation
each of the Debentures, the Security Agreement, each of the Warrants and all
other documents and instruments to be executed or adopted by the Company
pursuant thereto.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, seeping, migrating,
dumping or disposing of any Hazardous Material (including the abandonment or
discarding of barrels, containers and other closed receptacles containing
Hazardous Materials) into the indoor or outdoor environment, including ambient
air, soil, surface or ground water.
6
"Remedial Action" means all actions taken to (i) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
any other actions authorized by 42 U.S.C. 9601.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning given that term in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement by and between the
Company and the Purchaser, substantially in the form attached as Exhibit "A"
hereto.
"Subsidiary" means any corporation, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by the Company or
(ii) if a partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by the Company. For purposes hereof, the
Company shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if the Company, directly or indirectly, is
allocated a majority of partnership, association or other business entity gains
or losses, or is or controls the managing director or general partner of such
partnership, association or other business entity.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, Capital Stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Warrant Shares" means shares of the Common Stock obtained or
obtainable upon exercise of the Warrants, whether or not a Warrant is presently
exercisable; provided, that if there is a change such that the securities
issuable upon exercise of the Warrants are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term "Warrant Shares" shall mean shares of the security issuable upon exercise
of the Warrants if such security is issuable in shares, or shall mean the
equivalent units in which such security is issuable if such security is not
issuable in shares.
7
Article II - ISSUANCE AND SALE OF THE SECURITIES
2.1 Authorization of the Securities. The Company has authorized the
issuance and sale to the Purchaser, on the terms and subject to the conditions
of this Agreement, of (a) its Convertible Secured Debentures in an aggregate
principal amount of up to $4,000,000 and containing the terms and conditions and
in the form of the Debenture set forth in Exhibit "B" attached hereto (the
"Debentures"), and (b) its Warrants containing the terms and conditions and in
the form of the Warrant set forth in Exhibit "C" attached hereto (the "Warrants
and, together with the Debentures, the "Securities"). The Debentures are
convertible into and the Warrants are exercisable for shares of the Company's
Common Stock and the Debentures are secured by a first priority security
interest in the collateral described in the Security Agreement.
2.2 Issuance and Sale of the Securities. At the Initial Closing, on the
terms and subject to the conditions of this Agreement, the Company shall issue
to the Purchaser (a) Debentures in the aggregate principal amount of
$850,000.00, and (b) Warrants initially exercisable for an aggregate of 113,333
Warrant Shares (the number of Warrant Shares shall be determined by multiplying
40% times the quotient of (i) the aggregate principal amount of the Debentures
divided by (ii) the Conversion Price (as defined in the Debentures) of the
Debentures on their Issue Date (as defined in the Debentures)). For federal
income tax purposes, the Company and the Purchaser agree that the aggregate
amount paid by the Purchaser for (i) the Debentures is $850,000.00, and (ii) the
Warrants is $0. Neither the Company nor the Purchaser shall file any Tax Return
or take any position with any taxing authority inconsistent with the preceding
sentence.
2.3 Additional Issuances and Sales of the Securities. Following the
Initial Closing but not later than December 15, 1999, on the terms and subject
to the conditions of this Agreement, the Company may, at its option, issue to
the Purchaser and the Purchaser shall purchase from the Company additional
Debentures and additional Warrants, exercisable for the purchase of the number
of Warrant Shares calculated as provided in Section 2.2 above with respect to
such additional Debentures, each such additional issuance being referred to
herein as an "Additional Funding." Additional Fundings shall not occur more than
once during any 15 day period. The Company shall deliver to the Purchaser a
written request for each Additional Funding not less than 15 days prior to the
Closing Date of each such Additional Funding, and such written request shall
state (a) the aggregate principal amount of additional Debentures to be issued
in such Additional Funding, which aggregate principal amount shall not be less
than $500,000.00 for each Additional Funding, (b) the number of Warrant Shares
for which the additional Warrants are exercisable, and (c) the Closing Date for
such Additional Funding, each such Closing Date to be referred to herein as an
"Additional Closing Date" and each Closing in connection therewith to be
referred to herein as an "Additional Closing." The Securities issued at the
Initial Closing together with Securities issued at all Additional Closings shall
not exceed in the aggregate the following cumulative amounts, stated in terms of
aggregate principal amounts of Debentures outstanding:
8
At October 15, 1999 $1,750,000.00
At November 15, 1999 $2,750,000.00
At December 15, 1999 and thereafter $4,000,000.00
Notwithstanding the foregoing, the Purchaser shall have no obligation
to purchase any Securities in connection with any Additional Funding pursuant to
Section 2.3, provided that the Purchaser may in its sole discretion purchase
such Securities, (a) if the Company is in default or has breached any of its
obligations under this Agreement or any of the Related Documents or if an Event
of Default has occurred under the Debentures, (b) if the average of the closing
bid prices for the Company's Common Stock for five (5) consecutive trading days,
as quoted in the NASDAQ Stock Market System, is less than $1.50, or (c) if on
October 15, 1999, the Company's Registration Statement on Form S-3, File No.
33-385753 has not been declared effective by the SEC or has not continued
effective.
On December 15, 1999, if the aggregate principal amount of the
Debentures issued pursuant to this Section 2.3 and Section 2.2 above is less
than $3,000,000.00, the Company shall pay to the Purchaser an amount equal to 2%
of such difference.
2.4 Option to Acquire Additional Securities. Notwithstanding the
foregoing, the Company hereby grants to the Purchaser the option, exercisable in
whole or in part from time to time but not after February 28, 2000 at the
Purchaser's sole discretion, to acquire Securities from the Company consisting
of (a) Debentures in an aggregate principal amount of up to $1,750,000.00, and
(b) Warrants exercisable for the purchase of the number of Warrant Shares
calculated as provided in Section 2.2 above with respect to such Debentures.
Article III - CLOSING; CLOSING DELIVERIES
3.1 Closing. The closing of the transactions contemplated by Section
2.2 of this Agreement (the "Initial Closing") shall take place at 10:00 a.m. on
September 17, 1999, at the offices of Corbridge Baird & ▇▇▇▇▇▇▇▇▇▇▇, Salt Lake
City, Utah or at such other time, place and/or date as shall be agreed upon by
the parties hereto. The date upon which the Initial Closing occurs is referred
to herein as the "Initial Closing Date." The closing of the transactions
contemplated by Sections 2.3 and 2.4 of this Agreement (the "Additional
Closings") shall take place at such time, place and/or date as designated by the
Company if pursuant to Section 2.3 or as designated by the Purchaser if pursuant
to Section 2.4. The dates upon which the Additional Closings occur are referred
to herein as the "Additional Closing Dates."
9
3.2 Payment for and Delivery of the Securities. At the Initial Closing,
the Company shall issue and deliver to the Purchaser, (a) a Debenture in the
aggregate principal amount of $850,000.00, against payment by the Purchaser, by
wire transfer of immediately-available funds to the account designated by the
Company not less than two (2) days prior to the Initial Closing Date, of
$765,000.00 (net of 10% placement fee payable to Aspen Capital Resources, LLC
pursuant to Section 12.4), and (b) duly issued Warrants initially exercisable
for an aggregate of 113,333 Warrant Shares. At each Additional Closing, the
Company shall issue and deliver to the Purchaser, (a) a Debenture in the
aggregate principal amount specified pursuant to Section 2.3 or 2.4, against
payment by the Purchaser, by wire transfer of immediately-available funds to the
account designated by the Company not less than two (2) days prior to the
Additional Closing Date, of the aggregate principal amount of the Debenture (net
of a 10% placement fee payable to Aspen Capital Resources, LLC pursuant to
Section 12.4), and (b) duly issued Warrants exercisable for the purchase of the
number of Warrant Shares calculated as provided in Section 2.2 above with
respect to such additional Debentures.
