Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
AND
GULF COAST OIL CORPORATION
DATED: JUNE 30, 2006
TABLE OF CONTENTS
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PAGE
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1. Agreement to Sell and Purchase 1
2. Fees 1
3. Closing, Delivery and Payment 2
3.1 Closing 2
3.2 Delivery 2
4. Representations and Warranties of the Company 2
4.1 Organization, Good Standing and Qualification 2
4.2 Subsidiaries 3
4.3 Capitalization; Voting Rights 3
4.4 Authorization; Binding Obligations 4
4.5 Liabilities 4
4.6 Agreements; Action 4
4.7 Obligations to Related Parties 6
4.8 Changes 6
4.9 Title to Properties and Assets; Liens, Etc 7
4.10 Intellectual Property 8
4.11 Compliance with Other Instruments 8
4.12 Litigation 9
4.13 Tax Returns and Payments 9
4.14 Employees 9
4.15 Voting Rights 10
4.16 Compliance with Laws; Permits 10
4.17 Environmental and Safety Laws 10
4.18 Valid Offering 11
4.19 Full Disclosure 11
4.20 Insurance 11
4.21 Dilution 11
4.22 Patriot Act 11
4.23 ERISA 12
4.24 Registration Rights ERROR! BOOKMARK NOT DEFINED.
5. Representations and Warranties of the Purchaser 12
5.1 Requisite Power and Authority 12
5.2 Investment Representations 13
5.3 The Purchaser Bears Economic Risk 13
5.4 Acquisition for Own Account 13
5.5 The Purchaser Can Protect Its Interest 13
5.6 Accredited Investor 13
5.7 Legends 13
6. Covenants of the Company 14
6.1 Reporting Requirements 14
6.2 Use of Funds 14
6.3 Access to Facilities 15
6.4 Taxes 15
6.5 Insurance 16
6.6 Intellectual Property 17
6.7 Properties 17
6.8 Confidentiality 17
6.9 Required Approvals 17
6.10 Opinion 18
6.11 Margin Stock 18
6.12 Financing Right of First Refusal 18
6.13 Authorization and Reservation of Shares ERROR! BOOKMARK NOT
6.14 Summaries; Reports 19
7. Covenants of the Purchaser 19
7.1 Confidentiality 19
7.2 Limitation on Acquisition of Common Stock of the Company 19
8. Covenants of the Company and the Purchaser Regarding
Indemnification 20
8.1 Company Indemnification 20
8.2 Purchaser's Indemnification 20
9. Miscellaneous 21
9.1 Governing Law, Jurisdiction and Waiver of Jury Trial 21
9.2 Severability 22
9.3 Survival 22
9.4 Successors 22
9.5 Entire Agreement; Maximum Interest 22
9.6 Amendment and Waiver 23
9.7 Delays or Omissions 23
9.8 Notices 23
9.9 Attorneys' Fees 24
9.10 Titles and Subtitles 24
9.11 Facsimile Signatures; Counterparts 24
9.12 Broker's Fees 24
9.13 Construction 1
LIST OF EXHIBITS
Form of Term Note Exhibit A
Form of Opinion Exhibit B
Form of Escrow Agreement Exhibit C
LIST OF SCHEDULES
Schedule 4.2 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6 Agreements
Schedule 4.7 Obligations to Related Parties
Schedule 4.9 Title to Properties and Assets, Liens, Etc.
Schedule 4.12 Litigation
Schedule 4.13 Tax Returns and Payments
Schedule 4.14 Employees
Schedule 4.15 Voting Rights
Schedule 4.17 Environmental
Schedule 6.9 Required Approvals
Schedule 9.12 Brokers
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of June 30, 2006, by and between GULF COAST OIL CORPORATION , a Delaware
corporation (the "Company"), and LAURUS MASTER FUND, LTD., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a Secured
Term Note in the aggregate principal amount of Five Million ($5,000,000) in the
form of Exhibit A hereto (as amended, modified and/or supplemented from time to
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time, the "Note" or the "Securities");
WHEREAS, the Purchaser desires to purchase the Note on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note to the Purchaser on
the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
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forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company shall sell to the Purchaser, and the Purchaser shall purchase from the
Company, the Note. The sale of the Note on the Closing Date shall be known as
the "Offering." The Note will mature on the Maturity Date (as defined in the
Note).
2. Fees. On the Closing Date:
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(a) Subject to the terms of Section 2(c) below, the Company shall pay
to Laurus Capital Management, LLC, the investment manager of the Purchaser
("LCM"), a non-refundable servicing payment in an amount equal to three and
one-half percent (3.50%) of the aggregate principal amount of the Note. The
foregoing payment is referred to herein as the "Servicing Payment." The
parties acknowledge that the Servicing Payment is a reasonable estimate of
the expenses that LCM will incur in monitoring and servicing the Note, and
the Servicing Payment is intended to enable LCM to defray such expenses.
(b) The Company shall reimburse the Purchaser for its reasonable
expenses (including legal fees and expenses) incurred in connection with
entering into this Agreement and the Related Agreements (as hereinafter
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defined), and expenses incurred in connection with the Purchaser's due
diligence review of the Company and its Subsidiaries (as defined in Section
4.2) and all related matters. Amounts required to be paid under this
Section 2(b) will be paid on the Closing Date.
(c) The Servicing Payment and the expenses referred to in the
preceding clause (b) (net of deposits previously paid by the Company) shall
be paid at closing out of funds held pursuant to the Escrow Agreement (as
defined below) and a disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
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3.1 Closing. Subject to the terms and conditions herein, the closing
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of the transactions contemplated hereby (the "Closing"), shall take place
on the date hereof, at such time or place as the Company and the Purchaser
may mutually agree (such date is hereinafter referred to as the "Closing
Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on the
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Closing Date, the Company will deliver to the Purchaser, among other
things, the Note, and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by certified
funds or wire transfer. The Company hereby acknowledges and agrees that
Purchaser's obligation to purchase the Note from the Company on the Closing
Date shall be contingent upon the satisfaction (or waiver by the Purchaser
in its sole discretion) of the items and matters set forth in the closing
checklist provided by the Purchaser to the Company on or prior to the
Closing Date.
