EXHIBIT 10.15
SECURITIES PURCHASE AGREEMENT
-----------------------------
LAURUS MASTER FUND, LTD.
CARNEROS ACQUISITION CORP.
GOTLAND OIL, INC.
AND
CARNEROS ENERGY, INC.
DATED: MAY 31, 2006
TABLE OF CONTENTS
-----------------
PAGE
----
1. Agreement to Sell and Purchase............................................1
2. Fees, Warrants and Overriding Royalty Interests...........................2
3. Closing, Delivery and Payment.............................................3
3.1 Closing..........................................................3
3.2 Delivery.........................................................3
4. Representations and Warranties of the Companies...........................3
4.1 Organization, Good Standing and Qualification....................3
4.2 Subsidiaries.....................................................4
4.3 Capitalization; Voting Rights....................................4
4.4 Authorization; Binding Obligations...............................6
4.5 Liabilities......................................................6
4.6 Agreements; Action...............................................6
4.7 Obligations to Related Parties...................................7
4.8 Changes..........................................................8
4.9 Title to Properties and Assets; Liens, Etc.......................9
4.10 Intellectual Property............................................9
4.11 Compliance with Other Instruments...............................10
4.12 Litigation......................................................10
4.13 Tax Returns and Payments........................................11
4.14 Employees.......................................................11
4.15 Voting Rights...................................................12
4.16 Compliance with Laws; Permits...................................12
4.17 Environmental and Safety Laws...................................12
4.18 Valid Offering..................................................12
4.19 Full Disclosure.................................................13
4.20 Insurance.......................................................13
4.21 Dilution........................................................13
4.22 Patriot Act.....................................................13
4.23 ERISA...........................................................14
5. Representations and Warranties of the Purchaser..........................14
5.1 No Shorting.....................................................14
5.2 Requisite Power and Authority...................................14
5.3 Investment Representations and Covenants........................15
5.4 Legends.........................................................16
6. Covenants of the Companies...............................................18
6.1 Reporting Requirements..........................................18
6.2 Use of Funds....................................................19
ii
6.3 Access to Facilities............................................19
6.4 Taxes...........................................................19
6.5 Insurance.......................................................20
6.6 Intellectual Property...........................................21
6.7 Properties......................................................21
6.8 Confidentiality.................................................21
6.9 Required Approvals..............................................21
6.10 Opinion.........................................................22
6.11 Margin Stock....................................................23
6.12 Financing Right of First Refusal................................23
6.13 Authorization and Reservation of Shares.........................23
6.14 Summaries; Reports..............................................24
6.15 Registration Rights.............................................24
7. Covenants of the Purchaser...............................................24
7.1 Confidentiality.................................................24
7.2 Limitation on Acquisition of Common Stock of any Company........24
8. Covenants of the Companies and the Purchaser Regarding Indemnification...24
8.1 Company Indemnification.........................................25
8.2 Purchaser's Indemnification.....................................25
9. Miscellaneous............................................................25
9.1 Governing Law, Jurisdiction and Waiver of Jury Trial............25
9.2 Severability....................................................27
9.3 Survival........................................................27
9.4 Successors......................................................27
9.5 Entire Agreement; Maximum Interest..............................27
9.6 Amendment and Waiver............................................27
9.7 Delays or Omissions.............................................28
9.8 Notices.........................................................28
9.9 Attorneys' Fees.................................................29
9.10 Titles and Subtitles............................................29
9.11 Facsimile Signatures; Counterparts..............................29
9.12 Broker's Fees...................................................29
9.13 Construction....................................................29
9.14 Joint and Several Obligations...................................30
ii
LIST OF EXHIBITS
Form of Term Note....................................................Exhibit A
Form of Carneros Warrant...........................................Exhibit B-1
Form of Gotland Warrant............................................Exhibit B-2
Form of Opinion......................................................Exhibit C
Form of Escrow Agreement.............................................Exhibit D
LIST OF SCHEDULES
Schedule 4.2 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6 Agreements
Schedule 4.7 Obligations to Related Parties
Schedule 4.8(b) Resignations
Schedule 4.9 Title to Properties and Assets, Liens, Etc.