Article IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as follows:
4.1 Existence; Qualification; Subsidiaries. Each of the Company and its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of the state of its incorporation or formation and has full corporate or
partnership power and authority, as the case may be, to conduct its business and
own and operate its properties as now conducted, owned and operated. The copies
of the Certificate of Incorporation, as amended, and By-Laws of the Company and
all amendments thereto previously delivered to the Purchaser are true, correct
and complete copies of such documents. The Company and each Subsidiary is
licensed or qualified as a foreign corporation, partnership or limited liability
company and is in good standing in all jurisdictions where such person is
required to be so licensed or qualified, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect. Except as set forth on Schedule 4.1, the Company has no Subsidiaries and
owns no Capital Stock or other securities of, and has not made any other
investment in, any other entity. All of the issued shares of Capital Stock,
partnership interests or membership interests, as the case may be, of each
Subsidiary have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or adverse claims.
4.2 Authorization and Enforceability; Issuance of the Securities, the
Conversion Shares and the Warrant Shares.
10
(a) The Company has full power and authority and has taken all
required corporate and other action necessary to permit it to execute and
deliver this Agreement and the Related Documents and to carry out the terms
hereof and thereof and to issue and deliver the Securities, the Conversion
Shares and the Warrant Shares, and none of such actions will violate any
provision of the Certificate of Incorporation of the Company, the By-Laws of the
Company or of any applicable law, regulation, order, judgment or decree or rule
of any stock exchange where the Company's Common Stock is listed or market in
which the Company's Common Stock is quoted, or result in the breach of or
constitute a default (or an event which, with notice or lapse of time or both
would constitute a default) under any material agreement (including the
Company's current secured debt instruments set forth on Schedule 4.2 (the
"Existing Indebtedness")), instrument or understanding to which the Company is a
party or by which it is bound or by which it will become bound as a result of
the transactions contemplated by this Agreement. This Agreement, each of the
Related Documents and all other agreements and instruments contemplated hereby
to which the Company is a party, have been duly executed and delivered by the
Company and each constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
related to the enforcement of creditor's rights generally and (ii) general
principles of equity.
(b) The execution, delivery and performance of this Agreement,
each of the Related Documents and all other agreements and instruments
contemplated hereby to which the Company is a party have been duly authorized by
the Company. The Conversion Shares and the Warrant Shares, will be fully paid
and nonassessable. The Conversion Shares and the Warrant Shares have been duly
reserved for issuance upon conversion of the Debentures and exercise of the
Warrants, as the case may be, and, when so issued, will be duly authorized,
validly issued and outstanding, fully paid and nonassessable shares of Common
Stock. Neither the issuance and delivery of any Conversion Shares upon
conversion of any Debentures nor the issuance and delivery of any Warrant Shares
upon exercise of the Warrants is subject to any preemptive right of any
stockholder of the Company or to any right of first refusal or other similar
right in favor of any Person.
11
4.3 Capitalization. The authorized Capital Stock of the Company
consists of (a) 25,000,000 shares of Common Stock, par value $.001 per share, of
which, as of September 3, 1999, 12,744,009 shares were outstanding, 439,699
shares are reserved for issuance upon conversion of the Debentures, 175,880
shares are reserved for issuance upon exercise of the Warrants, and 6,250,756
shares are reserved for issuance upon the exercise of certain stock options and
warrants, and (b) 10,000,000 shares of preferred stock, par value $.001 per
share, of which (i) 3,000 shares have been designated Series A Preferred Stock,
of which 3,000 shares are issued and outstanding, (ii) 312,882 shares have been
designated Series B Preferred Stock, of which 14,310 shares are issued and
outstanding, (iii) 1,500 shares have been designated Series C Preferred Stock,
of which 200 shares are issued and outstanding, (iv) 80,000 shares have been
designated Series D Preferred Stock, of which 60,000 shares are issued and
outstanding; and (v) 3,000,000 are reserved for issuance upon conversion of
certain convertible secured debt. All of the outstanding Capital Stock has been
validly issued and is fully paid and nonassessable and has been issued in
compliance with all applicable securities laws (including the provisions of the
Securities Act and the rules and regulations promulgated thereunder). Except as
set forth in Schedule 4.3, there are no options, convertible securities,
warrants, calls, pledges, transfer restrictions (except restrictions imposed by
federal and state securities laws), voting restrictions, liens, rights of first
offer, rights of first refusal, antidilution provisions or commitments of any
character relating to any issued or unissued shares of Capital Stock of the
Company other than as contemplated in the Related Documents. Except as
contemplated by this Agreement and the Related Documents or as set forth in
Schedule 4.3, there are no preferential rights applicable to the issuance and
sale of the Securities, the Conversion Shares and the Warrant Shares.
4.4 Private Sale. Assuming the accuracy of the representations and
warranties made by recipients of the Company's Capital Stock in connection with
the acquisition of such Capital Stock, the Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
and issuance of any of its Capital Stock. Subject to the accuracy of the
Purchaser's representations contained herein, neither the offer, sale and
issuance of the Securities hereunder nor the issuance and delivery of any
Conversion Shares upon conversion of any Debentures or any Warrant Shares upon
exercise of any Warrants requires registration under the Securities Act or any
state securities laws.
4.5 Financial Statements; Disclosure.
(a) The Financial Statements (together with the notes thereto,
as applicable), subject to modifications required by the current SEC review of
the Company's Registration Statement on Form S-3, (i) are true, correct and
complete in all material respects, (ii) are in accordance with the books and
records of the Company and (iii) fairly present the financial condition and
results of operations of the Company as of the dates and for the periods
indicated in accordance with GAAP, except that the unaudited balance sheets and
related financial statements do not contain an auditors' opinion and do not
contain footnotes and are subject to normal, recurring year-end audit
adjustments which are not material.
(b) This Agreement together with the schedules, attachments,
exhibits, written statements and certificates supplied to the Purchaser by or on
behalf of the Company with respect to the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading. There is no fact
which has not been disclosed to the Purchaser of which the Company has
knowledge, and which has had or could reasonably be anticipated to have a
Material Adverse Effect.
12
(c) As of its filing date, each document filed with the SEC by
the Company, as amended or supplemented prior to the Initial Closing Date or any
Additional Closing Date, if applicable, pursuant to the Securities Act and/or
the Exchange Act, true and correct copies of which have been given to the
Purchaser, subject to modifications required by the current SEC review of the
Company's Registration Statement on Form S-3, (i) complied in all material
respects with the applicable requirements of the Securities Act and/or Exchange
Act and (ii) did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each final registration statement filed with the SEC by the Company pursuant to
the Securities Act, as of the date such statement became effective (i) complied
in all material respects with the applicable requirements of the Securities Act
and (ii) did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of any prospectus, in light of
the circumstances under which they were made).