4. Representations and Warranties of the Company. The Company hereby
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represents and warrants to the Purchaser as follows:
4.1 Organization, Good Standing and Qualification. Each of New Century
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Energy Corp. (the "Parent"), the Company and each of 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 its
jurisdiction of organization. Each of the Parent, the Company and each of
its Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and authority to own and operate its
properties and assets and, insofar as it is or shall be a party thereto, to
(1) execute and deliver (i) this Agreement, (ii) the Note to be issued in
connection with this Agreement, (iii) the Amended and Restated Mortgage,
Deed of Trust, Security Agreement, Financing Statement and Assignment of
Production effective as of April 26, 2006 made by the Company in favor of
the Purchaser (as amended, modified and/or supplemented from time to time),
(iv) the Reaffirmation and Ratification Agreement dated as of the date
hereof made by the Company in favor of the Purchaser (as amended, modified
and/or supplemented from time to time), (v) the Reaffirmation and
Ratification Agreement dated as of the date hereof made by the Parent and
Century Resources, Inc. in favor of the Purchaser (as amended, modified
and/or supplemented from time to time), (vi) the Funds Escrow Agreement
dated as of the date hereof among the Company, the Purchaser and the escrow
agent referred to therein, substantially in the form of Exhibit C hereto
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(as amended, modified and/or supplemented from time to time, the "Escrow
Agreement") and (vii) all other documents, instruments and agreements
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entered into in connection with the transactions contemplated hereby and
thereby (the preceding clauses (ii) through (vii), collectively, the
"Related Agreements"); (2) issue and sell the Note; and (3) carry out the
provisions of this Agreement and the Related Agreements and to carry on its
business as presently conducted. Each of the Parent, the Company and each
of its Subsidiaries is duly qualified and is authorized to do business and
is in good standing as a foreign corporation, partnership or limited
liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions
in which failure to do so has not, or could not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Parent, the Company and its
Subsidiaries, taken individually and as a whole (a "Material Adverse
Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the Parent
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and Company, the direct owner of such Subsidiary and its percentage
ownership thereof, is set forth on Schedule 4.2. For the purpose of this
Agreement, a "Subsidiary" of any person or entity means (i) a corporation
or other entity whose shares of stock or other ownership interests having
ordinary voting power (other than stock or other ownership interests having
such power only by reason of the happening of a contingency) to elect a
majority of the directors of such corporation, or other persons or entities
performing similar functions for such person or entity, are owned, directly
or indirectly, by such person or entity or (ii) a corporation or other
entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
4.3 Capitalization; Voting Rights.
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(a) The authorized capital stock of the Company, as of the date
hereof, consists of 1,000,000 shares, all of which are shares of the
Company's Common Stock, par value $.001 per share (the "Common
Stock"), and 1,000 shares of which are issued and outstanding. The
authorized, issued and outstanding capital stock of each Subsidiary of
the Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under the Company's stock option plans;
and (ii) shares which may be granted pursuant to this Agreement and
the Related Agreements, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or
agreements of any kind for the purchase or acquisition from the
Company of any of its securities. Except as disclosed on Schedule 4.3,
neither the offer, issuance or sale of the Note, nor the consummation
of any transaction contemplated hereby will result in a change in the
price or number of any securities of the Company outstanding, under
anti-dilution or other similar provisions contained in or affecting
any such securities.
(c) All issued and outstanding shares of the Company's Common
Stock: (i) have been duly authorized and validly issued and are fully
paid and nonassessable; and (ii) were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
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(d) The rights, preferences, privileges and restrictions of the
shares of the Company's Common Stock are as stated in the Company's
Certificate of Incorporation (the "Charter"). When issued in
compliance with the provisions of this Agreement and the Company's
Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions
on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is
proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership or
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limited liability company, as the case may be, action on the part of the
Parent, Company and each of its Subsidiaries (including their respective
officers and directors) necessary for the authorization of this Agreement
and the Related Agreements, the performance of all obligations of the
Parent, Company and its Subsidiaries hereunder and under the other Related
Agreements at the Closing and, the authorization, sale, issuance and
delivery of the Note has been taken or will be taken prior to the Closing.
This Agreement and the Related Agreements, when executed and delivered and
to the extent it is a party thereto, will be valid and binding obligations
of each of the Parent, Company and each of its Subsidiaries, enforceable
against each such person or entity in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) general principles of equity that restrict the availability
of equitable or legal remedies.
The sale of the Note is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or
complied with.
4.5 Liabilities. Neither the Company nor any of its Subsidiaries has
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any liabilities, except current liabilities incurred in the ordinary course
of business.
4.6 Agreements; Action. Except as set forth on Schedule 4.6:
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(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees
to which the Company or any of its Subsidiaries is a party or by which
it is bound which may involve: (i) obligations (contingent or
otherwise) of, or payments to, the Company or any of its Subsidiaries
in excess of $50,000 (other than obligations of, or payments to, the
Company or any of its Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii)
the transfer or license of any patent, copyright, trade secret or
other proprietary right to or from the Company or any of its
Subsidiaries (other than licenses arising from the purchase of "off
the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the
Company's or any of its Subsidiaries products or services; or (iv)
indemnification by the Company or any of its Subsidiaries with respect
to infringements of proprietary rights.
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(b) Neither the Company nor any of its Subsidiaries has: (i)
declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock; (ii)
incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations and indebtedness owing to the
Purchaser) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate; (iii) made any loans or advances
to any person or entity not in excess, individually or in the
aggregate, of $100,000, other than ordinary course advances for travel
expenses; or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary
course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or
entity (including persons or entities the Company or any Subsidiary of
the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsections.