Schedule 4.11 Compliance with Other Instruments
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
iii
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of May 31, 2006, by and among CARNEROS ENERGY, INC., a Delaware
corporation ("Carneros"), CARNEROS ACQUISITION CORP., a Delaware corporation
("Holdings"), GOTLAND OIL, INC., a Texas corporation ("Gotland", and
collectively with Carneros and Holdings, the "Companies" and each a "Company"),
and LAURUS MASTER FUND, LTD., a Cayman Islands company (the "Purchaser").
RECITALS
WHEREAS, the Companies have authorized the sale to the Purchaser of a
Secured Term Note in the aggregate principal amount of Twenty-One Million Two
Hundred Thousand Dollars ($21,200,000) in the form of EXHIBIT A hereto (as
amended, modified and/or supplemented from time to time, the "Note");
WHEREAS, Carneros wishes to issue to the Purchaser a warrant in the
form of EXHIBIT B-1 hereto (as amended, modified and/or supplemented from time
to time, the "Carneros Warrant") to purchase up to _____ shares of Carneros'
common stock, $____ par value per share (the "Carneros Common Stock");
WHEREAS, Gotland wishes to issue to the Purchaser a warrant in the form
of EXHIBIT B-2 hereto (as amended, modified and/or supplemented from time to
time, the "Gotland Warrant", and collectively with the Carneros Warrant, the
"Warrants" and each a "Warrant") to purchase up to _____ shares of Gotland's
common stock, $____ par value per share (the "Gotland Common Stock");
WHEREAS, the Purchaser desires to purchase the Note and the Warrants on
the terms and conditions set forth herein; and
WHEREAS, the Companies desire to issue and sell the Note, Carneros
desires to issue and sell the Carneros Warrant and Gotland desires to issue and
sell the Gotland Warrant 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 forth in this Agreement, on the Closing Date (as defined in Section 3), the
Companies shall sell to the Purchaser, and the Purchaser shall purchase from the
Companies, 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). Collectively, the Note, the Warrants, the Carneros Common Stock issuable
upon exercise of the Carneros Warrant and the Gotland Common Stock issuable upon
exercise of the Gotland Warrant are referred to as the "Securities." All
obligations of the Companies to the Purchaser pursuant to the Note shall be
joint and several.
2. FEES, WARRANTS AND OVERRIDING ROYALTY INTERESTS. On the Closing
Date:
(a) Carneros will issue and deliver to the Purchaser the
Carneros Warrant to purchase up to _____ shares of Carneros Common
Stock (subject to adjustment as set forth therein) in connection with
the Offering, pursuant to Section 1 hereof. All the representations,
covenants, warranties, undertakings, and indemnification, and other
rights made or granted to or for the benefit of the Purchaser by
Carneros are hereby also made and granted for the benefit of the holder
of the Carneros Warrant and shares of Carneros Common Stock issuable
upon exercise of the Carneros Warrant (the "Carneros Warrant Shares").
(b) Gotland will issue and deliver to the Purchaser the
Gotland Warrant to purchase up to _____ shares of Gotland Common Stock
(subject to adjustment as set forth therein) in connection with the
Offering, pursuant to Section 1 hereof. All the representations,
covenants, warranties, undertakings, and indemnification, and other
rights made or granted to or for the benefit of the Purchaser by
Gotland are hereby also made and granted for the benefit of the holder
of the Gotland Warrant and shares of Gotland Common Stock issuable upon
exercise of the Gotland Warrant (the "Gotland Warrant Shares", and
collectively with the Carneros Warrant Shares, the "Warrant Shares").
(c) In consideration of the Purchaser's entering into this
Agreement and purchasing the Note from the Companies, the Gotland
Warrant from Gotland and the Carneros Warrant from Carneros, (i)
Carneros shall issue to the Purchaser a three percent (3.0%) overriding
royalty interest (the "Carneros ORRI") in the oil and gas properties of
Carneros and (ii) Gotland shall issue to the Purchaser a three percent
(3.0%) overriding royalty interest (the "Gotland ORRI", and
collectively with the Carneros ORRI, the "ORRI") in the oil and gas
properties of Gotland. The ORRI shall be irrevocable and shall survive
the termination of this Agreement and payment in full of the Note.
