Exhibit 10.5
NEW DIAMOND CORPORATION LIMITED
GLOBAL DIAMOND RESOURCES, INC.
SECURITIES PURCHASE AGREEMENT
December 29, 1998
TABLE OF CONTENTS
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Page
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1. Purchase and Sale of Shares 1
2. Deliveries at Closing 2
3. Representations, Warranties and Covenants of the Company 3
4. Representations, Warranties and Covenants of the Purchaser 9
5. Indemnification 11
6. Post-Closing Covenants 12
7. Registration Rights 14
8. Miscellaneous 24
EXHIBITS
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A. Company's Officer's Certificate
B. Opinion of Company Counsel
C. [Form of] Indemnification Agreements
D. Purchaser's Officer's Certificate
SECURITIES PURCHASE AGREEMENT
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This Securities Purchase Agreement ("Agreement") is entered into this 29th
day of December 1998 by and among GLOBAL DIAMOND RESOURCES, INC., a Nevada
corporation (the "Company"), and NEW DIAMOND CORPORATION LIMITED, a British
Virgin Islands company ("Purchaser").
R E C I T A L S
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A. The Company desires to obtain additional capital in order to further
the mine development and operations of its South African subsidiaries.
B. In order to obtain such funds, the Company desires to sell and issue to
the Purchaser 8,571,429 shares of the Company's $.0005 par value common stock
("Common Stock"), for the aggregate payment of Three Million U.S. Dollars
(US$3,000,000), on the terms and subject to the conditions set forth herein.
A G R E E M E N T
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It is agreed as follows:
1. Purchase and Sale of Shares.
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1.1 Purchase and Sale of Shares. Subject to the terms and conditions
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set forth herein, the Company agrees to sell and issue to Purchaser, and
Purchaser agrees to purchase from the Company, 8,571,429 shares ("Shares") of
Common Stock, at a purchase price of US$.35 per share.
1.2 Closing. The closing of the transactions contemplated by this
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Agreement ("Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, at 9:00 a.m., local time, on or before December 31, 1998, or at
such other time or place as the parties hereto shall by written instrument
designate (with the date on which such Closing takes place referred to as the
"Closing Date"). At the Closing, the Company shall deliver to the Purchaser the
certificates representing the Shares purchased by the Purchaser under this
Agreement in definitive form and registered in the name of Purchaser against
delivery to the Company by Purchaser of a wire transfer in the amount of the
purchase price to the general account of the Company pursuant to the following
instructions:
Account Name: Global Diamond Resources, Inc.
Bank: ▇▇▇▇▇ Fargo Bank
Branch: La Jolla Branch
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Branch Number 0651
ABA Number ▇▇▇▇▇▇▇▇▇
Account Number 6651 253585
2. Deliveries at Closing.
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2.1 Company's Deliveries at Closing. At the Closing, the Company
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shall deliver or cause to be delivered to the Purchaser all of the following:
(a) certificates representing the Shares registered in the name
of the Purchaser;
(b) an Officer's Certificate of the Company, in the form of
Exhibit "A" attached hereto, representing that, to such officer's knowledge, all
of the representations and warranties of the Company set forth in this Agreement
are accurate as of the Closing and that the Company has taken all actions
required to be taken by the Company under this Agreement prior to the Closing;
(c) certified resolutions of the Board of Directors of the
Company authorizing consummation of the transactions contemplated by this
Agreement;
(d) a Certificate of Good Standing from the State of Nevada for
the Company;
(e) an opinion letter of counsel for the Company in the form of
Exhibit "B" attached hereto; and
(f) Indemnification Agreements, each in the form of Exhibit "C"
attached hereto, between the Company and each of the Purchaser's Nominees (as
defined in Section 3.21) who will become directors immediately following the
Closing;
(g) a certified copy of the Articles of Incorporation of the
Company, as amended;
(h) written confirmation from American Securities Transfer &
Trust, Inc., the transfer agent for the Company's Common Stock, as to the number
of issued and outstanding shares of Common Stock as of December 23, 1998;
(i) written notice from International PCM Holdings Limited, a
British Virgin Islands company ("PCM"), of the waiver of its rights to 30 days'
prior written notice of this offering pursuant to Section 6.7 of that certain
Securities Purchase Agreement dated December 5, 1997 by and among the Company,
Global Diamond Resources Limited, a British Virgin Islands company ("GDRIL"),
and PCM ("PCM Agreement");
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(j) written resignations from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇-▇▇▇▇▇▇ from their positions as directors of the Company effective as
of and subject to the Closing; and
(k) such other documents and instruments as shall be reasonably
necessary to effect the transactions contemplated hereby.
2.2 Purchaser's Deliveries at Closing. At the Closing, Purchaser
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shall deliver or cause to be delivered to the Company all of the following:
(a) a wire transfer of immediately available funds to the
Company's general account in the amount of the purchase price of the Shares;
(b) an Officer's Certificate of Purchaser, in the form of
Exhibit "D" attached hereto, representing that, to such officer's knowledge, all
of the representations and warranties of Purchaser set forth in this Agreement
are accurate as of the Closing and Purchaser has taken all actions required to
be taken by Purchaser hereunder prior to the Closing;
(c) such other documents and instruments as shall be reasonably
necessary to effect the transactions contemplated hereby.
3. Representations, Warranties and Covenants of the Company.
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As a material inducement to the Purchaser to enter into this Agreement
and to purchase the Shares, the Company represents, warrants and covenants as
follows (The term "Company," when used in Sections 3.6 through 3.19, shall
include each of the Subsidiaries, as defined in Section 3.1, unless the context
in which such term is used indicates otherwise):
3.1 Organization and Good Standing. The Company is a corporation
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duly organized, validly existing, and in good standing under the laws of the
State of Nevada and has full corporate power and authority to enter into and
perform its obligations under this Agreement, and to own its properties and to
carry on its business as presently conducted and as proposed to be conducted.
The Company is duly qualified to do business as a foreign corporation in every
jurisdiction in which the failure to so qualify would have a material adverse
effect upon the Company. The Company has equity interests in the following
companies (all of which are collectively referred to as the "Subsidiaries."):
GDRIL, Global Diamond Resources (SA) (Pty) Limited, a South African corporation
("Global Diamond-SA"), Global Diamond Resources Inc., a British Columbia
corporation ("Global Diamond-BC"), and Nabas Diamonds (Pty) Limited, a South
African corporation ("Nabas Diamonds"). Each of the Subsidiaries is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction and has full corporate power and authority to own its
properties and to carry on its business as presently conducted and as proposed
to be conducted. Each of the Subsidiaries is duly qualified to do business as a
foreign corporation in every jurisdiction in which the failure to so qualify
would have a material adverse effect upon the Subsidiary.