(d) The Company makes and keeps books, records, and accounts,
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the Company's assets. The Company
maintains internal control over financial reporting ("Financial
Reporting Controls") designed by, or under the supervision of, the
Company's principal executive and principal financial officers, and
effected by the Company's board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles ("GAAP"), including that:
(i) transactions are executed in accordance with
management's general or specific authorization;
(ii) unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the
financial statements are prevented or timely detected;
(iii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and
that the Company's receipts and expenditures are being made only
in accordance with authorizations of the Company's management and
board of directors;
(iv) transactions are recorded as necessary to maintain
accountability for assets; and
(v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate
action is taken with respect to any differences.
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4.7 Obligations to Related Parties. Except as set forth on Schedule
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4.7, there are no obligations of the Company or any of its Subsidiaries to
officers, directors, stockholders or employees of the Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of
the Company and its Subsidiaries;
(c) for other standard employee benefits made generally available
to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of the
Company and each Subsidiary of the Company, as applicable); and
(d) obligations listed in the Company's and each of its
Subsidiary's financial statements.
Except as described above or set forth on Schedule 4.7, none of the
officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any of its Subsidiaries or any
members of their immediate families, are indebted to the Company or any of
its Subsidiaries, individually or in the aggregate, in excess of $50,000 or
have any direct or indirect ownership interest in any firm or corporation
with which the Company or any of its Subsidiaries is affiliated or with
which the Company or any of its Subsidiaries has a business relationship,
or any firm or corporation which competes with the Company or any of its
Subsidiaries, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete
with the Company or any of its Subsidiaries. Except as described above, no
officer, director or stockholder of the Company or any of its Subsidiaries,
or any member of their immediate families, is, directly or indirectly,
interested in any material contract with the Company or any of its
Subsidiaries and no agreements, understandings or proposed transactions are
contemplated between the Company or any of its Subsidiaries and any such
person. Except as set forth on Schedule 4.7, neither the Company nor any of
its Subsidiaries is a guarantor or indemnitor of any indebtedness of any
other person or entity.
4.8 Changes. Except as disclosed in any Schedule to this Agreement or
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to any of the Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee
or group of employees of the Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
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(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of
its Subsidiaries to any stockholder, employee, officer or director of
the Company or any of its Subsidiaries, other than advances made in
the ordinary course of business;
(g) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder of the
Company or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its Subsidiaries;
(i) any labor organization activity related to the Company or any
of its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the
Company or any of its Subsidiaries;
(l) any change in any material agreement to which the Company or
any of its Subsidiaries is a party or by which either the Company or
any of its Subsidiaries is bound which either individually or in the
aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a) through
(m) above.
4.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
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Schedule 4.9, each of the Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its
leasehold interests, in each case subject to no mortgage, pledge, lien,
lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become
delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair
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the operations of the Company or any of its Subsidiaries, so long as
in each such case, such liens and encumbrances have no effect on the
lien priority of the Purchaser in such property; and
(c) those that have otherwise arisen in the ordinary course of
business, so long as they have no effect on the lien priority of the
Purchaser therein.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which it is a party or is otherwise bound.
4.10 Intellectual Property.
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(a) Each of the Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes necessary for its business
as now conducted and, to the Company's knowledge, as presently
proposed to be conducted (the "Intellectual Property"), without any
known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary
rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or
standard products.
(b) Neither the Company nor any of its Subsidiaries has received
any communications alleging that the Company or any of its
Subsidiaries has violated any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company or any of its
Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by the Company or
any of its Subsidiaries, except for inventions, trade secrets or
proprietary information that have been rightfully assigned to the
Company or any of its Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Parent, Company
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nor any of its Subsidiaries is in violation or default of (x) any term of
its Charter or Bylaws, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by
which it is bound or of any judgment, decree, order or writ, which
violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
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compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Company pursuant
hereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute
a default under any such term or provision, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Parent, Company or any of its Subsidiaries or
the suspension, revocation, impairment, forfeiture or nonrenewal of any
permit, license, authorization or approval applicable to the Parent or the
Company, its business or operations or any of its assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there is
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no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Parent, Company or any of its
Subsidiaries that prevents the Parent, Company or any of its Subsidiaries
from entering into this Agreement or the other Related Agreements, or from
consummating the transactions contemplated hereby or thereby, or which has
had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect or any change in the current equity
ownership of the Parent, Company or any of its Subsidiaries, nor is the
Company aware that there is any basis to assert any of the foregoing.
Neither the Parent, Company nor any of its Subsidiaries is a party to or
subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Parent, Company or any of
its Subsidiaries currently pending or which the Parent, Company or any of
its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
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Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by
the Company or any of its Subsidiaries on or before the Closing, have been
paid or will be paid prior to the time they become delinquent. Except as
set forth on Schedule 4.13, neither the Company nor any of its Subsidiaries
has been advised:
(a) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or court decision
in respect of its federal, state or other taxes.
The Company has no knowledge of any liability for any tax to be
imposed upon its properties or assets as of the date of this Agreement that
is not adequately provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
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Company nor any of its Subsidiaries has any collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to
the Company or any of its Subsidiaries. Except as disclosed on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or
bound by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To the
Company's knowledge, no employee of the Company or any of its Subsidiaries,
nor any consultant with whom the Company or any of its Subsidiaries has
contracted, is in violation of any term of any employment contract,
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proprietary information agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the
Company or any of its Subsidiaries because of the nature of the business to
be conducted by the Company or any of its Subsidiaries; and to the
Company's knowledge the continued employment by the Company and its
Subsidiaries of their present employees, and the performance of the
Company's and its Subsidiaries' contracts with its independent contractors,
will not result in any such violation. Neither the Company nor any of its
Subsidiaries is aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court
or administrative agency that would interfere with their duties to the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment
agreement with the Company or any of its Subsidiaries, no employee of the
Company or any of its Subsidiaries has been granted the right to continued
employment by the Company or any of its Subsidiaries or to any material
compensation following termination of employment with the Company or any of
its Subsidiaries. Except as set forth on Schedule 4.14, the Company is not
aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee
or group of employees.