Carneros and Gotland shall each execute and deliver all such
documentation and take such further action as may be required by the
Purchaser in connection with the issuance of the ORRI to the Purchaser.
(d) Subject to the terms of Section 2(e) below, the Companies
shall jointly and severally pay to Laurus Capital Management, LLC, the
manager of the Purchaser, a closing payment of $742,000. The foregoing
fee is referred to herein as the "Closing Payment."
(e) The Companies shall jointly and severally reimburse the
Purchaser for its reasonable expenses (including legal fees and
expenses) incurred in connection with the preparation and negotiation
of this Agreement and the Related Agreements (as hereinafter defined),
and expenses incurred in connection with the Purchaser's due diligence
review of the Companies and their respective Subsidiaries (as defined
in Section 4.2) and all related matters. Amounts required to be paid
under this Section 2(e) will be paid on the Closing Date.
2
(f) The Closing Payment and the expenses referred to in the
preceding Section 2(e) (net of deposits previously paid by the
Companies) 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.
3.1 CLOSING. Subject to the terms and conditions herein, the
closing of the transactions contemplated hereby (the "Closing"), shall take
place on the date hereof, at such time or place as the Companies 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 Closing Date, the Companies will deliver to the Purchaser, among other
things, the Note, Carneros will deliver to the Purchaser the Carneros Warrant,
Gotland will deliver to the Purchaser the Gotland Warrant and the Purchaser will
deliver to the Companies, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer. Each Company hereby
acknowledges and agrees that Purchaser's obligation to purchase the Note from
the Companies 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 Companies on or
prior to the Closing Date and those items and matters set forth in the
conditions of funding letter dated as of the date hereof between Holdings and
the Purchaser.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES. Each Company hereby
represents and warrants to the Purchaser as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Such
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 Applicable Laws of its jurisdiction of organization. For
purposes of this Agreement, "Applicable Laws" means all present laws, statutes,
regulations, treaties, judgments and decrees in relation to an entity, and all
requirements, requests, official directives, consents, approvals,
authorizations, guidelines, rules, orders and policies of any governmental or
regulatory authority applicable to the entity in a jurisdiction in which (i) it
is organized or incorporated, (ii) its assets are located, (iii) it conducts
business, and/or (iv) its stock is traded, if applicable. Such 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 and the Warrants to be issued in
connection with this Agreement, (iii) the Master Security Agreement dated as of
the date hereof among the Companies, certain Subsidiaries of each Company, if
any, and the Purchaser (as amended, modified and/or supplemented from time to
time, the "Master Security Agreement"), (iv) the Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production dated as of the date
3
hereof made by Carneros in favor of the Purchaser (as amended, modified and/or
supplemented from time to time, the "Carneros Deed of Trust"), (v) the Deed of
Trust, Security Agreement, Financing Statement and Assignment of Production
dated as of the date hereof made by Gotland in favor of the Purchaser (as
amended, modified and/or supplemented from time to time, the "Gotland Deed of
Trust", and collectively with the Carneros Deed of Trust, the "Deeds of Trust"
and each a "Deed of Trust"), (vi) the Stock Pledge Agreement dated as of the
date hereof between Holdings and the Purchaser (as amended, modified and/or
supplemented from time to time, the "Holdings Stock Pledge Agreement"), (vii)
the Stock Pledge Agreement dated as of the date hereof between Carneros and the
Purchaser (as amended, modified and/or supplemented from time to time, the
"Carneros Stock Pledge Agreement", and collectively with the Holdings Stock
Pledge Agreement, the "Stock Pledge Agreements"), (viii) the Funds Escrow
Agreement dated as of the date hereof among the Companies, Pacific Energy
Resources Ltd. ("Parent"), the Purchaser and the escrow agent referred to
therein, substantially in the form of EXHIBIT D hereto (as amended, modified
and/or supplemented from time to time, the "Escrow Agreement"), (ix) the
Collateral Assignment dated as of the date hereof between Holdings and the
Purchaser, (x) the Assignment of Overriding Royalty Interest dated as of the
date hereof between Carneros and the Purchaser (as amended, modified and/or
supplemented from time to time), (xi) the Assignment of Overriding Royalty
Interest dated as of the date hereof between Gotland and the Purchaser (as
amended, modified and/or supplemented from time to time), and (xii) all other
documents, instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii) through
(xii), collectively, the "Related Agreements"); (2) issue and sell the Note; (3)
in the case of Carneros, issue and sell the Carneros Warrant and the Carneros
Warrant Shares; (4) in the case of Gotland, issue and sell the Gotland Warrant
and the Gotland Warrant Shares; and (5) carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted. Such 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 such Company and its
Subsidiaries, taken individually and as a whole (a "Material Adverse Effect").