3.2 Capitalization. The authorized capital stock of the Company
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consists of 10,000,000 shares of Preferred Stock, $.001 par value, of which no
shares are issued, and 50,000,000 shares of Common Stock, $.0005 par value, of
which 32,824,470 shares are issued and outstanding. All of the Subsidiaries are
beneficially owned either directly or indirectly by
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the Company. All of the issued and outstanding capital shares of GDRIL are owned
by the Company and Global Diamond-BC. The authorized capital of Global Diamond-
SA consists of 100 ordinary shares, of which 95 shares are issued and
outstanding and held by GDRIL. Global Diamond-SA owns all of the issued and
outstanding share capital of Nabas Diamonds. There are no options, warrants or
rights outstanding which entitle their holder to purchase or acquire any capital
shares of GDRIL, Global Diamond-SA, Global Diamond-BC or Nabas Diamonds. All
outstanding shares of Common Stock have been duly authorized and validly issued,
and are fully paid, nonassessable, and free of any preemptive rights. Except as
set forth in Schedule 3.2, there are no agreements, options, warrants or other
rights to purchase any of the Company's authorized and unissued Preferred Stock
or Common Stock or the equity securities of any of the Subsidiaries, and there
are no voting, pooling or voting trust agreements, arrangements or contracts
known to the Company by and among the Company, its shareholders, or any of them.
3.3 No Subsidiaries. Except as set forth in Section 3.1, the
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Company does not control, or have any interest in, directly or indirectly, any
corporation, partnership, business trust, association or other business entity.
3.4 SEC Reports. The Company has delivered to the Purchaser (i) its
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annual report on Form 10-KSB for the fiscal year ended December 31, 1997 and all
quarterly reports on Form 10-QSB subsequently filed with the U.S. Securities and
Exchange Commission ("SEC") (collectively, the "SEC Reports"), and (ii) the
press releases dated September 9, 1998, July 17, 1998, and April 16, 1998, which
constitute all press releases issued by the Company subsequent to January 1,
1998 ("Press Releases"). The information in the SEC Reports and the Press
Releases, taken as a whole, is true and correct in all material respects and
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as provided in
the SEC Reports, since September 30, 1998, there has been no material adverse
change in the business or financial condition of the Company.
3.5 Validity of Transactions. This Agreement, and each document
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executed and delivered by the Company in connection with the transactions
contemplated by this Agreement, and the performance of the transactions
contemplated therein have been duly authorized, executed and delivered by the
Company and is each the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, insolvency reorganization and moratorium laws and other laws
affecting enforcement of creditor's rights generally and by general principles
of equity. The Shares issuable hereunder, when issued in accordance with the
terms of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The Shares will be free of any liens or encumbrances, except for
any restrictions imposed by federal or state securities laws.
3.6 No Violation. The execution, delivery and performance of this
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Agreement and each document executed and delivered by the Company has been duly
authorized by the Board of Directors of the Company and the Company has taken
all necessary corporate action in connection with the execution, delivery and
performance of the Agreement. The execution, delivery and performance of this
Agreement and each document executed and delivered by the Company will not
violate any law or any order of any court or government agency applicable to the
Company, as amended, or the Articles of Incorporation or Bylaws of the Company,
as amended, and will not result in any breach of or default under, or, except as
expressly provided herein, result in the creation of any encumbrance upon any of
the assets of the Company
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pursuant to the terms of the PCM Agreement, or any other agreement or instrument
by which the Company or any of its assets may be bound. No approval of or filing
with any governmental authority (including any governmental authority in South
Africa) is required for the Company to enter into, execute or perform this
Agreement.
3.7 Litigation. Except as set forth in the SEC Reports, there are no
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suits or proceedings (including without limitation, proceedings by or before any
arbitrator, government commission, board, bureau or other administrative agency)
pending or, to the knowledge of the Company, threatened against or affecting the
Company which questions the validity of this Agreement or any action to be taken
in connection therewith, and the Company is not subject to or in default with
respect to any order, writ, injunction or decree of any foreign, federal, state,
local or other governmental department. The Company has not commenced nor
currently intends to commence any legal proceedings against any other person or
entity. The Company has provided Purchaser with copies of all substantive
correspondence for the past three years between the Company and either the SEC,
the National Association of Securities Dealers or the California Department of
Corporations
3.8 Mining Properties. Neither the Company nor any of its
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Subsidiaries own any real property or mining interests except as set forth on
Schedule 3.8. Set forth on Schedule 3.8 is a complete list of all contracts and
permits which represent Global Diamond-SA's and Nabas Diamond's mining
properties and interests ("Mining Contracts"). Each of the Mining Contracts is
legal, binding and enforceable, is in full force and effect, and grants to the
Company or its Subsidiaries, as the case may be, the exclusive right to mine the
property interest demised thereunder, except as expressly limited by the terms
of the respective Mining Contract and applicable South African law. Except as
set forth in the SEC Reports, none of the Mining Contracts will expire or be
terminated or be subject to any modification of terms or conditions upon the
consummation of the transactions contemplated by this Agreement. All amounts
due and payable by the Company or its Subsidiaries under the Mining Contracts
have been fully paid. There are no actual or, to the knowledge of the Company,
threatened expropriations, interdicts or ▇▇▇▇ proclamations relating to the
premises covered by the Mining Contracts, and no claims for restitution of land
rights have been lodged under the South African Restitution of Lands Rights Act
20 of 1994 in relation to the premises covered by the Mining Contracts. Nabas
Diamonds has all necessary statutory consents to prospect in that area of the
Richtersveld National Park covered by the prospecting permit therefor and it has
obtained a Section 51(3) permission in terms of the Rural Areas Act 9 of 1987 to
prospect in the area covered by the Grasdrif prospecting permit. Except as set
forth in the SEC Reports, neither Global Diamond-SA nor Nabas Diamonds is in
default in any material respect under the terms of any Mining Contract nor has
any event occurred which, with the passage of time or giving of notice, would
constitute such a default by Global Diamond-SA or Nabas Diamonds and, to the
Company's knowledge, no other party to any such Mining Contract is in default in
any material respect thereunder nor has any such event occurred with respect to
such party. The Company or its Subsidiaries, as the case may be, has good and
valid title to each of the mining interests demised under the Mining Contracts
free and clear of any liens or encumbrances, except those set forth in the
Mining Contracts and applicable South African law. Except as provided in the
SEC Reports, since January 1, 1998, there has been no material adverse change in
the mining rights held by the Company.
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3.9 Use of Proceeds. The Company shall use the proceeds from the
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sale of the Shares solely for the purpose of furthering the operations of the
Company and its South African Subsidiaries.
3.10 Taxes. All foreign and federal income tax returns and state and
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local income tax returns for the Company have been filed as required by law; all
taxes as shown on such returns or on any assessment received subsequent to the
filing of such returns have been paid, and there are no pending assessments or
adjustments or any income tax payable for which reserves, which are reasonably
believed by the Company to be adequate for the payment of any additional taxes
that may come due, have not been established. All other taxes imposed by any
government authority on the Company have been paid and any reports or returns
due in connection therewith have been filed. No outstanding claim for
assessment or collection of taxes has been asserted against the Company, and
there are no pending, or to the knowledge of the Company, threatened tax audits,
examinations or claims.