4.15 Voting Rights. Except as set forth on Schedule 4.15, to the
--------------
Company's knowledge, no stockholder of the Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of
equity securities of the Company or any of its Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Parent, Company nor
-------------------------------
any of its Subsidiaries is in violation of any provision of the Sarbanes
Oxley Act of 2002 applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership
of its properties which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required
to be filed in connection with the execution and delivery of this Agreement
or any other Related Agreement and the issuance of any of the Securities,
except such as have been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be
filed in a timely manner. Each of the Company and its Subsidiaries has all
material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of
which could, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Parent, Company nor
-------------------------------
any of its Subsidiaries is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety,
and to its knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation. Except
as set forth on Schedule 4.17, no Hazardous Materials (as defined below)
are used or have been used, stored, or disposed of by the Parent, Company
-10-
or any of its Subsidiaries or, to the Company's knowledge, by any other
person or entity on any property owned, leased or used by the Parent,
Company or any of its Subsidiaries. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal
and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment
from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building
materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations and
--------------
warranties of the Purchaser contained in this Agreement, the offer, sale
and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
4.19 Full Disclosure. Each of the Company and each of its Subsidiaries
---------------
has provided the Purchaser with all information requested by the Purchaser
in connection with its decision to purchase the Note, including all
information the Company and its Subsidiaries believe is reasonably
necessary to make such investment decision. Neither this Agreement, the
Related Agreements, the exhibits and schedules hereto and thereto nor any
other document delivered by the Company or any of its Subsidiaries to
Purchaser or its attorneys or agents in connection herewith or therewith or
with the transactions contemplated hereby or thereby, contain any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company or
any of its Subsidiaries were based on the Company's and its Subsidiaries'
experience in the industry and on assumptions of fact and opinion as to
future events which the Company or any of its Subsidiaries, at the date of
the issuance of such projections or estimates, believed to be reasonable.
4.20 Insurance. Each of the Company and each of its Subsidiaries has
---------
general commercial, product liability, fire and casualty insurance policies
with coverages which the Company believes are customary for companies
similarly situated to the Company and its Subsidiaries in the same or
similar business.
4.21 Patriot Act. The Company certifies that, to the best of Company's
-----------
knowledge, neither the Parent, Company nor any of its Subsidiaries has been
designated, nor is or shall be owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224. The Company hereby
acknowledges that the Purchaser seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants and covenants that: (i)
none of the cash or property that the Parent, Company or any of its
Subsidiaries will pay or will contribute to the Purchaser has been or shall
be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Parent,
-11-
Company or any of its Subsidiaries or to the Purchaser, to the extent that
they are within the Company's and/or its Subsidiaries' and/or the Parent's
control shall cause the Purchaser to be in violation of the United States
Bank Secrecy Act, the United States International Money Laundering Control
Act of 1986 or the United States International Money Laundering Abatement
and Anti-Terrorist Financing Act of 2001. The Company shall promptly notify
the Purchaser if any of these representations, warranties or covenants
ceases to be true and accurate regarding the Company, any of its
Subsidiaries or the Parent. The Company shall provide the Purchaser all
additional information regarding the Company, any of its Subsidiaries or
the Parent that the Purchaser deems necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations, warranties or
covenants are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, the Purchaser
may undertake appropriate actions to ensure compliance with applicable law
or regulation, including but not limited to segregation and/or redemption
of the Purchaser's investment in the Company. The Company further
understands that the Purchaser may release confidential information about
the Company, its Subsidiaries and the Parent and, if applicable, any
underlying beneficial owners, to proper authorities if the Purchaser, in
its sole discretion, determines that it is in the best interests of the
Purchaser in light of relevant rules and regulations under the laws set
forth in subsection (ii) above.
4.22 ERISA. Based upon the Employee Retirement Income Security Act of
-----
1974 ("ERISA"), and the regulations and published interpretations
-----
thereunder: (i) neither the Company nor any of its Subsidiaries has engaged
in any Prohibited Transactions (as defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code")); (ii) each of the Company and each of its Subsidiaries has met all
----
applicable minimum funding requirements under Section 302 of ERISA in
respect of its plans; (iii) neither the Company nor any of its Subsidiaries
has any knowledge of any event or occurrence which would cause the Pension
Benefit Guaranty Corporation to institute proceedings under Title IV of
ERISA to terminate any employee benefit plan(s); (iv) neither the Company
nor any of its Subsidiaries has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons
other than the Company's or such Subsidiary's employees; and (v) neither
the Company nor any of its Subsidiaries has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability
under the Multiemployer Pension Plan Amendments Act of 1980.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
-------------------------------------------------
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 Requisite Power and Authority. The Purchaser has all necessary
--------------------------------
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on the Purchaser's part required for the
lawful execution and delivery of this Agreement and the Related Agreements
have been or will be effectively taken prior to the Closing. Upon their
execution and delivery, this Agreement and the Related Agreements will be
valid and binding obligations of the Purchaser, enforceable in accordance
with their terms, except:
-12-
(a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.2 Investment Representations. The Purchaser understands that the
---------------------------
Note is being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, including, without limitation,
that the Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended (the "Securities
Act"). The Purchaser confirms that it has received or has had full access
to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Note to be purchased by it
under this Agreement. The Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding
the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering and the Note and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which
the Purchaser had access.
5.3 The Purchaser Bears Economic Risk. The Purchaser has substantial
----------------------------------
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has
the capacity to protect its own interests.
5.4 Acquisition for Own Account. The Purchaser is acquiring the Note
----------------------------
for the Purchaser's own account for investment only, and not as a nominee
or agent and not with a view towards or for resale in connection with their
distribution.
5.5 The Purchaser Can Protect Its Interest. The Purchaser represents
---------------------------------------
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks
of its investment in the Note and to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Related Agreements. Further, the Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in the
Agreement or the Related Agreements.