4.2 SUBSIDIARIES. Each direct and indirect Subsidiary of each
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.
4
(a) With respect to Holdings, the authorized capital stock as
of the date hereof consists of 100 shares, of which 100 are shares of
the common stock of Holdings, par value $1.00 per share, and 100 shares
of which are issued and outstanding. The authorized, issued and
outstanding capital stock of each Subsidiary of Holdings is set forth
on Schedule 4.3.
(b) With respect to Carneros, the authorized capital stock as
of the Closing Date after giving effect to the consummation of the
transactions contemplated by the Stock Purchase Agreement to be entered
into by Carneros, Gotland and Holdings (as amended, restated and
otherwise modified from time to time, the "Stock Purchase Agreement")
will consist of 88,883 shares, of which 88,883 are shares of Carneros
Common Stock, par value $.01 per share, and 33,637.716 shares of which
are issued and outstanding.
(c) With respect to Gotland, the authorized capital stock as
of the Closing Date after giving effect to the consummation of the
transactions contemplated by the Stock Purchase Agreement consists of
500,000 shares, of which 500,000 are shares of Gotland Common Stock,
par value $1.00 per share, and 116,773 shares of which are issued and
outstanding. The authorized, issued and outstanding capital stock of
each Subsidiary of Gotland is set forth on Schedule 4.3.
(d) Except as disclosed on Schedule 4.3, other than: (i) the
shares reserved for issuance under any Company's stock option plans;
and (ii) shares which may be granted pursuant to this Agreement and the
Related Agreements, as of the Closing Date there will be no (A)
securities of any Company convertible into, or exchangeable or
exercisable for, shares of capital stock or other voting securities of
such Company; and (B) outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal),
commitments, proxy or stockholder agreements, arrangements or
agreements to which any Company is a party or by which it is bound, in
any case relating to the issued or unissued capital stock of such
Company or obligating such Company to issue, deliver, sell, purchase,
redeem, repurchase or acquire, or cause to be issued, delivered, sold,
purchased, redeemed, repurchased or acquired, shares of capital stock
or other voting securities of such Company, or obligating such Company
to grant, extend or enter into any such option, warrant, call, right,
commitment, arrangement or agreement. Except as disclosed on Schedule
4.3, neither the offer, issuance or sale of any of the Note or the
Warrants, or the issuance of any of the Warrant Shares, nor the
consummation of any transaction contemplated hereby will result in a
change in the price or number of any securities of any Company
outstanding, under anti-dilution or other similar provisions contained
in or affecting any such securities.
(e) All issued and outstanding shares of each 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.
5
(f) The rights, preferences, privileges and restrictions of
the shares of the each Company's common stock are as stated in such
Company's Certificate or Articles of Incorporation (such Company's
"Charter"). The Warrant Shares have been duly and validly reserved for
issuance. When issued in compliance with the provisions of this
Agreement and Carneros' Charter, the Carneros Warrant Shares will be
validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances, and when issued in compliance with the
provisions of this Agreement and Gotland's Charter, the Gotland Warrant
Shares 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 limited liability company, as the case may be, action on the part
of each 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 each Company and
its Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note and the Warrants
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 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. The
issuance of the Warrants and the subsequent exercise of the Warrants for Warrant
Shares are 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. Except as set forth in the unaudited balance
sheets of Carneros and Gotland as of March 31, 2006, no Company nor any of its
Subsidiaries has any liabilities, except current liabilities incurred in the
ordinary course of business.