3.11 No Defaults. Except as set forth in Schedule 3.11, no material
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default (or event which, with the passage of time or the giving of notice, or
both, would become a material default) exists or is alleged to exist with
respect to the performance of any obligation of the Company under the terms of
any indenture, license, mortgage, deed of trust, lease, note, guaranty, joint
venture agreement, operating agreement, partnership agreement, or other contract
or instrument, including, without limitation, the PCM Agreement, to which the
Company is a party or any of its assets are subject, or by which it is otherwise
bound, and, to the best knowledge of the Company, no such default or event
exists or is alleged to exist with respect to the performance of any obligation
of any party thereto.
3.12 Environmental Matters. Based on the actual knowledge of the
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Company: (i) the operations of Global Diamond-SA and Nabas Diamonds comply in
all respects with all applicable South African environmental, health and safety
statutes and regulations; (ii) none of the operations of the Company, Global
Diamond-SA and Nabas Diamonds involve the unlawful generation of,
transportation, treatment or disposal of hazardous waste; (iii) neither Global
Diamond-SA or Nabas Diamonds has disposed of any hazardous waste or substance by
placing it in or on the ground of any premises owned, leased or used by it; and
(iv) no underground storage tanks or surface impoundments are on any of the
premises owned, leased or used by the Company, Global Diamond-SA or Nabas
Diamonds. There are no pending or, to the actual knowledge of the Company,
threatened claims, encumbrances or restrictions of any nature resulting from
environmental laws with respect to or affecting any properties in which the
Company or its subsidiaries has an interest.
3.13 Absence of Undisclosed Liabilities. The Company has no
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liabilities or obligations of any nature, whether known or unknown, absolute,
accrued, contingent or otherwise, and whether due or to become due, not
disclosed in the SEC Reports, except those which (a) were incurred in the
ordinary course of business subsequent to September 30, 1998, and (b)
individually and in the aggregate are not material to the operations or
financial condition of the Company.
3.14 Securities Law Compliance. Assuming the accuracy of the
-------------------------
representations and warranties of the Purchaser set forth in Section 4 of this
Agreement, the offer, issue, sale and delivery of the Shares constitutes an
exempted transaction under the Securities Act of 1933 ("1933 Act"), as now in
effect, and registration of the Shares under the 1933 Act, is not required,
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and no notice, filing, registration, or qualification under any U.S. state
securities or "Blue Sky" law is required in connection therewith except for such
filings as may be necessary to comply with the Blue Sky laws of any state, which
filings will be made in a timely manner. All securities issued to date by the
Company have been issued in compliance with all applicable federal and state
securities laws.
3.15 Directors and Officers. None of the directors or officers of
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the Company has:
(a) ever filed, or had filed against him a petition under the
bankruptcy or insolvency laws of any governmental regulatory authority, whether
U.S. or foreign, or had a receiver, fiscal agent or similar officer appointed by
a court for his business or property or any partnership in which he was a
general partner at or within two years before the date hereof; or
(b) been convicted of a crime or named in a criminal proceeding
which is presently pending or, to the knowledge of the Company, threatened
(excluding traffic violations and other minor offenses); or
(c) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining him from, or otherwise
limiting, any of the following activities: (i) acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any other person
regulated by the Commodity Futures Trading Commission, or an associated person
of any of the foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company, or
engaging in or continuing any conduct or practice in connection with any such
activity; (ii) engaging in any type of business practice; or (iii) engaging in
any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of the U.S. Federal commodities
laws or the securities laws of any other governmental regulatory authority,
whether U.S. or foreign; or
(d) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of a governmental regulatory
authority, whether U.S. or foreign, barring, suspending or otherwise limiting
for more than sixty (60) days his right to engage in any activity described in
Section 3.15(c) above or to be associated with persons engaged in any such
activity; or
(e) been found by a court in a civil action or any governmental
authority to have violated any U.S. Federal or State securities laws or the
securities laws of any other country, which judgment or finding has not been
subsequently reversed, suspended or vacated;
(f) been found by a court in a civil action or by the U.S.
Commodity Futures Trading Commission to have violated any U.S. Federal
commodities law, which judgment or finding has not been subsequently reversed,
suspended or vacated; or
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(g) have or will have an interest adverse to the Company or any
of its subsidiaries in any pending litigation or contemplated legal proceeding
(including administrative proceedings and investigations by governmental
authorities).
3.16 Corporate Documents. The Company has furnished to the
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Purchaser, or will furnish upon request, true and complete copies of the
Articles of Incorporation and Bylaws of the Company certified by its secretary
and copies of the resolutions adopted by the Company's Board of Directors
authorizing and approving this Agreement and the transactions contemplated
hereby. The Company has made available to the Purchaser and its representatives
all corporate minute books of the Company, and such minute books contain
complete and accurate records of the proceedings of the Company's shareholders
and directors.
3.17 Compliance with Laws. The Company has complied in all material
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respects with all laws, regulations and orders affecting its business and
operations and is not in default under or in violation of any provision of any
federal, state or local rule, regulation or law.
3.18 Copies of Certain Documents. Prior to the Closing Date, the
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Company has delivered or made available to the Purchaser true and complete
copies of all documents relating to the operations of the Company that the
Purchaser has requested.
3.19 Indemnification of Directors and Officers. The Company has
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prepared and executed, and at the Closing will deliver to Purchaser for
execution by each of the Purchaser Nominees who will take office immediately
following the Closing, an Indemnification Agreement for execution by such
Purchaser Nominees. Immediately following the election or appointment of any
other Purchaser Nominees, the Company will prepare, execute and deliver to each
such Purchaser Nominee an Indemnification Agreement for execution by such
Purchaser Nominee.
3.20 Committees of Board of Directors. The Board of Directors of the
--------------------------------
Company has established an Audit Committee and a Compensation Committee
(collectively referred to as the "Committees"). Other than the Committees, the
Board of Directors of the Company has not established any committees of
directors which have been delegated any substantive authority or responsibility.
3.21 Board of Directors. The Board of Directors of the Company has
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taken the necessary corporate action to increase the authorized number of
directors of the Company to eleven (11) and appoint two (2) nominees of the
Purchaser to the Board of Directors, effective immediately following the Closing
and subject to Purchaser's purchase of at least 8,571,429 Shares for the gross
proceeds of US$3,000,000. The Company covenants and agrees that if any of such
nominees (or any successor Purchaser nominee nominated pursuant to this Section
3.21) dies, resigns from the Board of Directors, does not stand for re-election
by the stockholders or is removed from the Board of Directors, then the Company
shall appoint another nominee of the Purchaser to the vacancy so created. The
nominees of the Purchaser who take office immediately following the Closing,
together with any such successors, are referred to in this Agreement as the
"Purchaser's Nominees."