5.6 Accredited Investor. The Purchaser represents that it is an
--------------------
accredited investor within the meaning of Regulation D under the Securities
Act.
5.7 Legend. The Note shall bear substantially the following legend:
------
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE
-13-
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO GULF COAST OIL CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
---------------------------
Purchaser as follows:
6.1 Reporting Requirements. The Company will deliver, or cause to be
-----------------------
delivered, to the Purchaser each of the following, which shall be in form
and detail acceptable to the Purchaser:
(a) As soon as available, and in any event within one hundred and
five (105) days after the end of each fiscal year of the Parent and
the Company, each of the Parent's Company's audited financial
statements with a report of independent certified public accountants
of recognized standing selected by the Company and acceptable to the
Purchaser (the "Accountants"), which annual financial statements shall
-----------
be without qualification and shall include each of the Parent's and
the Company's balance sheet as at the end of such fiscal year and the
related statements of each of the Parent's and the Company's income,
retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidating and consolidated basis to include the
Parent and the Company, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies
of any management letters prepared by the Accountants; and (ii) a
certificate of the Parent's President, Chief Executive Officer or
Chief Financial Officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Event of Default (as defined in
the Note) and, if so, stating in reasonable detail the facts with
respect thereto;
(b) As soon as available and in any event within fifty (50) days
after the end of each fiscal quarter of the Parent, an
unaudited/internal balance sheet and statements of income, retained
earnings and cash flows of the Parent and the Company as at the end of
and for such quarter and for the year to date period then ended,
prepared on a consolidating and consolidated basis to include the
Parent and the Company, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in
the previous year, all prepared in accordance with GAAP, subject to
year-end adjustments and accompanied by a certificate of the Parent's
President, Chief Executive Officer or Chief Financial Officer, stating
(i) that such financial statements have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and (ii) whether or
not such officer has knowledge of the occurrence of any Event of
Default (as defined in the Note) not theretofore reported and remedied
and, if so, stating in reasonable detail the facts with respect
thereto; and
(c) The Company shall deliver, or cause the applicable Subsidiary
of the Company to deliver, such other information as the Purchaser
shall reasonably request.
6.2 Use of Funds. The Company shall use the proceeds of the sale of
--------------
the Note solely for the following: (a) $4,500,000 for the purpose of
-14-
acquiring the oil and gas properties described in the Asset Purchase
Agreement dated as of the date hereof among the Company, J&P Family
Properties, Ltd. and Lara Energy, Inc., (b) $175,000 to fund the Servicing
Payment, (c) $45,000 to fund the Purchaser's legal and due diligence
expenses and (d) $280,000 for the purpose of future drilling expenses of
the Company with respect to the interests acquired by the Company under the
Acquisition Agreement, less such other amounts as may be payable by the
Company to the Purchaser under the terms of the Proposal Letter provided by
the Purchaser to the Parent in connection with the transactions
contemplated hereby.
6.3 Access to Facilities. Each of the Company and each of its
----------------------
Subsidiaries will permit any representatives designated by the Purchaser
(or any successor of the Purchaser), upon reasonable notice and during
normal business hours, at such person's expense and accompanied by a
representative of the Company or any Subsidiary (provided that no such
prior notice shall be required to be given and no such representative of
the Company or any Subsidiary shall be required to accompany the Purchaser
in the event the Purchaser believes such access is necessary to preserve or
protect the Collateral (as defined in the Master Security Agreement) or
following the occurrence and during the continuance of an Event of Default
(as defined in the Note)), to:
(a) visit and inspect any of the properties of the Company or any
of its Subsidiaries;
(b) examine the corporate and financial records of the Company or
any of its Subsidiaries (unless such examination is not permitted by
federal, state or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or
any of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its
Subsidiaries will provide any material, non-public information to the
Purchaser unless the Purchaser signs a confidentiality agreement and
otherwise complies with Regulation FD, under the federal securities laws.
6.4 Taxes. Each of the Company and each of its Subsidiaries will
-----
promptly pay and discharge, or cause to be paid and discharged, when due
and payable, all taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and
its Subsidiaries; provided, however, that any such tax, assessment, charge
or levy need not be paid currently if (i) the validity thereof shall
currently and diligently be contested in good faith by appropriate
proceedings, (ii) such tax, assessment, charge or levy shall have no effect
on the lien priority of the Purchaser in any property of the Company or any
of its Subsidiaries and (iii) if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto in
accordance with GAAP; and provided, further, that the Company and its
Subsidiaries will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which
may have attached as security therefor.