4.6 Absence of Certain Changes.
(a) Except as set forth on Schedule 4.6(a) since the date of
the Current Balance Sheet, neither the Company nor any Subsidiary has:
(i) incurred any Liabilities other than current
Liabilities incurred, or obligations under contracts entered into, in
the ordinary course of business and for individual amounts not greater
than $250,000;
(ii) paid, discharged or satisfied any claim, Lien or
Liability, other than any claim, Lien or Liability (A) reflected or
reserved against on the Current Balance Sheet and paid, discharged or
satisfied in the ordinary course of business since the date of the
Current Balance Sheet or (B) incurred and paid, discharged or satisfied
since the date of the Current Balance Sheet, in each case in the
ordinary course of business;
(iii) sold, leased, assigned or otherwise transferred
any of its assets, tangible or intangible (other than sales of
inventory in the ordinary course of business and use of supplies in the
ordinary course of business);
(iv) permitted any of its assets, tangible or
intangible, to become subject to any Lien (other than any Permitted
Lien);
(v) written off as uncollectible any accounts
receivable other than (A) in the ordinary course of business or (B) for
amounts not greater than $50,000 in the aggregate;
(vi) terminated or amended or suffered the
termination or amendment of, or other than in the ordinary course of
business, failed to perform in all material respects all of its
obligations or suffered or permitted any material default to exist
under, any material agreement, license or permit (except the agreement
as disclosed between the Company and EARTHCO relating to a preparation
plant and fines ponds lease in Wellington, Utah);
(vii) suffered any damage, destruction or loss of
tangible property (whether or not covered by insurance) which in the
aggregate exceeds $100,000;
(viii) made any loan (other than intercompany
advances) to any other Person (other than advances to employees in the
ordinary course of business which do not exceed $10,000 individually or
$50,000 in the aggregate);
13
(ix) canceled, waived or released any debt, claim or
right in an amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement,
arrangement or transaction with, or any series of agreements,
arrangements or transactions with, any Affiliate (including its
officers, directors and employees) having a value of in excess of
$50,000 in the aggregate (other than as Company-wide employee benefits
or termination benefits paid in the ordinary course of business);
(xi) declared, set aside, or paid any dividend or
distribution with respect to its Capital Stock or redeemed, purchased
or otherwise acquired any of its Capital Stock;
(xii) other than in the ordinary course of business
or under existing contractual terms or obligations, granted any
increase in the compensation of any officer or employee or made any
other change in employment terms of any officer or employee (except the
arrangements as disclosed between the Company and Messrs. ▇▇▇▇▇▇▇,
Fraley, Thompson, Madden and ▇▇▇▇);
(xiii) made any change in any method of accounting or
accounting practice;
(xiv) suffered or caused any other occurrence, event
or transaction outside the ordinary course of business or which could
have a Material Adverse Effect; or
(xv) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the date of the Current Balance Sheet, there has
been no Material Adverse Change.
(c) Schedule 4.6(c) hereto sets forth a complete and accurate
list as of the date hereof of (i) each place of business of the Company and each
of its Subsidiaries and (ii) the chief executive office of the Company and each
of its Subsidiaries.
4.7 Litigation. Except as set forth in Schedule 4.7, no claim, suit,
proceeding or investigation is proceeding, pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
licensee or any officer or director thereof or the Company's, the Subsidiaries'
or the licensee's business which if decided adversely to any such person could
have a Material Adverse Effect.
14
4.8 Licenses, Compliance with Law, Other Agreements, Etc. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
other rights to allow it to conduct its business and is not in violation, in any
material respects of any order or decree of any court, or of any law, order or
regulation of any Governmental Agency, or of the provisions of any contract or
agreement to which it is a party or by which it is bound (except the agreement
as disclosed between the Company and EARTHCO and the financing arrangement as
disclosed for the Mountaineer Facility), and neither this Agreement nor the
Related Documents nor the transactions contemplated hereby or thereby will
result in any such violation. Each of the Company's and its Subsidiary's
business has been conducted in compliance with all federal, state and local
laws, ordinances, rules and regulations, in all material respects. To the
knowledge of the Company, conditions or events of non-compliance with respect to
the Company's licensees that would have a Material Adverse Effect on the Company
or its contractual relationships with its licensees.
4.9 Third-Party Approvals. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the Company is not
required to obtain any order, consent, approval or authorization of, or to make
any declaration or filing with, any Governmental Agency or other third party
(including under any state securities or "blue sky" laws) in connection with the
execution and delivery of this Agreement or the Related Documents, or the
consummation of the transactions contemplated hereby or thereby to occur on the
Initial Closing Date or any Additional Closing Date, except for the consent and
approval of OZ Master Fund, Ltd.
4.10 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any material Liabilities except (i) as and to the extent of the
amounts reflected or reserved against on the Current Balance Sheet and (ii)
liabilities and obligations incurred in the ordinary course of business since
the date thereof that in the aggregate could not result in a Material Adverse
Effect.
4.11 Tangible Assets. Each of the Company and its Subsidiaries has good
and marketable title to, or valid leasehold interests in, all material tangible
assets used or reasonably necessary in connection with the conduct of its
business.
4.12 Inventory. All inventory of each of the Company and its
Subsidiaries, whether reflected on the Current Balance Sheet or otherwise,
consists of a quality and quantity usable or salable in the ordinary course of
business, subject to defect or obsolescence consistent with the Company's
historical experience.
4.13 Owned Real Property. Set forth on Schedule 4.13 is a true and
correct description of all real property owned by the Company and its
Subsidiaries. The Company and each of its Subsidiaries has good and marketable
title in fee simple, free and clear of all Liens (other than any Permitted
Lien), to all of the real property owned by the Company and each of its
Subsidiaries.
15
4.14 Real Property Leases. There exists no event of default (nor any
event which with notice or lapse of time would constitute an event of default)
with respect to the Company, any Subsidiary and, to the Company's knowledge,
with respect to any other party thereto under any agreement pursuant to which
the Company is the lessee or lessor of any real property, except for such
defaults and defects in enforceability as could not in the aggregate be expected
to have a Material Adverse Effect, and all such agreements are in full force and
effect and enforceable against the lessor or lessee in accordance with their
terms except for such defaults and defects in enforceability as could not in the
aggregate be expected to have a Material Adverse Effect (except the agreement as
disclosed between the Company and EARTHCO relating to a preparation plant and
fines ponds lease in Wellington, Utah).
4.15 Agreements. None of the Company, any Subsidiary or, to the
knowledge of the Company, any licensee is in default, nor to the knowledge of
the Company is there any basis for a valid claim of default, and to the
Company's knowledge no event has occurred which, with notice or lapse of time,
would constitute a default, under any agreement, arrangement or understanding to
which the Company, any Subsidiary or any licensee is a party, and to the
knowledge of the Company, no Person other than the Company is in default under
any such agreement, in each case other than defaults which in the aggregate
could not be expected to have a Material Adverse Effect (except the agreement as
disclosed between the Company and EARTHCO relating to a preparation plant and
fines ponds lease in Wellington, Utah). Additionally, none of the Company, any
Subsidiary or, to the knowledge of the Company, any licensee is party to any
agreement the performance of which in accordance with its terms (including any
termination provision thereof) could be expected to have a Material Adverse
Effect.
16
4.16 Intellectual Property. Schedule 4.16 sets forth a complete list of
(i) all patented, registered, applied for or otherwise material Intellectual
Property owned, filed or used by the Company; and (ii) all trade names and
material unregistered trademarks and other designations used by the Company in
connection with its business. The Company owns and possesses all right, title
and interest in and to, or has a valid and enforceable license to use, all
Intellectual Property used by the Company in its business as currently conducted
and as currently proposed to be conducted. No claim by any third party
contesting the validity, enforceability, use or ownership of Intellectual
Property owned, held or used by the Company has been made or, to the knowledge
of the Company, is threatened. To the knowledge of the Company, neither it nor
its indemnitees has violated or misappropriated the Intellectual Property of any
third party and no third party has violated or misappropriated Intellectual
Property owned, held or used by the Company. No claim by any third party has
been asserted, or to the knowledge of the Company threatened, that the Company
or its indemnitees is violating or misappropriating Intellectual Property. To
the knowledge of the Company, all Intellectual Property owned or held by the
Company is valid, subsisting and enforceable, and all such Intellectual Property
is free of all Liens, and, except as set forth on Schedule 4.16, is fully
assignable by the Company to any Person, without payment, consent of any Person
or other condition or restriction. The Company has taken all reasonable measures
to protect the secrecy, confidentiality and value of all Confidential
Information, proprietary information and trade secrets owned, held or used by
the Company (including, without limitation, entering into appropriate
confidentiality agreements with all officers, directors, employees, and other
Persons with access to such information and trade secrets). To the knowledge of
the Company, such information and trade secrets have not been disclosed to any
Persons other than Company employees or Company contractors who had a need to
know and use such information and trade secrets in the ordinary course of
employment or contract performance and who executed appropriate confidentiality
agreements.