3.22 Brokers and Finders. The Company has not incurred, nor shall it
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incur, directly or indirectly, any liability for any brokerage or finders' fees,
agent commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby. As
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more fully set forth in Section 5.1, the Company shall indemnify and hold the
Purchaser harmless against all claims for brokers' or finders' fees made or
asserted by any party claiming to have been employed by the Company or any
shareholder, director, officer, employee or agent of the Company and all costs
and expenses (including the reasonable fees of counsel) of investigating and
defending such claims.
4. Representations, Warranties and Covenants of the Purchaser.
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As a material inducement to the Company to enter into this Agreement
and to sell and issue the Shares, Purchaser represents, warrants and covenants
as follows:
4.1 Domicile and Accredited Purchaser. The beneficial owners of
---------------------------------
Purchaser are domiciled in Saudi Arabia and are "accredited investors" as
defined under Rule 501 under the 1933 Act.
4.2 Power and Authority. Purchaser is a corporation organized,
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validly existing and in good standing under the laws of the British Virgin
Islands and Purchaser has taken all corporate action necessary for the
execution, delivery and consummation of the transactions contemplated by this
Agreement. Purchaser has full and absolute right, power and authority and legal
capacity to execute, deliver and perform this Agreement and all other agreements
contemplated hereby to be executed by Purchaser and, upon such execution, this
Agreement will be the valid and binding obligation of Purchaser, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors rights generally.
4.3 No Violation. The execution, delivery and performance of this
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Agreement and all other agreements contemplated hereby to be executed and
delivered by Purchaser, and the consummation of the transactions contemplated
hereby and thereby will not materially violate, with or without the giving of
notice or the lapse of time, or both, any provision of law applicable to
Purchaser and will not conflict with or result in the breach or termination of
any provision of, or constitute a default under, or give any person the right to
accelerate any material obligation under, or result in the creation of any lien,
security interest, charge or encumbrance upon any material properties, assets or
business of Purchaser.
4.4 Limited Transferability. Purchaser acknowledges that the Shares
-----------------------
have not been registered under the 1933 Act or the securities laws of any state
and are being offered, and will be sold, pursuant to applicable exemptions from
such registration for nonpublic offerings and will be issued as "restricted
securities" as defined by Rule 144 promulgated pursuant to the ▇▇▇▇ ▇▇▇. The
Shares may not be resold in the absence of an effective registration thereof
under the 1933 Act and applicable state securities laws unless, in the opinion
of the Company's counsel, an applicable exemption from registration is
available.
4.5 Acquisition for Investment. Purchaser is acquiring the Shares
--------------------------
for its own account, for investment purposes only and not with a view to, or for
sale in connection with, a distribution, as that term is used in Section 2(11)
of the 1933 Act, in a manner which would require registration under the 1933 Act
or any state securities laws.
4.6 Restrictive Legends. Purchaser understands and acknowledges that
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the Shares will bear the following legend:
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THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREOF UNDER
THE SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE HAVING
JURISDICTION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.
4.7 Rule 144. Purchaser acknowledges that an investment in the
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Shares is not liquid and is transferable only under limited conditions.
Purchaser acknowledges that such securities must be held indefinitely unless
they are subsequently registered under the 1933 Act or an exemption from such
registration is available. Purchaser is aware of the provisions of Rule 144
promulgated under the 1933 Act, which permits limited resale of securities
purchased in a private placement subject to the satisfaction of certain
conditions and that such Rule is not now available and, in the future, may not
become available for resale of the Shares.
4.8 Speculative Nature and Risk. Purchaser understands and
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acknowledges the speculative nature of and substantial risk of loss associated
with an investment in the Shares. Purchaser represents and warrants that the
Shares constitute an investment which is suitable and consistent with
Purchaser's financial condition and that Purchaser is able to bear the risks of
this investment for an indefinite period of time, which may include the total
loss of Purchaser's investment in the Shares. Purchaser further represents that
(a) Purchaser has adequate means of providing for Purchaser's current financial
needs and contingencies, (b) there is no need for liquidity in Purchaser's
investment in the Shares, and (c) Purchaser has sufficient financial and
business experience to evaluate the merits and risks of an investment in the
Shares.
4.9 Independent Investigation and Advisors. Purchaser confirms that
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(a) Purchaser has received, reviewed, and understands the financial statements
included in the SEC Reports; (b) Purchaser has been expressly offered the
opportunity to be provided a copy of and to review all reports, documents and
exhibits referenced therein and such other agreements, documents and information
as Purchaser deems necessary or appropriate in determining to make an investment
in the Shares, and (c) Purchaser is purchasing the Shares without any offering
memoranda or prospectus of any kind, other than the SEC Reports. Purchaser
represents and warrants that in making the decision to acquire the Shares
Purchaser has relied upon its own independent investigation of the Company,
GDRIL, Global Diamond-SA and Nabas Diamonds and the independent investigations
of the Company, GDRIL, Global Diamond-SA and Nabas Diamonds by Purchaser's
representatives, including Purchaser's own professional legal, tax, mining and
investment advisors, and (d) Purchaser and Purchaser's representatives have been
given the opportunity to examine all relevant documents and to ask questions of
and to receive answers from the Company, GDRIL, Global Diamond-SA and Nabas
Diamonds, or person(s) acting on their behalf, concerning the terms and
conditions of acquisition by Purchaser of the Shares and any other matters
concerning an investment in the Shares, and to obtain any additional information
Purchaser deems necessary or appropriate to verify the accuracy of the
information provided.
4.10 Brokers and Finders. As more fully set forth in Section 5.2,
-------------------
Purchaser shall indemnify and hold the Company harmless against all claims for
brokers' or finders' fees made or asserted by any party claiming to have been
employed by the Purchaser or any
-10-
shareholder, director, officer, employee or agent of the Purchaser and all costs
and expenses (including the reasonable fees of counsel) of investigating and
defending such claims.
5. Indemnification.
---------------
5.1 Indemnity by the Company. Notwithstanding the provisions of
------------------------
Section 4.9 or any investigations or examinations made by Purchaser or
Purchaser's representatives, the Company agrees to and does hereby indemnify and
hold the Purchaser, the Purchaser's successors and assigns and its shareholders,
directors, officers, employees and agents, harmless from and against any and all
loss, damage, liability, injury, cost and expense (including attorneys fees)
incurred by such party in connection with or arising from: (a) the non-
performance, partial or total, by the Company of any of its agreements and
covenants contained in this Agreement; (b) the inaccuracy of any representation
of the Company contained or referred to in this Agreement or any Schedule,
Exhibit or certificate delivered by or on behalf of the Company pursuant hereto;
(c) claims for any brokers' or finders' fees made or asserted by any party
claiming to have been employed by the Company or any shareholder, director,
officer, employee or agent of the Company; and (d) any and all actions, suits,
proceedings, demands, assessments or judgments, cost and expenses incidental to
any of the foregoing matters set forth in this Section 5.1.