4.6 AGREEMENTS; ACTION. Except as set forth on Schedule 4.6
and except for Employee Change of Control Payments (as defined in the Stock
Purchase Agreement) provided for in the Change of Control and Severance Plan
referenced in Schedule 4.23 to the Stock Purchase Agreement:
(a) there are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees
to which any 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, any Company or any of its Subsidiaries
in excess of $100,000 (other than obligations of, or payments to, any
Company or any of its Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii)
6
the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from any 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 any Company's or any of its
Subsidiaries products or services; or (iv) indemnification by any
Company or any of its Subsidiaries with respect to infringements of
proprietary rights.
(b) Since March 31, 2006 (the "Balance Sheet Date"), no
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) individually or in the aggregate in excess
of $100,000; (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 any Company or any Subsidiary of such
Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth on
Schedule 4.7, there are no obligations of any Company or any of its Subsidiaries
to officers, directors, stockholders or employees of any Company or any of its
Subsidiaries other than:
(a) for payment of salary for services rendered, for bonus
payments and Change of Control Payments (as defined in the Stock
Purchase Agreement);
(b) reimbursement for reasonable expenses incurred on behalf
of any 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 any Company and each Subsidiary of such Company, as
applicable); and
(d) obligations listed in any 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 each Company's knowledge, key employees or
stockholders of any Company or any of its Subsidiaries or any members of their
immediate families, are indebted to any Company or any of its Subsidiaries,
individually or in the aggregate, in excess of $100,000 or have any direct or
indirect ownership interest in any firm or corporation with which any Company or
any of its Subsidiaries is affiliated or with which any Company or any of its
7
Subsidiaries has a business relationship, or any firm or corporation which
competes with any 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 any Company or any of its
Subsidiaries. Except as described above, no officer, director or stockholder of
any Company or any of its Subsidiaries, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
any Company or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between any Company or any of its
Subsidiaries and any such person. Except as set forth on Schedule 4.7, no
Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person or entity.
4.8 CHANGES. Since the Balance Sheet Date, except as disclosed
in any Schedule to this Agreement or 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 any
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) except as set forth on Schedule 4.8(b) hereto, any
resignation or termination of any officer, key employee or group of
employees of any Company or any of its Subsidiaries;
(c) any material change, except in the ordinary course of
business, in the contingent obligations of any Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(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 any 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 any Company or any of
its Subsidiaries to any stockholder, employee, officer or director of
any 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 any
Company or any of its Subsidiaries;
(h) any declaration or payment of any dividend or other
distribution of the assets of any Company or any of its Subsidiaries;
(i) any labor organization activity related to any Company or
any of its Subsidiaries;
8
(j) any debt, obligation or liability incurred, assumed or
guaranteed by any Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the ordinary
course of business, and except liabilities for working capital
purposes, the aggregate amount of which for all companies on a combined
basis does not exceed $[___________];
(k) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets owned
by any Company or any of its Subsidiaries;
(l) any change in any material agreement to which any Company
or any of its Subsidiaries is a party or by which either any 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 any 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 Schedule 4.9, each Company and each of its Subsidiaries has good and
valid 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 the operations of any 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 each 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, each 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.
(a) Each 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 each 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
9
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is any 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) No Company nor any of its Subsidiaries has received any
communications alleging that such 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 any Company or any of its Subsidiaries
aware of any basis therefor.
(c) Neither Company believes 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 any Company or any
of its Subsidiaries, except for inventions, trade secrets or
proprietary information that have been rightfully assigned to such
Company or any of its Subsidiaries.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on
Schedule 4.11, no Company 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
compliance with this Agreement and the Related Agreements to which it is a
party, and the issuance and sale of the Note by the Companies and the other
Securities by each Company pursuant hereto and thereto, 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 any Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal
of any permit, license, authorization or approval applicable to any 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 no action, suit, proceeding or investigation pending or, to any
Company's knowledge, currently threatened against any Company or any of its
Subsidiaries that prevents any Company or any of its Subsidiaries from entering
into this Agreement or the other Related Agreements to which it is a party, 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 any Company or any of its Subsidiaries, nor is any Company aware
that there is any basis to assert any of the foregoing. No 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 any
Company or any of its Subsidiaries currently pending or which any Company or any
of its Subsidiaries intends to initiate.