4.17 Employees. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strike, material
grievance, material claim of unfair labor practice or other collective
bargaining dispute. To the knowledge of the Company there is no organizational
effort being made or threatened by or on behalf of any labor union with respect
to its employees. To the knowledge of the Company, it has not committed any
unfair labor practice or violated any federal, state or local law or regulation
regulating employers or the terms and conditions of its employees' employment,
including laws regulating employee wages and hours, employment discrimination,
employee civil rights, equal employment opportunity and employment of foreign
nationals, except for such violations as could not be expected to have a
Material Adverse Effect.
4.18 ERISA; Employee Benefits. The Company has no Plans and agrees that
it will not adopt any Plan, other than a defined contribution 401(k) plan while
any of the Debentures are outstanding.
4.19 Environmental Laws. Except as set forth on Schedule 4.19:
(a) Each of the Company (as used in this Section 4.19, Company
shall include any predecessor and the Company's Subsidiaries) and, to the
knowledge of the Company, its licensees has complied and is in compliance with
all Environmental Laws.
(b) The Company and, to the knowledge of the Company, its
licensees have obtained and complied with, and are in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental Laws to operate its facilities, assets, and its businesses.
(c) No Environmental Actions have been asserted against the
Company or, to the knowledge of the Company, against any licensee or facility
that may have received Hazardous Materials generated by the Company or any
licensee, regarding any actual, threatened, or alleged violation of
Environmental Laws, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated, or otherwise), including any
investigatory, remedial, or corrective obligations, relating to it or its
operations under Environmental Laws.
17
(d) To the knowledge of the Company, none of the following
exists at any property or facility currently or formerly owned or operated by
either the Company or, to the knowledge of the Company, any licensee: (i)
underground storage tanks, (ii) asbestos-containing material in any form or
condition, (iii) materials or equipment containing polychlorinated biphenyls, or
(iv) landfills, surface impoundments, or waste disposal areas, except for
feed-stock properties for Company facilities.
(e) Except as disclosed on Schedule 4.19, neither the Company
nor, to the knowledge of the Company, any licensee has treated, stored, disposed
of, arranged for or permitted the disposal of, transported, handled, or Released
any substance, including without limitation any Hazardous Material, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to Environmental Liabilities and Costs. There has been no Release at any of
the properties owned or operated by the Company or, to the knowledge of the
Company, at any of the properties owned or operated by its licensees or, to the
knowledge of the Company, at any disposal treatment facility which received
Hazardous Materials generated by the Company or any licensee which is reasonably
likely to result in Environmental Liabilities and Costs.
(f) Except as disclosed on Schedule 4.19, neither this
Agreement nor the consummation of the transactions that are contemplated by this
Agreement will result in any obligations for site investigation, cleanup or
notification pursuant to any so-called "transaction-triggered" or "responsible
property transfer" Environmental Laws.
(g) Neither the Company nor, to the knowledge of the Company,
any licensee has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
Remedial Action, of any other Person relating to Environmental Laws.
4.20 Transactions With Affiliates. Except as set forth on Schedule
4.20, neither the Company nor any Subsidiary is party to any agreement,
arrangement or transaction or series of agreements, arrangements or transactions
with any Affiliate which agreements, arrangements, transactions and series of
transactions in the aggregate have a value over $50,000 (other than as
Company-wide employee benefits paid in the ordinary course of business).
4.21 Taxes.
(a) Except as disclosed on Schedule 4.21, each of the Company
and its Subsidiaries has filed all Tax Returns that it was required to file, and
has paid all Taxes due with respect to the periods covered by such Tax Returns.
18
(b)None of the Company and its Subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
(c) Each of the Company and its Subsidiaries has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) Except as set forth on Schedule 4.21, there is no dispute
or claim concerning any Tax Liability of any of the Company and its Subsidiaries
either (i) claimed or raised by any authority in writing or (ii) as to which any
of the directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has knowledge based upon personal contact with any
agent of such authority.
4.22 Other Investors. Set forth on Schedule 4.22 is a list of all
shareholders (including option and convertible security holders) of the Company
who as of the date hereof, based on SEC filings of such shareholders, after
giving effect to the terms hereof, own more than 5% of the fully diluted common
equity of the Company and sets forth such percentage ownership.
4.23 Year 2000 Representations. The Company represents and warrants
that:
(a) The Company does not have any computer applications that
it believes are mission critical to the operation of synthetic fuel facilities
that it operates. While the Company has not formally verified Year 2000
compliance with licensees that utilize the Company's technology in their
synthetic fuel facilities, the Company believes that the computer applications
used in the operations of these facilities are not mission critical.
Accordingly, the Company believes that Year 2000 issues will not be significant
to these computer applications and therefore, upgrading or modifications to
these applications to make them Year 2000 compliant will not be significant.
(b) During 1998 the Company upgraded its network operating
system and believes that system is Year 2000 compliant and that any additional
upgrading to that system will not be significant. The Company utilizes computer
applications in the finance and accounting departments and in the corporate
office that need to be upgraded in order to be Year 2000 compliant. The Company
expects to complete the upgrade of its corporate computer applications for Year
2000 compliance by September 30, 1999.
4.24 Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
19
4.25 Certain Fees. Other than fees and expenses due and payable to the
Purchaser pursuant to Section 12.4, no fees or commissions will be payable by
the Company to any broker, financial advisor, finder, investment banker, or bank
with respect to the transactions contemplated by this Agreement. The Purchaser
shall not have any obligation with respect to any fees or with respect to any
claims made by or on behalf of any Persons for fees of a type contemplated in
this section that may be due in connection with the transactions contemplated by
this Agreement. The Company shall indemnify and hold harmless the Purchaser, its
employees, officers, directors, agents and partners, and their respective
Affiliates from and against all claims, losses, damages, costs (including
attorney's fees) and expenses suffered in respect to any such claimed or
existing fees.
4.26 Solicitation Materials. The Company has not (i) distributed any
offering materials to the Purchaser in connection with the offering and sale of
the Securities other than its public filings with the SEC, or (ii) solicited any
offer to buy or sell the Securities by means of any form of general solicitation
or general advertising within the meaning of Regulation D under the Securities
Act. None of the information provided to the Purchaser by or on behalf of the
Company contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
4.27 Form S-3 Filing. The Company has filed a registration statement
with the SEC on Form S-3 promulgated under the Securities Act, File No.
33-385753, to register the resale of the Conversion Shares, the Warrant Shares
and shares otherwise issuable pursuant to this Agreement.
4.28 Listing and Maintenance Requirements Compliance.
(a) The Company has not received notice (written or oral) from
the National Association of Securities Dealers that the Company is not in
compliance with its listing or maintenance requirements.
(b) Upon conversion of the Debentures into Conversion Shares
or the exercise of the Warrants for the Warrant Shares, all such Conversion
Shares and Warrant Shares shall be listed on the NASDAQ National Market System.