5.2 Indemnity by the Purchaser. The Purchaser agrees to and does
--------------------------
hereby indemnify and hold the Company, its successors and assigns, and its
directors, officers, employees and agents harmless from and against any and all
loss, damage, liability, injury, cost and expense (including attorneys fees)
incurred by such party in connection with or arising from: (a) the non-
performance, partial or total, by the Purchaser of any of its agreements and
covenants contained in this Agreement; (b) the inaccuracy of any representation
of the Purchaser contained or referred to in this Agreement or any Schedule,
Exhibit or certificate delivered by or on behalf of the Purchaser pursuant
hereto; (c) claims for any brokers' or finders' fees made or asserted by any
party claiming to have been employed by the Purchaser or any shareholder,
director, officer, employee or agent of the Purchaser; and (d) any and all
actions, suits, proceedings, demands, assessments or judgments, costs and
expenses incidental to any of the foregoing matters set forth in this Section
5.2.
6. Post-Closing Covenants.
----------------------
6.1 Confidentiality. Each of the parties hereto shall have, prior to
---------------
the Closing, through their respective representatives, permitted investigation
of the property, records and the financial condition of the other party. In the
course of said investigation and in the course of the negotiation of this
Agreement, each party shall have received confidential information regarding the
operations of the other party. Each party shall each keep confidential and not
use any information so obtained which is not otherwise publicly available or
ascertainable. In this regard, Purchaser acknowledges that it is aware, and
that it's representatives will be made aware, that in connection with its
discussions with the Company regarding this transaction, it has and will come
into possession of material, non-public information about the Company.
Accordingly, Purchaser agrees that it will not trade (or cause or encourage any
third party to trade), and it will use its best efforts to assure that none of
its representatives will trade (or cause or encourage any third party to trade),
in any securities of the Company while in the possession of such material non-
public information.
-11-
6.2 Public Communications. The Company shall obtain the approval of
---------------------
the Purchaser of any written public communications that mention either the
Purchaser by name or the transactions contemplated by this Agreement prior to
the dissemination of that communication to the public. The provisions of this
Section 6.2 shall not apply to any reports filed by the Company with the SEC.
6.3 Rights to Purchase of Future Securities. In the event that the
---------------------------------------
Company, at any time and from time to time after the Closing and prior to an
event described in Section 6.3(b) below, wishes to offer, directly or
indirectly, shares of its capital stock or securities exchangeable or
convertible into its capital stock ("Stock") to any person or entity (each a
"Buyer"), then the Company shall send each such time a written notice ("Notice")
to the Purchaser, prior to or contemporaneous with offering Stock to the Buyers,
and in any event no less than thirty (30) business days prior to the proposed
closing date of the sale of Stock. The Notice(s) shall describe the number of
shares of Stock offered and the purchase price and terms. Upon receipt of any
Notice, the Purchaser shall have the right ("Participation Right") to purchase
such number of shares of Stock being sold in the offering that is the subject of
the Notice, at the price and on the terms contained in the Notice, as is
computed by multiplying the total number of shares of Stock being offered by a
fraction, the numerator of which shall be the number of shares of the Company's
Stock held by the Purchaser as of the date of the Notice and the denominator of
which shall be the number of outstanding shares of Stock of the Company as of
the date of the Notice. The provisions of this Section 6.3 shall not apply to
(i) any offers of Stock in exchange for non-cash consideration, or (ii) the
exercise of the warrants and options set forth on Schedule 3.2; provided,
however, until such time as the Purchaser's rights under this Section 6.3 shall
have been terminated or expired, the Company shall provide the Purchaser with
thirty (30) days prior written notice of any proposed or pending issuances of
Common Stock contemplated by either subpart (i) or (ii) of this sentence.
(a) Exercise of Right. The Purchaser may exercise the Participation
-----------------
Right by notifying the Company in writing, within fifteen (15) business days
after the date of the Notice, of the Purchaser's desire to exercise its
Participation Right. The Purchaser must tender the funds and purchase its
proportionate share of the Stock on the date otherwise set for the closing of
the purchase, subject only to the closing of the purchase with the other Buyers.
If the Purchaser does not exercise its right in the manner described in this
Section 6.3(a), the Participation Right will lapse with respect to that
offering.
(b) Term of Participation Right. The Participation Right under this
---------------------------
Section 6.3 shall commence on the day of this Agreement and shall remain in
effect (i) for so long as Purchaser maintains ownership of at least ten percent
(10%) of the issued and outstanding Stock; or (ii) until the consummation of an
underwritten public offering of shares of the Common Stock.
6.4 Corporate Governance. As soon as reasonably practicable
--------------------
following the date hereof, the Company shall:
(a) amend Article II, Section 3 of the Company's Bylaws to permit the
holders of Common Stock holding not less than ten percent (10%) of the issued
and outstanding Common Stock of the Company to call special meetings of the
Company's stockholders; and
-12-
(b) appoint one (1) of the Purchaser's Nominees to each of the
Committees.
6.5 Bylaws. The Company covenants and agrees that for so long as
------
Purchaser owns at least seven and one half percent (7.5%) of the issued and
outstanding shares of Common Stock:
(a) The Company will not initiate any action to eliminate the rights
provided in Article II, Section 9 of the Bylaws for stockholder action by
written consent in lieu of a meeting.
(b) The Company will not initiate any action to increase the
authorized number of directors to a number greater than eleven (11).
(c) In each instance in which there is an election by the Board of
Directors of the Company of directors to serve on any committee of the Board of
Directors, the Purchaser's Nominees shall have the right to designate one of the
Purchaser's Nominees as a member of such committee.
(d) The Company shall permit the Purchaser and its affiliated
companies, their officers, directors and authorized representatives, at their
expense, to visit and inspect the properties of the Company and each subsidiary,
to examine the Company's and each subsidiary's books of account and records and
to discuss the Company's and each subsidiary's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by the
Purchaser.
6.6 Teleconference. The Company covenants and agrees that for so
--------------
long as any Purchaser Nominee serves on the Board of Directors of the Company,
the Company will not initiate any action to eliminate the rights provided in
Article III, Section 6 of the Bylaws for the directors to participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment.
6.7 Further Assurances. From time to time following the Closing,
------------------
each of the Company and the Purchaser shall, and shall cause its affiliates to,
reasonably cooperate with the other and assist, where feasible, to consummate
the transactions contemplated herein as soon as possible following the date
hereof.
7. Registration Rights. To induce the Purchaser to purchase the Shares,
-------------------
the Company has agreed to provide registration rights with respect to the
Registrable Securities (as defined below) as set forth in this Section 7. The
Company hereby covenants and agrees as follows:
7.1 Definitions. As used in this Section 7, the following terms have
-----------
the meanings indicated:
(a) "Demand Registration" has the meaning assigned such term in
Section 7.3(a).