-15-
6.5 Insurance. Each of the Company and its Subsidiaries will keep its
---------
assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in similar business
similarly situated as the Company and its Subsidiaries; and the Company and
its Subsidiaries will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner which the Company
reasonably believes is customary for companies in similar business
similarly situated as the Company and its Subsidiaries and to the extent
available on commercially reasonable terms. The Company, and each of its
Subsidiaries, will jointly and severally bear the full risk of loss from
any loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for their respective obligations hereunder and under
the Related Agreements. At the Company's and each of its Subsidiaries'
joint and several cost and expense in amounts and with carriers reasonably
acceptable to the Purchaser, each of the Company and each of its
Subsidiaries shall (i) keep all its insurable properties and properties in
which it has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and
such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to the Company's or the respective
Subsidiary's including business interruption insurance; (ii) maintain a
bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of
insured's officers and employees who may either singly or jointly with
others at any time have access to the assets or funds of the Company or any
of its Subsidiaries either directly or through governmental authority to
draw upon such funds or to direct generally the disposition of such assets;
(iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain
all such worker's compensation or similar insurance as may be required
under the laws of any state or jurisdiction in which the Company or the
respective Subsidiary is engaged in business; and (v) furnish the Purchaser
with (x) copies of all policies and evidence of the maintenance of such
policies at least thirty (30) days before any expiration date, (y)
excepting the Company's workers' compensation policy, endorsements to such
policies naming the Purchaser as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to
the Purchaser, naming the Purchaser as loss payee, and (z) evidence that as
to the Purchaser the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide the Purchaser with at least thirty (30) days notice
prior to cancellation. The Company and each Subsidiary shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers
shall make payment for such loss to the Company and/or the Subsidiary and
the Purchaser jointly. In the event that as of the date of receipt of each
loss recovery upon any such insurance, the Purchaser has not declared an
-16-
event of default with respect to this Agreement or any of the Related
Agreements, then the Company and/or such Subsidiary shall be permitted to
direct the application of such loss recovery proceeds toward investment in
property, plant and equipment that would comprise "Collateral" secured by
the Purchaser's security interest pursuant to the Master Security Agreement
or such other security agreement as shall be required by the Purchaser,
with any surplus funds to be applied toward payment of the obligations of
the Company to the Purchaser. In the event that the Purchaser has properly
declared an event of default with respect to this Agreement or any of the
Related Agreements, then all loss recoveries received by the Purchaser upon
any such insurance thereafter may be applied to the obligations of the
Company hereunder and under the Related Agreements, in such order as the
Purchaser may determine. Any surplus (following satisfaction of all Company
obligations to the Purchaser) shall be paid by the Purchaser to the Company
or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by the Company or the Subsidiary, as applicable, to the
Purchaser, on demand.
6.6 Intellectual Property. Each of the Company and each of its
----------------------
Subsidiaries shall maintain in full force and effect its existence, rights
and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to
the conduct of its business.
6.7 Properties. Each of the Company and each of its Subsidiaries will
----------
keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and
each of the Company and each of its Subsidiaries will at all times comply
with each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.8 Confidentiality. The Company will not, and will not permit any of
---------------
its Subsidiaries to, disclose, and will not include in any public
announcement, the name of the Purchaser, unless expressly agreed to by the
Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, the Company may disclose the Purchaser's
identity and the terms of this Agreement to its current and prospective
debt and equity financing sources.
6.9 Required Approvals. (I) Except as set forth on Schedule 6.9, the
------------------- ------------
Company, without the prior written consent of the Purchaser, shall not, and
shall not permit any of its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends,
other than dividends paid to the Company or any of its wholly-owned
Subsidiaries, (ii) issue any preferred stock that is mandatorily
redeemable prior to the one year anniversary of the Maturity Date (as
defined in the Note) or (iii) redeem any of its preferred stock or
other equity interests;
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company or any of its
Subsidiaries dissolve, liquidate or merge with any other person or
entity (unless, in the case of such a merger, the Company or, in the
case of merger not involving the Company, such Subsidiary, as
applicable, is the surviving entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by
its terms would (under any circumstances) restrict the Company's or
any of its Subsidiaries, right to perform the provisions of this
Agreement, any Related Agreement or any of the agreements contemplated
hereby or thereby;
-17-
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole; or
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five percent (5%) of the fair market value
of the Company's and its Subsidiaries' assets)) whether secured or
unsecured other than (x) the Company's obligations owed to the
Purchaser, (y) indebtedness set forth on Schedule 6.9 attached hereto
and made a part hereof and any refinancings or replacements thereof on
terms no less favorable to the Purchaser than the indebtedness being
refinanced or replaced, and (z) any indebtedness incurred in
connection with the purchase of assets (other than equipment) in the
ordinary course of business, or any refinancings or replacements
thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced, so long as any lien
relating thereto shall only encumber the fixed assets so purchased and
no other assets of the Company or any of its Subsidiaries; (ii) cancel
any indebtedness owing to it in excess of $50,000 in the aggregate
during any 12 month period; (iii) assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with
any obligations of any other person or entity, except the endorsement
of negotiable instruments by the Company or any Subsidiary thereof for
deposit or collection or similar transactions in the ordinary course
of business or guarantees of indebtedness otherwise permitted to be
outstanding pursuant to this clause (e); and
(II) The Company, without the prior written consent of the Purchaser,
shall not, and shall not permit any of its Subsidiaries to, create or
acquire any Subsidiary after the date hereof unless (i) such Subsidiary is
a wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes a
party to the Master Security Agreement, the Stock Pledge Agreement and the
Subsidiary Guaranty (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof) and, to the extent
required by the Purchaser, satisfies each condition of this Agreement and
the Related Agreements as if such Subsidiary were a Subsidiary on the
Closing Date.
6.10 Opinion. On the Closing Date, the Company will deliver to the
-------
Purchaser an opinion acceptable to the Purchaser from the Company's
external legal counsel in the form of Exhibit B hereto.
----------
6.11 Margin Stock. The Company will not permit any of the proceeds of
------------
the Note to be used directly or indirectly to "purchase" or "carry" "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin
stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now
and from time to time hereafter in effect.
6.12 Financing Right of First Refusal.
------------------------------------
(a) The Company hereby grants to the Purchaser a right of first
refusal to provide any Additional Financing (as defined below) to be
issued by the Company and/or any of its Subsidiaries, subject to the
following terms and conditions. From and after the date hereof, prior
to the incurrence of any additional indebtedness and/or the sale or
-18-
issuance of any equity interests of the Company or any of its
Subsidiaries (an "Additional Financing"), the Company and/or any
Subsidiary of the Company, as the case may be, shall notify the
Purchaser of its intention to enter into such Additional Financing. In
connection therewith, the Company and/or the applicable Subsidiary
thereof shall submit a fully executed term sheet (a "Proposed Term
Sheet") to the Purchaser setting forth the terms, conditions and
pricing of any such Additional Financing (such financing to be
negotiated on "arm's length" terms and the terms thereof to be
negotiated in good faith) proposed to be entered into by the Company
and/or such Subsidiary. The Purchaser shall have the right, but not
the obligation, to deliver its own proposed term sheet (the "Purchaser
Term Sheet") setting forth the terms and conditions upon which the
Purchaser would be willing to provide such Additional Financing to the
Company and/or such Subsidiary. The Purchaser Term Sheet shall contain
terms no less favorable to the Company and/or such Subsidiary than
those outlined in Proposed Term Sheet. The Purchaser shall deliver
such Purchaser Term Sheet within ten calendar days of receipt of each
such Proposed Term Sheet. If the provisions of the Purchaser Term
Sheet are at least as favorable to the Company and/or such Subsidiary,
as the case may be, as the provisions of the Proposed Term Sheet, the
Company and/or such Subsidiary shall enter into and consummate the
Additional Financing transaction outlined in the Purchaser Term Sheet.