20
4.29 Registration Rights; Rights of Participation. Except as described
on Schedule 4.29 hereto, (a) 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
Agency which has not expired or been satisfied in full and (b) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other related document which
has not been waived. None of the rights granted to the Purchaser hereunder and
under the Related Documents conflicts with or would cause a default under any of
the agreements or arrangements listed on Schedule 4.29 hereto.
4.30 Synthetic Fuel Facilities.
(a) The Company shall take all reasonably necessary action to
ensure that the credit for producing fuel from a nonconventional source provided
under Section 29 of the Code is available and is maintained with respect to each
of the Company's and its licensee's facilities for producing synthetic fuels
("Facilities") including, without limitation, ensuring that the Facilities
produce "qualified fuels" (as defined in Section 29(c) of the Code) and such
qualified fuels are sold to persons that are not "related persons" (as defined
in Section 29(d)(7) of the Code). Each of the Facilities was placed in service
before July 1, 1998, in each case pursuant to a binding written contract in
effect on or before December 31, 1996. For purposes of this Section 4.30, each
representation made by the Company is made to the knowledge of the Company.
(b) Each of the representations and warranties made by any of
the Company, its Subsidiaries or its licensees in obtaining any private letter
ruling from the Internal Revenue Service was true and correct in all material
respects when made and as of the date the ruling was issued.
(c) Set forth on Schedule 4.30 is each private letter ruling
obtained from the Internal Revenue Service regarding the Facilities which is
addressed to the Company or any of its licensees or is otherwise able to be
relied upon by the Company. To the Company's knowledge, (i) no private letter
ruling listed on Schedule 4.30 has been amended, rescinded or revoked since the
date of issuance, and (ii) there exists no reason that the Internal Revenue
Service would deny a request by the Company or any owner of the Facilities for a
private letter ruling with regard to the Facilities owned by the Company or any
of its licensees.
Article V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
5.1 Authorization and Enforceability. The Purchaser has full power and
authority and has taken all action necessary to permit it to execute and deliver
this Agreement and the other documents and instruments to be executed by it
pursuant hereto and to carry out the terms hereof and thereof. This Agreement
and each such other document and instrument, when duly executed and delivered by
the Purchaser, will constitute a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except to the
extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the enforcement of
creditors' rights generally and (ii) general principles of equity.
21
5.2 Purchaser's Ability to Perform. As of the Initial Closing, the
Purchaser has the financial resources to perform fully its total obligations
under this Agreement.
5.3 Restrictions on Sale. The Purchaser agrees that it will not sell
(sell means making any long or short sales, purchasing put options, selling call
options, or selling any derivative security (i.e. swap agreements) in the
Company's Common Stock or related to the Company's Common Stock) any shares of
the Common Stock of the Company before the earlier of (i) the date which is 30
days after the effective date of the Registration Statement on Form S-3 filed
with the SEC on May 26, 1999, SEC File No. 333-79385, registering the sale of
shares of the Company's Common Stock by the OZ Master Fund, Ltd. (the "OZ Master
Fund Registration"), or (ii) the withdrawal of the OZ Master Fund Registration.
The Company acknowledges and agrees that it will file an amendment to the
Registration Statement on Form S-3, filed with the SEC on November 16, 1998, SEC
File No. 333-67371 (the "▇▇▇▇▇▇▇ Registration"), amending the Registration
Statement to conform with comments received from the SEC, on or before September
24, 1999 and if the amendment is not filed on or before such date the Company
hereby covenants and agrees to issue or cause to be issued to the Purchaser on
such date additional shares of Common Stock equal in number to (i) 10% of the
aggregate principal amount of Debentures issued pursuant to this Agreement,
divided by (ii) the Conversion Price (as defined in the Debentures) on such
date. If the OZ Master Fund Registration has not been declared effective on or
before October 7, 1999 the Company hereby covenants and agrees to issue or cause
to be issued to the Purchaser on such date and on every date which is 30 days or
a multiple thereof after such date, until such registration shall become
effective, additional shares of Common Stock equal in number to (i) 10% of the
aggregate principal amount of Debentures issued pursuant to this Agreement,
divided by (ii) the Conversion Price (as defined in the Debentures) on such
date. On the earlier of November 6, 1999 or 30 days after the effective date of
the OZ Master Fund Registration, if the Company and OZ Master Fund, Ltd. ("OZ")
waive the provisions of Section 5.3 of the Purchase Agreement and the Aspen
Registration, SEC File No. 333-85753, has been declared effective by the SEC,
the Purchaser agrees to waive all penalties accruing to it pursuant to Section
5.3 of the Purchase Agreement. The Company and the Purchaser acknowledge and
agree that (a) OZ is intended to be, and is, a third-party beneficiary to
Section 5.3 of the Purchase Agreement, (b) OZ shall have the right to commence
and prosecute any judicial or other action seeking to enforce the requirements
of, or seeking damages for any violation of, Section 5.3 of the Purchase
Agreement whether or not the Company joins in such action seeking to enforce the
requirements of, or seeking damages for any violation of, Section 5.3 of the
Purchase Agreement and (c) no waiver of the obligations of the Purchaser under
Section 5.3 of the Purchase Agreement shall in any event be effective unless OZ
joins in writing in, or consents in writing to, such waiver.
Article VI - COMPLIANCE WITH SECURITIES LAWS
6.1 Investment Intent of the Purchaser. The Purchaser represents and
warrants to the Company that it is acquiring the Securities for its own account,
with no present intention of selling or otherwise distributing the same in
violation of the Securities Act.
22
6.2 Status of Securities. The Purchaser has been informed by the
Company that the Securities have not been registered under the Securities Act or
under any state securities laws and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering.
6.3 Accredited Investor Status. The Purchaser represents and warrants
to the Company that it is an "Accredited Investor" as defined in Regulation D
under the Securities Act.
6.4 Access to Information. The Purchaser has had access to management
of the Company and has been able to ask questions of management related to the
Company and has reviewed the Company's filings pursuant to the Exchange Act.
Notwithstanding any due diligence investigations conducted by or on behalf of
the Purchaser, it is understood and agreed by each of the parties hereto that
the Purchaser is entitled to rely, and is relying, on the representations and
warranties made by the Company herein and in the Related Documents.
6.5 Transfer of Securities, Conversion Shares and Warrant Shares.
(a) Securities, Conversion Shares and Warrant Shares may be
transferred (i) pursuant to public offerings registered under the Securities
Act, (ii) pursuant to Rule 144 of the SEC (or any similar rule then in force),
(iii) to an Affiliate or member of the Family Group of the transferor (provided
that the subsequent transfer of the Securities, Conversion Shares or Warrant
Shares is restricted), or (iv) subject to the conditions set forth in Section
6.5(b), any other legally available means of transfer.
(b) In connection with any transfer of any Securities,
Conversion Shares or Warrant Shares (other than a transfer described in Section
6.5(a)(i), (ii) or (iii)), the holder of such shares shall deliver written
notice to the Company describing in reasonable detail the proposed transfer,
together with an opinion of counsel (which, to the Company's reasonable
satisfaction, is knowledgeable in securities law matters), to the effect that
such transfer may be effected without registration of such shares under the
Securities Act.