10
4.13 TAX RETURNS AND PAYMENTS. Each Company and each of its
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 each
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, no 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.
No Company has any 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
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 any Company's knowledge, threatened with respect to any Company or any of
its Subsidiaries. Except as disclosed on Schedule 4.14, neither 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 each Company's knowledge, no employee of any Company or any of its
Subsidiaries, nor any consultant with whom any Company or any of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement relating to
the right of any such individual to be employed by, or to contract with, any
Company or any of its Subsidiaries because of the nature of the business to be
conducted by any Company or any of its Subsidiaries; and to each Company's
knowledge the continued employment by each Company and its Subsidiaries of their
present employees, and the performance of each Company's and its Subsidiaries'
contracts with its independent contractors, will not result in any such
violation. Neither 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 such Company or any of its Subsidiaries. Neither 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 any Company or any of its Subsidiaries, no employee of any Company or any
of its Subsidiaries has been granted the right to continued employment by any
Company or any of its Subsidiaries or to any material compensation following
termination of employment with any Company or any of its Subsidiaries. Except as
set forth on Schedule 4.14, no Company is aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with any
Company or any of its Subsidiaries, nor does any Company or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
11
4.15 VOTING RIGHTS. Except as set forth on Schedule 4.15, to
each Company's knowledge, no stockholder of any Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of equity
securities of any Company or any of its Subsidiaries.
4.16 COMPLIANCE WITH LAWS; PERMITS. No Company nor any of its
Subsidiaries is in violation of any provision of the Sarbanes Oxley Act of 2002
or any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any Applicable Law 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 Company and its Subsidiaries or, to the
extent applicable, the operators of the Carneros assets 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. No 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 any Company or any of its Subsidiaries or, to
any Company's knowledge, by any other person or entity on any property owned,
leased or used by any 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 prospectus
and 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.
12
4.19 FULL DISCLOSURE. Each 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 and the Warrants,
including all information each 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 any 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 any Company or any of its Subsidiaries were based
on such Company's and its Subsidiaries' experience in the industry and on
assumptions of fact and opinion as to future events which such 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 Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which each Company believes are customary for companies similarly
situated to such Company and its Subsidiaries in the same or similar business.
4.21 DILUTION. (a) Carneros specifically acknowledges that its
obligation to issue the shares of Carneros Common Stock upon exercise of the
Carneros Warrant is binding upon Carneros and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of Carneros; and (b) Gotland specifically acknowledges that its obligation to
issue the shares of Gotland Common Stock upon exercise of the Gotland Warrant is
binding upon Gotland and enforceable regardless of the dilution such issuance
may have on the ownership interests of other shareholders of Gotland.
4.22 PATRIOT ACT. Each Company certifies that, to the best of
its knowledge, neither it 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. Each Company hereby acknowledges that the Purchaser seeks
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, each Company hereby represents,
warrants and covenants that: (i) none of the cash or property that any 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 any Company or
any of its Subsidiaries to the Purchaser, to the extent that they are within any
Company's and/or its Subsidiaries' 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. Each Company
shall promptly notify the Purchaser if any of these representations, warranties
or covenants ceases to be true and accurate regarding any Company or any of its
Subsidiaries. Each Company shall provide the Purchaser all additional
information regarding any Company or any of its Subsidiaries that the Purchaser
13
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. Each 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 any Company. Each Company
further understands that the Purchaser may release confidential information
about any Company and its Subsidiaries 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 any Applicable Law including the relevant rules and regulations under
the laws set forth in subsection (ii) above.