-13-
(b) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Inspector" has the meaning assigned such term in Section
7.5(a)(viii).
(d) "Holders" means the Purchaser and any Person to whom
Registrable Securities are transferred by any of them other than a transferee to
whom such securities have been transferred pursuant to a registration statement
under the 1933 Act or Rule 144 (as defined below).
(e) "NASD" has the meaning assigned such term in Section
7.5(a)(xiv).
(f) "Person" shall mean any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
(g) "Registrable Securities" mean each of the following: (a) the
Shares, (b) the shares of Common Stock issued to LIWA Diamond Company Limited, a
British Virgin Islands company ("LIWA") pursuant to that certain Securities
Purchase Agreement ("LIWA Agreement") of even date herewith between the Company
and LIWA, and (c) any shares of Common Stock issued or issuable to the Holders
of the shares of Common Stock described in subparts (a) or (b) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise and
shares of Common Stock issuable upon conversion, exercise or exchange thereof.
(h) "Registration Expenses" has the meaning assigned to such term
in Section 7.5(d).
(i) "Rule 144" means Rule 144 as promulgated by the SEC under the
1933 Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
(j) "SEC" means the Securities and Exchange Commission.
(k) "Underwriter" has the meaning assigned such term in Section
7.3(e).
7.2 Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. For the purposes of this Agreement,
----------------------
Registrable Securities will cease to be Registrable Securities when a
registration statement covering such Registrable Securities has been declared
effective under the 1933 Act by the SEC and such Registrable Securities have
been disposed of pursuant to such effective registration statement.
(b) Holders of Registrable Securities. A Person is deemed to be a
---------------------------------
holder of Registrable Securities whenever such Person owns of record Registrable
Securities, or
-14-
holds an option to purchase, or a security convertible into or exercisable or
exchangeable for, Registrable Securities whether or not such acquisition or
conversion has actually been effected and disregarding any legal restrictions
upon the exercise of such rights. If the Company receives conflicting
instructions, notices or elections from two or more persons with respect to the
same Registrable Securities, the Company may act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.
7.3 Demand Registration.
-------------------
(a) Request for Demand Registration. At any time commencing (i)
-------------------------------
two (2) years from the Closing and terminating seven (7) years from the Closing
and (ii) after the Company has qualified for registration of the Registrable
Securities on Form S-3 or any comparable or successor form or forms, the Holders
may make a written request for registration (such Holders making such request
being deemed to be "Initiating Holders") of Registrable Securities under the
1933 Act, and under the securities or blue sky laws of any jurisdiction
reasonably designated by such Holder or Holders (a "Demand Registration");
provided, the Company will not be required to effect more than two (2) Demand
Registrations at the request of the Holders pursuant to this Section 7.3. Such
request for a Demand Registration shall specify the amount of the Registrable
Securities proposed to be sold, the intended method of disposition thereof and
the jurisdictions in which registration is desired. Upon a request for a Demand
Registration, the Company shall promptly take such steps as are necessary or
appropriate to prepare for the registration of the Registrable Securities to be
registered. Within 15 days after the receipt of such request, the Company shall
give written notice thereof to all other Holders holding Registrable Securities
(the "Non-Initiating Holders") and include in such registration all Registrable
Securities held by a Holder with respect to which the Company has received
written requests for inclusion therein within 15 days of the receipt by such
Holder of such written notice. Each such request shall specify the number of
Registrable Securities to be registered, the intended method of disposition
thereof and the jurisdictions in which registration is desired.
(b) Effective Demand Registration. A registration shall not
-----------------------------
constitute a Demand Registration until it has become effective and remains
continuously effective until the earlier of (i) the date of sale of all
Registrable Securities registered thereunder or (ii) 180 days from the effective
date. The Company shall use its best efforts to cause any such Demand
Registration to become effective not later than 60 days after it receives a
request under Section 7.3(a) hereof.
(c) Expenses. The Company shall pay all Registration Expenses
--------
(other than underwriting discounts and commissions) in connection therewith,
whether or not such Demand Registration becomes effective; provided, however,
that each Holder participating in such Demand Registration shall bear the costs
of its own legal counsel.
(d) Underwriting Procedures. If Initiating Holders holding a
-----------------------
majority of the Registrable Securities held by all such Initiating Holders so
elect, the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Underwriter selected in accordance with Section 7.3(e). In such event, if the
Underwriter advises the Company in writing that in its opinion the aggregate
amount of such Registrable Securities requested to be included in such offering
is sufficiently large to have a material adverse affect on the success of such
offering, the Company shall include in such
-15-
registration only the aggregate amount of Registrable Securities that in the
opinion of the Underwriter may be sold without any such material adverse affect
and shall reduce, first as to any stockholders who are the Non-Initiating
Holders as a group and then as to the Initiating Holders as a group, pro rata
within each group based on the number of Registrable Securities included in the
request for Demand Registration, the amount of Registrable Securities to be
included by each Holder in such registration.
(e) Selection of Underwriters. If any Demand Registration of
-------------------------
Registrable Securities is in the form of an underwritten offering, the
Initiating Holders holding a majority of the Registrable Securities held by all
such Initiating Holders shall, in their discretion, select and obtain an
investment banking firm to act as the managing underwriter of the offering (the
"Underwriter"), subject to approval by the Company which shall not be
unreasonably withheld.
7.4 Holdback Agreements and Termination.
-----------------------------------
(a) Delay of Rights Under Special Circumstances. Upon receipt by
-------------------------------------------
the Company of a request for Demand Registration pursuant to Section 7.3(a)
hereof, the Company shall have the right, in the event that the Company is then
engaged in business negotiations which would be materially adversely affected by
a Demand Registration, to delay the effectiveness of such request by the
Initiating Holders for a period of up to 30 days. The Company shall exercise the
foregoing delay right by delivering to the Initiating Holders, within 5 days
after the receipt of such request, a written notice attesting to the necessity
of such a delay.
(b) Restrictions on Demands by Holders and Termination of Demand
------------------------------------------------------------
Rights. Subject to the provision of Section 7.6 hereof, each Holder of
------
Registrable Securities agrees that the right to request a Demand Registration
shall be suspended for a period of up to 180 days commencing upon the date the
Company executes a letter of intent with an underwriter for a firm commitment
underwritten public offering of its securities having an aggregate offering
price of not less than $5,000,000, provided that a registration statement with
respect to such offering is filed by the Company with the SEC within 45 days
from the date of execution of such letter of intent. The foregoing suspension
of the rights of the Holders will cease if such registration statement is not
declared effective by the SEC within 60 days of the filing thereof.