(c) Until transferred pursuant to clauses (a)(i) or (ii) above
or pursuant to clause (a)(i) above with an opinion of counsel pursuant to
paragraph (b) above that such legend is not required, each Debenture, Warrant,
Conversion Shares and Warrant Shares shall be imprinted with a legend
substantially in the following form:
23
THE SECURITIES REPRESENTED BY THIS [DEBENTURE/CERTIFICATE/ WARRANT]
WERE ORIGINALLY ISSUED ON ________, 1999 AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
[DEBENTURE/CERTIFICATE/WARRANT] IS SUBJECT TO THE CONDITIONS SET FORTH
IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 17, 1999,
BETWEEN THE ISSUER (THE "COMPANY") AND THE PURCHASER NAMED THEREIN. THE
COMPANY RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH SECURITIES
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE
TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE COMPANY.
Article VII - CONDITIONS PRECEDENT
7.1 Conditions Precedent. The obligation of the Purchaser to purchase
any Securities hereunder is subject to the satisfaction of each of the following
conditions precedent:
(a) The issuance and sale of the Securities shall not
contravene any law, rule or regulation applicable to the Purchaser or the
Company or any of its Subsidiaries;
(b) The following conditions have been satisfied as of the
Initial Closing Date and each Additional Closing Date,
(i) The representations and warranties of the Company
contained herein and in any Related Document and in any writing
delivered pursuant hereto or thereto shall be true and correct when
made and materially true and correct as of the time of the Initial
Closing and each Additional Closing;
(ii) No action, suit, investigation or proceeding
shall be pending or threatened before any court or Governmental Agency
to restrain, prohibit, collect damages as a result of or otherwise
challenge this Agreement or any Related Document or any transaction
contemplated hereby or thereby;
(iii) All acts or covenants required hereunder to be
performed by the Company prior to the Initial Closing and each
Additional Closing shall have been fully performed by it; and
(iv) No Material Adverse Change shall have occurred
between the date of the Current Balance Sheet and the Initial Closing
Date or Additional Closing Date and no event or occurrence shall have
occurred that could have a Material Adverse Effect.
(c) The following documents and items shall be delivered to
the Purchaser at or prior to the Initial Closing and each Additional Closing:
24
(i) A fully executed counterpart of this Agreement
(at the Initial Closing only), and fully executed Debentures, the
Security Agreement and the UCC-1 financing statements related thereto,
the Warrants and the certificates (in such denominations as the
Purchaser shall request) for the Warrants being delivered by the
Company at the Initial Closing and each Additional Closing.
(ii) Certificates of a duly authorized officer of the
Company dated as of the Initial Closing Date and each Additional
Closing Date:
(A) Stating that the following conditions
have been satisfied as of the Initial Closing Date and each
Additional Closing Date:
(1) The representations and
warranties of the Company contained herein and in any
writing delivered pursuant hereto were true and
correct when made and are materially true and correct
as of the time of the Initial Closing and each
Additional Closing;
(2) No action, suit, investigation
or proceeding is pending or threatened before any
court or Governmental Agency to restrain, prohibit,
collect damages as a result of or otherwise challenge
this Agreement or any Related Document or any
transaction contemplated hereby or thereby;
(3) All acts or covenants required
hereunder to be performed by the Company prior to the
Initial Closing and each Additional Closing have been
fully performed by it; and
(4) No Material Adverse Change shall
have occurred between the date of the Current Balance
Sheet and the Initial Closing Date and each
Additional Closing Date and there shall have been no
event or occurrence that could result in a Material
Adverse Effect; and
(B) Setting forth the resolutions of the
Board of Directors authorizing the execution and delivery of
this Agreement and the Related Documents and the consummation
of the transactions contemplated hereby and thereby, and
certifying that such resolutions were duly adopted and have
not been rescinded or amended;
(iii) The Company shall have paid fees payable
pursuant to Section 12.4 hereof;
(iv) A copy of a certificate of the appropriate
official(s) of the state of organization and each state of foreign
qualification of the Company and each of its Subsidiaries certifying as
of the date of the certificate to the existence in good standing of,
and the payment of taxes by, such Person in such states;
25
(v) A true and complete copy of the Certificate of
Incorporation, as amended, of the Company, certified as of a date not
more than six months prior to the Initial Closing Date by an
appropriate official of the state of organization of each such Person,
a true and complete copy of the Bylaws of the Company, certified as of
the Initial Closing Date by the Secretary of the Company, and a
certificate as of each Additional Closing Date by the Secretary of the
Company that there has been no change to the Certificate of
Incorporation or Bylaws of the Company since the Initial Closing Date;
and
(vi) Such other documents relating to the
transactions contemplated hereby as the Purchaser may reasonably
request.
7.2 Closing Deliveries to the Company. The Purchaser will deliver to
the Company the aggregate purchase price for the Securities to be acquired by
the Purchaser, net of a 10% placement fee payable to Aspen Capital Resources,
LLC.
Article VIII - COVENANTS OF THE COMPANY
8.1 Restricted Actions. Without the prior written consent of the
Purchaser, and for so long as any of the Debentures remain outstanding, the
Company shall not, and shall not permit any Subsidiary to:
(a) become subject to any agreement or instrument which by its
terms would (under any circumstances) restrict or impair the Company's right to
comply with or fulfill its obligations under the terms of this Agreement or any
of the Related Documents;
(b) use the proceeds from the sale of the Securities other
than for repayment of indebtedness, working capital and other general corporate
purposes; provided, that the Company will in no event use the proceeds to invest
in any securities other than short-term, interest-bearing government securities;
(c) enter into any transaction or series of transactions with
any stockholder, director, officer, employee or Affiliate, including, without
limitation, the purchase, sale, lease or exchange of any property, the rendering
of any service or any investment, loan or advance, unless such transaction (i)
is consummated by the Company in good faith on an arm's-length basis, (ii) is
less than $100,000 per occurrence or $250,000 in the aggregate, and (iii) is
approved by the Board of Directors, including by a majority of the Company's
disinterested directors;
26
(d) declare or pay any dividends, purchase or otherwise
acquire for value any of its membership interests or other Capital Stock now or
hereafter outstanding, return any capital to its members as such, or make any
other payment or distribution of assets to its stockholders as such, or permit
any of its Subsidiaries to do any of the foregoing or to purchase or otherwise
acquire for value any Capital Stock of the Company or its Subsidiaries, or make
any payment or prepayment of principal of, premium, if any, or interest on, or
redeem, decrease or otherwise retire, any Indebtedness before its scheduled due
date;
(e) materially alter or change the business of the Company;
(f) issue any stock option or warrant at less than the Fair
Market Value at the time of grant;
(g) unless the Company has issued and sold $4,000,000.00 of
the Debentures to the Purchaser, create, incur or suffer to exist any
Indebtedness, other than:
(i) Indebtedness created hereunder and under the
Debentures; and
(ii) Indebtedness existing on the date hereof, and
any extension of maturity, refinancing or modification of the terms
there of provided, however, that such extension, refinancing or
modification (A) is pursuant to terms that are not materially less
favorable to the purchaser than the terms of the Indebtedness being
extended, refinanced or modified and (B) after giving effect to the
extension, refinancing or modification, such Indebtedness is not
greater than the amount of Indebtedness outstanding immediately prior
to such extension, refinancing or modification.
(h) alter the rights, preferences and privileges of the
Securities, the Conversion Shares or the Warrant Shares;
(i) allow the use, handling, generation, storage, treatment,
release or disposal of Hazardous Materials at any property owned or leased by
the Company or any of its Subsidiaries except in compliance with Environmental
Laws and so long as such use, handling, generation, storage, treatment, release
or disposal of Hazardous Materials does not result in a violation of
Environmental Law which would result in a Material Adverse Change; and
(j) grant any rights of registration under the Securities Act
relating to any of its shares of Capital Stock or other securities to any Person
other than pursuant to this Agreement, unless (i) the rights so granted to
another Person do not limit, restrict or impair the rights of the Purchaser
under this Agreement and under the Related Documents and (ii) such rights so
granted to another Person do not grant priority in registration rights to such
other Person over rights granted to Purchaser under this Agreement and under the
Related Documents.