(b) The Company will not, and will not permit its Subsidiaries
to, agree, directly or indirectly, to any restriction with any person
or entity which limits the ability of the Purchaser to consummate an
Additional Financing with the Company or any of its Subsidiaries.
6.13 Summaries; Reports. The Company shall deliver to the Purchaser,
-------------------
within two (2) business days following the end of each month, summaries of
the Company's lease operating expenses and production relating to the
Company's oil and gas properties as and for the immediately preceding
month. The Company shall deliver to the Purchaser, within two (2) business
days following the end of each October and April, or at such other time as
the Purchaser shall request, an economic reserve report with respect to the
Company prepared by β.β. ββββββ or such other registered professional
engineer acceptable to the Purchaser.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
--------------------------
Company as follows:
7.1 Confidentiality. The Purchaser will not disclose, and will not
---------------
include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of
such requirement.
7.2 Limitation on Acquisition of Common Stock of the Company.
----------------------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, any
Related Agreement or any document, instrument or agreement entered into in
connection with any other transactions between the Purchaser and the
Company, the Purchaser may not acquire stock in the Company (including,
without limitation, pursuant to a contract to purchase, by exercising an
option or warrant, by converting any other security or instrument, by
acquiring or exercising any other right to acquire, shares of stock or
other security convertible into shares of stock in the Company, or
otherwise, and such contracts, options, warrants, conversion or other
rights shall not be enforceable or exercisable) to the extent such stock
acquisition would cause any interest (including any original issue
discount) payable by the Company to the Purchaser not to qualify as
"portfolio interest" within the meaning of Section 881(c)(2) of the Code,
by reason of Section 881(c)(3) of the Code, taking into account the
constructive ownership rules under Section 871(h)(3)(C) of the Code (the
"Stock Acquisition Limitation"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to the Company upon
the existence of an Event of Default (as defined in the Note).
8. Covenants of the Company and the Purchaser Regarding Indemnification.
----------------------------------------------------------------------
8.1 Company Indemnification. The Company agrees to indemnify, hold
------------------------
harmless, reimburse and defend the Purchaser, each of the Purchaser's
officers, directors, agents, affiliates, control persons, and principal
shareholders, against all claims, costs, expenses, liabilities,
obligations, losses or damages (including reasonable legal fees) of any
nature, incurred by or imposed upon the Purchaser which result, arise out
of or are based upon: (i) any misrepresentation by the Company or any of
its Subsidiaries or breach of any warranty by the Company or any of its
Subsidiaries in this Agreement, any other Related Agreement or in any
exhibits or schedules attached hereto or thereto; or (ii) any breach or
default in performance by Company or any of its Subsidiaries of any
covenant or undertaking to be performed by Company or any of its
Subsidiaries hereunder, under any other Related Agreement or any other
agreement entered into by the Company and/or any of its Subsidiaries and
the Purchaser relating hereto or thereto; or (iii) (a) the violation of any
local, state or federal law, rule or regulation pertaining to environmental
regulation, contamination or cleanup (collectively, "Environmental Laws"),
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sec.9601 et seq. and 40
CFR Sec.302.1 et seq.), the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Sec.6901 et seq.), the Federal Water Pollution Control Act (33
U.S.C. Sec.1251 et seq., and 40 CFR Sec.116.1 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. Sec.1801 et seq.) and the
regulations promulgated pursuant to said laws, all as amended and relating
to or affecting the Company and/or any Subsidiary and the Company's and/or
any Subsidiary's properties, whether or not caused by or within the control
of the Purchaser and/or (b) the presence, release or threat of release of
any Hazardous Materials (including, without limitation, asbestos,
polychlorinated biphenyls, petroleum products, flammable explosives,
radioactive materials, infectious substances or raw materials which include
hazardous constituents) on, in, under or affecting all or any portion of
any property of the Company and/or any Subsidiary or any surrounding areas,
regardless of whether or not caused by or within the control of the
Purchaser.
8.2 Purchaser's Indemnification. The Purchaser agrees to indemnify,
----------------------------
hold harmless, reimburse and defend the Company and each of the Company's
officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company which result,
arise out of or are based upon: (i) any misrepresentation by the Purchaser
or breach of any warranty by the Purchaser in this Agreement or in any
exhibits or schedules attached hereto or any Related Agreement; or (ii) any
-19-
breach or default in performance by the Purchaser of any covenant or
undertaking to be performed by the Purchaser hereunder, or any other
agreement entered into by the Company and the Purchaser relating hereto.
9. Miscellaneous.
--------------
9.1 Governing Law, Jurisdiction and Waiver of Jury Trial.
-----------------------------------------------------------
(a) THIS AGREEMENT AND THE OTHER RELATED AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE PURCHASER, ON
THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE RELATED
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER RELATED AGREEMENTS; PROVIDED, THAT THE
PURCHASER AND THE COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY
OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT, NOTHING IN
THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE PURCHASER
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL
(AS DEFINED IN THE MASTER SECURITY AGREEMENT) OR ANY OTHER SECURITY
FOR THE OBLIGATIONS (AS DEFINED IN THE MASTER SECURITY AGREEMENT), OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE PURCHASER.
THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
THE COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.
THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS
SET FORTH IN SECTION 9.9 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
-20-
THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE PURCHASER AND/OR THE COMPANY
ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED
HERETO OR THERETO.
9.2 Severability. Wherever possible each provision of this Agreement
------------
and the Related Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement or any Related Agreement shall be prohibited by or invalid or
illegal under applicable law such provision shall be ineffective to the
extent of such prohibition or invalidity or illegality, without
invalidating the remainder of such provision or the remaining provisions
thereof which shall not in any way be affected or impaired thereby.
9.3 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by the
Purchaser and the closing of the transactions contemplated hereby to the
extent provided therein. All statements as to factual matters contained in
any certificate or other instrument delivered by or on behalf of the
Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument. All
indemnities set forth herein shall survive the execution, delivery and
termination of this Agreement and the Note and the making and repayment of
the obligations arising hereunder, under the Note and under the other
Related Agreements.
9.4 Successors. Except as otherwise expressly provided herein, the
----------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto. The
Purchaser shall not be permitted to assign its rights hereunder or under
any Related Agreement to a competitor of the Company unless an Event of
Default (as defined in the Note) has occurred and is continuing.
9.5 Entire Agreement; Maximum Interest. This Agreement, the Related
------------------------------------
Agreements, the exhibits and schedules hereto and thereto and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by
any representations, warranties, covenants and agreements except as
specifically set forth herein and therein. Nothing contained in this
Agreement, any Related Agreement or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require
the payment of a rate of interest or other charges in excess of the maximum
rate permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
rate permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Purchaser and thus
refunded to the Company.
-21-
9.6 Amendment and Waiver.
----------------------
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written
consent of the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written
consent of the Company.
9.7 Delays or Omissions. It is agreed that no delay or omission to
---------------------
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the
Related Agreements, shall impair any such right, power or remedy, nor shall
it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. All remedies, either under
this Agreement or the Related Agreements, by law or otherwise afforded to
any party, shall be cumulative and not alternative.
9.8 Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business
day;
(c) three (3) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
verification of receipt.
All communications shall be sent as follows:
If to the Company, Gulf Coast Oil Corporation
to: ββββ βββ ββββββ, βββββ βββ
βββββββ, ββ βββββ
Attention: Chief Financial Officer
Facsimile: βββ-βββ-ββββ
with a copy to:
βββββ β. ββββ, Esq.
Attorney at Law
ββββ βββββ βββββββ
βββββ ββββ
βββββββ, βββββ βββββ
-22-
Attention: βββββ ββββ, Esq.
Facsimile: βββ-βββ-ββββ
If to the Purchaser, Laurus Master Fund, Ltd.
to: c/o M&C Corporate Services Limited
β.β. βββ βββ ββ
ββββββ βββββ
ββββββ ββββ
South Church Street
Grand Cayman, Cayman Islands
Facsimile: βββ-βββ-ββββ
with a copy to:
ββββ β. ββββββ, Esq.
βββ βββββ ββββββ ββββ βββββ
βββ ββββ, βββ ββββ βββββ
Facsimile: βββ-βββ-ββββ
and to:
βββββ β. ββββββββ, Esq.
Loeb & Loeb LLP
βββ ββββ ββββββ
βββ ββββ, βββ ββββ βββββ
Facsimile: βββ-βββ-ββββ
or at such other address as the Company or the Purchaser may designate
by written notice to the other parties hereto given in accordance herewith.
9.9 Attorneys' Fees. In the event that any suit or action is
----------------
instituted to enforce any provision in this Agreement or any Related
Agreement, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement
and/or such Related Agreement, including, without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
9.10 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
9.11 Facsimile Signatures; Counterparts. This Agreement may be
------------------------------------
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
agreement.
9.12 Broker's Fees. Except as set forth on Schedule 9.12 hereof, each
-------------
party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such
party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each
other party for any claims, losses or expenses incurred by such other party
as a result of the representation in this Section 9.12 being untrue.
-23-
9.13 Construction. Each party acknowledges that its legal counsel
------------
participated in the preparation of this Agreement and the Related
Agreements and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be
applied in the interpretation of this Agreement or any Related Agreement to
favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-24-
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
GULF COAST OIL CORPORATION LAURUS MASTER FUND, LTD.
By: /s/ ββββββ β. βββββββββ By: /s/ ββββββ Grin
--------------------------- -------------------------
Name: ββββββ β. βββββββββ Name: ββββββ Grin
------------------------ -----------------------
Title: President & CEO Title: Director
----------------------- ----------------------
-25-
EXHIBIT A
FORM OF NOTE
-26-
EXHIBIT B
FORM OF OPINION
-27-
EXHIBIT C
FORM OF ESCROW AGREEMENT
-28-
SCHEDULE 4.2
------------
CENTURY RESOURCES, INC., a Delaware corporation, is wholly owned by New Century
------------------------
Energy Corp.
GULF COAST OIL CORPORATION, a Delaware corporation, is wholly owned by New
-----------------------------
Century Energy Corp.
-29-
SCHEDULE 4.3
------------
None.
-30-
SCHEDULE 4.6
------------
None.
-31-
SCHEDULE 4.7
------------
ββββββ β. βββββββββ, the Chief Executive Officer and sole Director of New
Century Energy Corp. (the "Parent" of the Company), owns 37,500,000 shares of
the Parent's common stock, making ββ. βββββββββ the majority shareholder of the
Parent. Additionally, ββ. βββββββββ is employed by the Parent under a three year
Employment Agreement, as amended, which ends August 31, 2008.
-32-
SCHEDULE 4.9
------------
None.
-33-
SCHEDULE 4.12
-------------
None.
-34-
SCHEDULE 4.13
-------------
None.
-35-
SCHEDULE 4.14
-------------
None.
-36-
SCHEDULE 4.15
-------------
None.
-37-
SCHEDULE 4.17
-------------
None.
-38-
SCHEDULE 6.9
------------
None.
-39-
SCHEDULE 9.12
-------------
None.
-40-