7.5 Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of
--------------------------
Registrable Securities has been requested pursuant to Article 7 of this
Agreement, the Company shall use its best efforts to effect the registration and
sale of such Registrable Securities in accordance with the intended method of
distribution thereof as quickly as practicable, and in connection with any such
request, the Company shall, as expeditiously as possible:
-16-
(i) diligently use its best efforts to prepare and file with
the SEC a registration statement on any form for which the Company then
qualifies of which counsel for the Company shall deem appropriate and which form
shall be available for the sale of such Registrable Securities in accordance
with the intended method of distribution thereof, and use its best efforts to
cause such registration statement to become effective; provided, however, that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall (A) provide counsel selected by the
Holders holding a majority of the Registrable Securities being registered in
such registration ("Holders' Counsel") and any other Inspector (as hereinafter
defined) with an adequate and appropriate opportunity to participate in the
preparation of such registration statement and each prospectus included therein
(and each amendment or supplement thereto) to be filed with the SEC, which
documents shall be subject to the review of Holders' Counsel, and (B) notify the
Holders' Counsel and each seller of Registrable Securities of any stop order
issued or threatened by the SEC and take all reasonable action required to
prevent the entry of such stop order or to remove it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 180 days, or such shorter period which will terminate
when all Registrable Securities covered by such registration statement have been
sold, and comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as is proposed to be filed, and thereafter such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities reasonably requests, and
to continue such qualification in effect in such jurisdiction for as long as is
permissible pursuant to the laws of such jurisdiction, or for as long as any
such seller requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 7.5(a)(iv), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of process
in any such jurisdiction;
(v) use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers of
Registrable Securities to consummate the disposition of such Registrable
Securities;
-17-
(vi) notify each seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the 1933
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, after delivery to the purchasers of
such Registrable Securities, such prospectus shall not contain an 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
light of the circumstances under which they were made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Underwriter, if any, selected
as provided in Section 7.3) and take such other actions as are prudent and
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities;
(viii) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition pursuant
to such registration statement, Holders' Counsel and any attorney, accountant or
other agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's and its subsidiaries, officers, directors and employees, and the
independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such registration
statement. Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (A) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in the registration
statement, (B) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction, or (C) the information in
such records has been made generally available to the public other than through
a breach of the confidentiality requirement set forth above. Each Seller of
Registrable Securities agrees that it shall, upon learning that disclosure of
such Records is required by any court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an underwritten offering, use
its best efforts to obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters as Holders' Counsel or
the managing underwriter reasonably request;
(x) use its best efforts to furnish, at the request of any
seller of Registrable Securities on the date such securities are delivered to
the underwriters for sale pursuant to such registration or, if such securities
are not being sold through underwriters, on the date the registration statement
with respect to such securities becomes effective, an opinion, dated such date,
of counsel representing the Company for the purposes of such registration,
-18-
addressed to the underwriters, if any, and to the seller making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as such seller may reasonably request and are
customarily included in such opinions;
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable but no later than 15 months after the
effective date of the registration statement, an earnings statement covering a
period of 12 months beginning after the effective date of the registration
statement, in a manner which satisfies the provisions of Section 7.10(a) of the
1933 Act;
(xii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed, provided, that the applicable listing requirements are satisfied;
(xiii) keep each seller of Registrable Securities advised in
writing as to the initiation and progress of any registration hereunder;
(xiv) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD"); and
(xv) use best efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby.
(b) Seller Information The Company may require each seller of
------------------
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding the seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
(c) Notice to Discontinue. Each Holder of Registrable Securities
---------------------
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 7.5(a)(vi), such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
7.5(a)(vi) and, if so directed by the Company, such Holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such registration statement shall be maintained effective pursuant to this
Agreement (including without limitation the period referred to in Section
7.5(a)(ii)) by the number of days during the period from and including the date
of the giving of such notice pursuant to Section 7.5(a)(vi) to and including the
date when the Holder shall have received the copies of the supplemented or
amended prospectus contemplated by and meeting the requirements of Section
7.5(a)(vi).
-19-
(d) Registration Expenses. The Company shall pay all expenses
---------------------
(other than as set forth in Section 7.3(c)) arising from or incident to the
performance of, or compliance with, the terms of Article 7 of this Agreement,
including without limitation, (i) SEC, stock exchange and NASD registration and
filing fees, (ii) all fees and expenses incurred in complying with securities or
blue sky laws (including reasonable fees, charges and disbursements of counsel
in connection with blue sky qualifications of the Registrable Securities), (iii)
all printing, messenger and delivery expenses, (iv) the fees, charges and
disbursements of counsel to the Company and of its independent public
accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including without limitation any expenses arising from
any special audits incident to or required by any registration or
qualification), and (v) any liability insurance or other premiums for insurance
obtained (which insurance the Company agrees to use its best efforts to obtain
upon the reasonable request of any seller of Registrable Securities) retained in
connection with any Demand Registration pursuant to the terms of this Agreement,
regardless of whether such registration statement is declared effective. All of
the expenses described in this Section 7.4(d) are referred to herein as
"Registration Expenses."
7.6 Piggy-Back Registration. If the Company proposes to file a
-----------------------
registration statement under the Act pursuant to a demand for registration
pursuant to Section 7.3 the PCM Agreement, then the Company shall give written
notice of such proposed filing to each of the Holders of Registrable Securities
at least 30 days before the anticipated filing date, and such notice shall
describe in detail the proposed registration and distribution (including those
jurisdictions where registration under the securities or blue sky laws is
intended) and offer such Holders the opportunity to register the number of
Registrable Securities as each such Holder may request. The Company shall use
its best efforts (within ten days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters of a proposed
underwritten offering (the "Company Underwriter") to permit the Holders of
Registrable Securities who have requested to participate in the registration for
such offering to include such Registrable Securities in such offering on the
same terms and conditions as the securities of the Company included therein.
Notwithstanding the foregoing, if the Company Underwriter delivers a written
opinion to the Holders of Registrable Securities that the total amount or kind
of securities which they and PCM (or its successors) intend to include in such
offering (the "Total Securities") is sufficiently large so as to have a material
adverse effect on the distribution of the Total Securities, then the amount or
kind of securities to be offered for the account of such Holders and such other
persons or entities (other than the Company) shall be reduced pro rata to the
extent necessary to reduce the Total Securities to the amount recommended by the
Company Underwriter, provided that PCM shall have first priority to participate
in the registration over all other holders of registration rights. Unless
waived by a Holder in writing, each Holder shall have the right to participate
pro rata based upon the proportion of the Registrable Securities held by them
bears to all Registrable Securities.
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7.7 Indemnification; Contribution
-----------------------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the fullest extent permitted by law, each Holder, its officers,
directors, partners, employees, advisors and agents and each Person who controls
(within the meaning of the 1933 Act or the Exchange Act) such Holder from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation or defending such claim and any amounts paid
in any settlement effected with the Company's consent) arising out of or based
upon (i) any untrue, or allegedly untrue, statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or (ii) any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are caused by or contained in any information furnished in
writing to the Company by such Holder expressly for use therein. The Company
shall also indemnify any underwriters of the Registrable Securities, their
officers, directors and employees and each Person who controls such underwriters
(within the meaning of the 1933 Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders of Registrable
Securities.