8.2 Required Actions. For so long as any of the Debentures remain
outstanding, the Company shall, and shall cause each Subsidiary to:
27
(a) cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any of its Subsidiaries to be maintained and kept in good condition,
repair and working order (reasonable wear and tear excepted) and supplied with
all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Board of Directors may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that the foregoing shall not prevent the Company from
discontinuing the maintenance or operation of any of such properties if such
discontinuance is, in the judgment of the management of the Company, desirable
in the conduct of its business or the business of any of its Subsidiaries and is
not disadvantageous in any material respect to the holders of the Securities;
(b) preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not disadvantageous in any material respect to the
holders of Securities;
(c) maintain the books, accounts and records of the Company
and its Subsidiaries in accordance with past custom and practice as used in the
preparation of the Financial Statements except to the extent permitted or
required by GAAP;
(d) keep all of its and its Subsidiaries' properties which are
of an insurable nature insured with insurers, believed by the Company in good
faith to be financially sound and responsible, against loss or damage to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties (which may include self-insurance,
if reasonable and in comparable form to that maintained by companies similarly
situated);
(e) comply with all material legal requirements and material
contractual obligations applicable to the operations and business of the Company
and its Subsidiaries and pay all applicable Taxes as they become due and
payable;
(f) permit representatives of any holder of the Securities and
its agents (including their counsel, accountants and consultants), subject to
the execution of a reasonable confidentiality agreement, to have reasonable
access upon reasonable notice during business hours to the Company's books,
records, facilities, key personnel, officers, directors, customers, independent
accountants and legal counsel so long as such access does not violate any
applicable Federal or state law or cause the loss of the attorney-client
privilege;
28
(g) at all times (i) file all reports (including annual
reports, quarterly reports and the information, documentation and other reports)
required to be filed by the Company under the Exchange Act and Sections 13 and
15 of the rules and regulations adopted by the SEC thereunder, and the Company
shall use its best efforts to file each of such reports on a timely basis, and
take such further action as any holder or holders of the Securities, the
Conversion Shares or the Warrant Shares may reasonably request (including
providing copies of such reports to the holders of the Securities, the
Conversion Shares or the Warrant Shares), all to the extent required to enable
such holders to sell Securities pursuant to Rule 144 adopted by the SEC under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the SEC and to enable the
Company to register securities with the SEC on Form S-3 or any similar
short-form registration statement and upon the filing of each such report
deliver a copy thereof to each holder of the Securities, the Conversion Shares
or the Warrant Shares, (ii) if the Company is no longer subject to the
requirements of the Exchange Act, provide reports to the holders of the
Securities, the Conversion Shares or the Warrant Shares in substantially the
same form and at the same times as would be required if the Company were subject
to the Exchange Act, and (iii) provide to each initial holder of the Securities,
the Conversion Shares or the Warrant Shares and each other holder who has
entered into a confidentiality agreement with the Company, pursuant to mutually
agreeable terms, any material information distributed to the Board of Directors;
(h) maintain at all times a valid listing for the Common Stock
on a national securities exchange, the NASDAQ National Market System or the
NASDAQ SmallCap Market;
(i) maintain all material Intellectual Property Rights
necessary to the conduct of its business and own or have a valid license to use
all right, title and interest in and to, such material Intellectual Property
Rights;
(j) deliver Conversion Shares in accordance with the terms and
conditions, and time periods, set forth in the Debentures;
29
(k) (i) Keep any property either owned or operated by it or
any of its Subsidiaries free of any Environmental Liens or post bonds or other
financial assurances sufficient to satisfy the obligations or liability
evidenced by such Environmental Liens; (ii) comply, and cause its Subsidiaries
to comply, in all material respects with Environmental Laws and shall provide to
the Purchaser documentation of such compliance which the Purchaser reasonably
requests; (iii) promptly notify the Purchaser of any Release of a Hazardous
Material in excess of any reportable quantity from or onto property owned or
operated by the Company, any of its Subsidiaries or, to the knowledge of the
Company, any of its licensees and take any Remedial Actions required to ▇▇▇▇▇
said Release or otherwise to come into compliance with applicable Environmental
Law; and (iv) promptly provide the Purchaser with written notice within ten (10)
days of the receipt of any of the following: (a) notice that an Environmental
Lien has been filed against any of the real or personal property of the Company,
any of its Subsidiaries or, to the knowledge of the Company, any of its
licensees; (b) commencement of any Environmental Action or notice that an
Environmental Action will be filed against the Company or any Subsidiary; and
(c) notice of a violation, citation or other administrative order which would
reasonably be expected to cause a Material Adverse Effect; and
(m) Take such actions and execute, acknowledge and deliver,
and cause each of the Subsidiaries to take such actions and execute, acknowledge
and deliver, at its sole cost and expense such agreements, instruments or other
documents as the Purchaser may reasonably require from time to time in order to
(i) carry out more effectively the purposes of this Agreement and the Related
Documents, (ii) maintain the validity and effectiveness of any of the Related
Documents, and (iii) to better assure, convey, grant, assign, transfer and
confirm unto the Purchaser the rights now or hereafter intended to be granted to
the Purchaser under this Agreement or any Related Document.
8.3 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purposes of issuance upon conversion of the Debentures and the
exercise of the Warrants, such number of shares of Common Stock as are issuable
upon the conversion or exercise of all Debentures and all Warrants. All shares
of Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all Taxes, liens and charges.
The Company, at its sole cost and expense, shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
8.4 Payments Free of Withholding. All payments by the Company hereunder
or under the Debentures or the Warrants shall be made free and clear of, and
without any deduction for, any Tax imposed by any taxing jurisdiction, domestic
or foreign.
Article IX - REGISTRATION RIGHTS
9.1 Registration Rights. The Company, at its sole cost and expense,
covenants to register or qualify or cause to be registered or qualified under
applicable federal and state securities laws the sale and resale by the
Purchaser of (i) all of the Conversion Shares, (ii) all of the Warrant Shares,
and (iii) all of the additional shares of Common Stock issued or issuable to the
Purchaser pursuant to this Agreement, if any, and to maintain such registration
statement effective for all periods during which any portion of any Debenture
may be converted or any Warrants may be exercised. The Company agrees to cause
such registration or qualification to be filed with the United States Securities
and Exchange Commission within 10 calendar days after the date of this
Agreement. The Company agrees to cause such registration or qualification to
become effective on or before the first date upon which any portion of any
Debenture may be converted and to remain effective for all periods during which
any portion of any Debenture may be converted or any Warrants may be exercised.
If such registration or qualification does not become effective within 120 days
after the date of this Agreement or remain effective thereafter as provided
herein, the Purchaser may, at its sole option, demand that the Company redeem
all or any portion of the Debentures as provided therein.
If such registration or qualification, registering all of the specified
shares of Common Stock, has not become effective on or before the first date
upon which any portion of any Debenture may be converted, the Company hereby
covenants and agrees to issue or cause to be issued to the Purchaser on such
date and on every date which is 30 days or a multiple thereof after such date,
until such registration or qualification shall become effective, additional
shares of Common Stock equal in number to 10% of (i) the total number of shares
of Common Stock issued or issuable upon conversion of all issued and outstanding
Debentures or portions thereof which are convertible by the Purchaser and (ii)
the additional shares of Common Stock issued or issuable to the Purchaser
pursuant to this Agreement, if any, and to cause the sale and resale of all such
additional shares to be included in the registration or qualification described
herein.
9.2 Piggyback Registration Rights. The Company covenants that if at any
time when any Debenture may be converted or any Warrant may be exercised the
Company should file a non-underwritten registration statement or offering
statement on behalf of the Company pursuant to applicable federal and state
securities laws for a public offering of securities, the Company will provide
written notification to the Purchaser at least 30 days but not more than 60 days
prior to the filing date of such registration statement or offering statement
and will register or qualify or cause to be registered or qualified, subject to
the rights pursuant to which the registration or qualification is filed, at the
option of the Purchaser and at the sole cost and expense of the Company, the
sale and resale by the Purchaser of (i) all of the Conversion Shares, (ii) all
of the Warrant Shares, and (iii) all of the additional shares of Common Stock
issuable to the Purchaser pursuant to this Agreement, if any, and the Company
will maintain such registration statement effective for all periods during which
any Debentures may be converted or any Warrants may be exercised.
Article X - SURVIVAL
10.1 Survival. The representations, warranties, covenants and
agreements of the parties hereto contained herein, or in any writing delivered
pursuant hereto, shall survive the Initial Closing and each Additional Closing
of the transactions contemplated hereby and by the Related Documents
notwithstanding any due diligence investigation conducted by or on behalf of
Purchaser and until such time as all of the obligations of the parties hereto
have been satisfied.
Article XI - INDEMNIFICATION
30
11.1 Indemnification. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless, on an after-tax
basis, the Purchaser and each other holder of the Securities and each of their
respective officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, Environmental Actions, losses, costs,
penalties, fees, liabilities, Environmental Liabilities and Costs and damages,
and expenses (including, without limitation, costs of suit and attorneys' fees
and expenses) in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought) (the "Indemnified Liabilities"), incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to (a) the material breach
or inaccuracy of any representation or warranty contained in this Agreement or
any Related Document or any other instrument, agreement or document delivered to
the Purchaser in accordance herewith or therewith, (b) the execution, delivery,
performance or enforcement of this Agreement, any Related Document and any other
instrument, document or agreement executed pursuant hereto or thereto by any of
the Indemnitees, or (c) resulting from any material breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Company herein or in
any Related Document. The Company shall reimburse the Indemnitees for the
Indemnified Liabilities as such Indemnified Liabilities are incurred. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
Article XII - GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Securities, Conversion Shares or Warrant
Shares. Except as otherwise specifically provided herein, this Agreement shall
not be assignable by the Company without the prior written consent of the
Purchaser.
12.2 Entire Agreement. This Agreement and the other writings referred
to herein or delivered pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior oral
or written arrangements or understandings.
12.3 Notices. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be (i) delivered in person,
(ii) transmitted by telecopy, (iii) sent by registered or certified mail,
postage prepaid with return receipt requested, or (iv) sent by reputable
overnight courier service, fees prepaid, to the recipient at the address or
telecopy number set forth below, or such other address or telecopy number as may
hereafter be designated in writing by such recipient. Notices shall be deemed
given upon personal delivery, upon receipt of return receipt in the case of
delivery by mail, upon acknowledgment by the receiving telecopier or one day
following deposit with an overnight courier service.
31
(1) If to the Company:
Covol Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to (which shall not constitute notice to the Company):
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇
Ten ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
(2) If to the Purchaser:
Aspen Capital Resources, LLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to (which shall not constitute notice to the Purchaser):
Corbridge Baird & ▇▇▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
12.4 Purchaser Fees and Expenses.
(a) The Company shall pay a placement fee to Aspen Capital
Resources, LLC equal to 10% of the aggregate principal amount of Debentures
issued pursuant to this Agreement, payable upon issuance of each Debenture.
32
(b) The Company shall reimburse the Purchaser upon demand for
(i) the reasonable fees and expenses of counsel(s) to the Purchaser incurred in
connection with the documentation, negotiation and consummation of the
transactions contemplated by this Agreement and the Related Documents and (ii)
reasonable due diligence expenses incurred by the Purchaser, limited to
$25,000.00 in connection with the Initial Closing. The Company shall reimburse
the Purchaser for the reasonable fees and expenses of counsel(s) to the
Purchaser incurred in connection with any Additional Closing and any future
amendment or waiver to this Agreement or any of the Related Documents, limited
in the aggregate to $10,000.00, without the prior approval of the Company.
(c) The Company also agrees to pay or cause to be paid, on
demand, and to save the Purchaser harmless against liability for the payment of
all reasonable out-of-pocket expenses incurred by the Company from time to time
arising from or relating to: (i) the preservation and protection of any of the
Company's rights under this Agreement or the Related Documents, (ii) the defense
of any claim or action asserted or brought against the Purchaser by any Person
that arises from or relates to this Agreement, any Related Document, the
Purchaser's claims against the Company, or any and all matters in connection
therewith, (iii) the commencement or defense of, or intervention in, any court
proceeding arising from or related to this Agreement or any Related Document,
(iv) the filing of any petition, complaint, answer, motion or other pleading by
the Purchaser in connection with this Agreement or any Related Document, (v) any
attempt to collect from the Company, or (vi) the receipt of any advice with
respect to any of the foregoing. Without limitation of the foregoing or any
other provision of any Related Document: (A) the Company agrees to pay all
stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Purchaser to be payable in
connection with this Agreement or any Related Document, and the Company agrees
to save the Purchaser harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions, and (B) if the
Company fails to perform any covenant or agreement contained herein or in any
Related Document, the Purchaser may itself perform or cause performance of such
covenant or agreement, and the expenses of the Purchaser incurred in connection
therewith shall be reimbursed on demand by the Company.
12.5 Amendment and Waiver. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed by
the Company and the Purchaser. Any failure of the Company to comply with any
provision hereof may only be waived in writing by the Purchaser, and any failure
of the Purchaser of the Securities, the Conversion Shares or the Warrant Shares
to comply with any provision hereof may only be waived in writing by the
Company. No such waiver shall operate as a waiver of, or estoppel with respect
to, any subsequent or other failure. No failure by any party to take any action
against any breach of this Agreement or default by any other party shall
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
33
12.7 Headings. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part of
this Agreement.
12.8 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
12.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF UTAH WITHOUT
GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF UTAH OF
ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF ANY LAWS OTHER
THAN THOSE OF THE STATE OF UTAH.
12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY RELATED DOCUMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF UTAH IN THE COUNTY OF SALT LAKE OR IN
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE PARTIES HEREBY IRREVOCABLY ACCEPT IN RESPECT OF
THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS.
12.11 No Third Party Beneficiaries. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to confer
upon any person or entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
12.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
COVOL TECHNOLOGIES, INC.
Attest
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------- -------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, General Counsel & ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Financial
Corporate Secretary Officer
34
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Executive Vice
President
ASPEN CAPITAL RESOURCES, LLC
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇, Manager
35
SCHEDULES
Schedule 4.1 Subsidiaries
Schedule 4.2 Existing Indebtedness
Schedule 4.3 Capitalization
Schedule 4.6(a) Certain Changes
Schedule 4.6(c) Places of Business
Schedule 4.7 Litigation
Schedule 4.13 Owned Real Property
Schedule 4.16 Intellectual Property
Schedule 4.19 Environmental Laws
Schedule 4.20 Transactions with Affiliates
Schedule 4.21 Taxes
Schedule 4.22 Other Investors
Schedule 4.29 Registration Rights
Schedule 4.30 Synthetic Fuel Facilities
EXHIBITS
Exhibit A Security Agreement
Exhibit B Form of Convertible Secured Debenture
Exhibit C Form of Warrant