(b) Indemnification by Holders. In connection with any
--------------------------
registration statement in which a Holder is participating pursuant to Article 7
hereof, each such Holder shall furnish to the Company in writing such
information with respect to such Holder as the Company may reasonably request or
as may be required by law for use in connection with any such registration
statement or prospectus and each Holder agrees to indemnify, to the fullest
extent permitted by law, the Company, any underwriter retained by the Company
and their respective directors, officers, employees and each Person who controls
the Company or such underwriter (within the meaning of the 1933 Act and the
Exchange Act) to the same extent as the foregoing indemnity from the Company to
the Holders, but only with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement if such statement
or omission was made in reliance upon and in conformity with information
furnished in writing by such Holder; provided, however, that the total amount to
be indemnified by such Holder pursuant to this Section 7.7(b) shall be limited
to the net proceeds received by such Holder in the offering to which the
registration statement or prospectus relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled
--------------------------------------
to indemnification hereunder (the "Indemnification Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, that the failure to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
satisfactory to such Indemnified Party. The Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the
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Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to
assume the defense of such action with counsel satisfactory to the Indemnified
Party in its reasonable judgment, (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel that either
(A) representation of such Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct, (B) there may be one or more defenses available to it which are
different from or additional to those available to the Indemnifying Party, or
(C) in the reasonable judgment of the Indemnified Party, upon the advice of
counsel, a conflict of interest may exist between the Indemnified Party and the
Indemnifying Party. In any of such cases the Indemnifying Party shall not have
the right to assume the defense of such action on behalf of such Indemnified
Party. No Indemnifying Party shall be liable for any settlement entered into
without its written consent, which consent shall not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this
------------
Section 7.7 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Sections 7.7(a), 7.7(b) and 7.7(c), any
legal or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding. The parties hereto agree that
it would not be just and equitable if contribution pursuant to this Section
7.7(d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be
entitled to contribution from any person.
7.8 Rule 144. The Company covenants that, from and after the date
--------
that the Company has a class of equity securities registered under the Exchange
Act, it shall (i) file any reports required to be filed by it under the Exchange
Act and the rules and regulations adopted by the SEC thereunder; (ii) make and
keep public information available as those terms are understood and defined in
Rule 144; and (iii) take such further action as each Holder of Registrable
Securities may reasonably request (including providing any information necessary
to comply with Rules 144 and 144A), all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the 1933 Act within the limitation of the exemptions provided by (a) Rule 144 or
Rule 144A, as such rules may be amended from time to time, or (b) any similar
rules or regulations hereafter adopted by the SEC. The Company shall, upon the
request of any Holder of Registrable Securities, deliver to such Holder a
written statement as to whether it has complied with such requirements.
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87. Miscellaneous.
-------------
8.1 Survival of Representations. All representations, warranties and
---------------------------
agreements contained herein or made in writing by the Company or the Purchaser
in connection with the transactions contemplated hereby except any
representation, warranty or agreement as to which compliance may have been
appropriately waived in writing, shall survive the execution and delivery of
this Agreement.
8.2 Expenses and Attorney Fees. Irrespective of whether the Closing
--------------------------
is effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If the Closing takes place on or before December 31, 1998, the
Company shall reimburse Purchaser for twenty five percent (25%) of the
reasonable fees of ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇ and ▇▇▇▇▇▇ & ▇▇▇▇▇▇, attorneys for
Purchaser, including the reasonable travel and lodging costs incurred by ▇▇.
▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇ in connection with his attendance at the Closing. The
foregoing obligation is in addition to the Company's separate obligation of
reimbursement to LIWA under Section 8.2 of the LIWA Agreement, it being
understood that ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇ and ▇▇▇▇▇▇ & ▇▇▇▇▇▇ will be submitting
separate bills to Purchaser and LIWA.
If any party commences an action, either arbitration or court
proceedings, against any other party arising out of or in connection with this
Agreement, the prevailing party or parties shall be entitled from the losing
party or parties, both attorney's fees and costs of the arbitration and/or suit
as part of the judgment rendered.
8.3 Partial Invalidity. If any term, covenant or condition of this
------------------
Agreement or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Agreement shall be
valid and be enforced to the fullest extent permitted by law.
8.4 Waivers. No waiver of any breach of this Agreement shall be held
-------
to constitute a waiver of any other or subsequent breach.
8.5 Notices. Any notices relating to this Agreement of the Exhibits
-------
hereto shall be deemed sufficiently given and served for all purposes if given
in writing and delivered (a) personally, (b) by facsimile with electronic
confirmation of receipt, (c) by registered or certified mail, postage prepaid,
or (d) by international courier, addressed as follows:
If to the Company:
Global Diamond Resources, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇, Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Purchaser:
New Diamond Corporation Limited
Almahmal Center, 18th Floor
Jeddah
Saudi Arabia
Attention: ▇▇. ▇▇▇▇▇ Basodan
Facsimile: 966 2 644 3822
Such notice shall be deemed given: (a) if personally delivered, at the time of
delivery; (b) if sent by facsimile transmission with confirmation of receipt or
delivered by telegram, three (3) days after being sent or the time of actual
receipt, whichever is earlier; and (c) if sent by mail or international courier,
on the date of actual receipt. The address for the purpose of this Section 8.5
may be changed by giving notice of such change in the manner provided herein for
giving notice.
8.6 Successors and Assigns. The terms, covenants and conditions
----------------------
contained herein shall be binding upon and inure to the benefit of the heirs,
successors and assigns of the parties hereto.
8.7 Law Governing. This Agreement shall be construed and interpreted
-------------
in accordance with and governed and enforced in all respects by the laws of the
State of California.
8.8 Headings. The section, subsection and paragraph headings
--------
throughout this Agreement are for convenience and reference only, and the words
contained therein shall not be held to expand, modify, amplify or aid in the
interpretation, construction or meaning of this Agreement.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each signed by different persons and all of said counterparts
together shall constitute one and the same instrument, and such instrument shall
be deemed to have been made, executed and delivered on the date first
hereinabove written, irrespective of the time or times when the same or any
counterparts thereof actually may have been executed and delivered a counterpart
thereof to the Company and the Purchaser.
8.10 Entire Agreement. This Agreement and the Exhibits and Schedules
----------------
contain the entire agreement of the parties hereto and may not be modified,
altered or changed in any manner whatsoever, except by a written agreement
signed by the parties hereto.
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IN WITNESS WHEREOF, the Parties have executed this Agreement of
Understanding as of the day and year first written above.
GLOBAL DIAMOND RESOURCES, INC.,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇
-----------------------
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇,
Chief Executive Officer
NEW DIAMOND CORPORATION LIMITED,
a British Virgin Islands company
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇▇▇,
An authorized officer
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