4.23 ERISA. Based upon the Employee Retirement Income Security
Act of 1974 ("ERISA"), and the regulations and published interpretations
thereunder: (i) no 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 Company
and each of its Subsidiaries has met all applicable minimum funding requirements
under Section 302 of ERISA in respect of its plans; (iii) no 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) no 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 such Company's or
such Subsidiary's employees; and (v) neither such 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 Companies as follows (such representations
and warranties do not lessen or obviate the representations and warranties of
the Companies set forth in this Agreement):
5.1 NO SHORTING. Neither the Purchaser nor any of its
affiliates or investment partners has caused, nor will cause, any person or
entity to directly engage in "short sales" of any Company's common stock as long
as the Note or the Warrants shall be outstanding.
5.2 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:
(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.
14
5.3 INVESTMENT REPRESENTATIONS AND COVENANTS.
(a) The Purchaser is resident in the jurisdiction of the
Cayman Islands.
(b) The Purchaser is acquiring the Securities for investment
only and not with a view to resale or distribution in violation of any
securities laws.
(c) The Purchaser is not a party to, and is not acting in
concert with a person who is party to: (A) an agreement to transfer the
Purchaser's legal or beneficial interest in the Securities; or (B) an
agreement to grant a participating interest in the Securities.
(d) As the Securities purchased hereunder are subject to
resale restrictions under the Securities Act, the Purchaser shall
comply with all securities laws concerning any resale of the Securities
purchased hereunder and shall consult with his, her or its own legal
advisors with respect to such compliance; the Purchaser acknowledges
that the Securities may only be resold pursuant to Regulation S under
the Securities Act, pursuant to registration under the Securities Act,
or pursuant to another available exemption from registration; and that
each Company is obligated by this Agreement to refuse to register any
transfers not made in accordance with the foregoing.
(e) If required by applicable securities laws, the Purchaser
will execute, deliver, file and otherwise assist each Company in filing
such reports, undertakings and other documents with respect to the
issuance of the Securities as may be required.
(f) The Purchaser is purchasing the Securities as principal
for its own account and not as a nominee or agent.
(g) The Purchaser is an accredited investor within the meaning
of Regulation D under the Securities Act.
(h) The Purchaser understands that the Securities are 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.
(i) 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 and the Warrants to be purchased by it under this Agreement and
the Warrant Shares acquired by it upon the exercise of the Warrants.
The Purchaser further confirms that it has had an opportunity to ask
questions and receive answers from each Company regarding such
Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the
Warrants and the Securities and to obtain additional information (to
the extent such 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.
15
(j) The Purchaser understands that the Securities have not
been and will not be registered under the Securities Act or any
applicable state securities laws and that the sale contemplated hereby
is being made in reliance on an exemption from registration therefrom.
(k) The Purchaser acknowledges that the Purchaser has not
purchased the Securities as a result of any general solicitation or
general advertising (as those terms are used in Regulation D),
including advertisements, articles, notices or other communications
published in any newspaper, magazine or similar media, or broadcast
over radio, television or other forms of telecommunication, including
electronic display (such as the Internet), or any seminar or meeting
whose attendees have been invited by general solicitation or general
advertising.
(l) The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies
similar to each Company so that it is capable of evaluating the merits
and risks of its investment in each Company and has the capacity to
protect its own interests. The Purchaser must bear the economic risk of
this investment until the Securities are sold.
(m) 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, the Warrants and the
Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement and the Related Agreements.
(n) The Purchaser has not entered into any agreement which
would entitle any person to a claim against any Company for a brokerage
commission, finder's fee or any like payment in respect of the issuance
of the Securities.
(o) The Purchaser is not a "U.S. person" as that term is
defined in Rule 902 of Regulation S under the Securities Act, nor is
the Purchaser acquiring the Securities for the account or benefit of
any U.S. person, and at the time of the purchase of the Securities, the
Purchaser is outside of the United States.
5.4 LEGENDS.
(a) Each Carneros Warrant shall bear substantially the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CARNEROS ENERGY, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
16
(b) Each Gotland Warrant shall bear substantially the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
GOTLAND OIL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Carneros Warrant Shares, if not issued by the Deposit
Withdrawal Agent Commission system, shall bear a legend which shall be
in substantially the following form until such shares are covered by an
effective registration statement filed with the Securities and Exchange
Commission:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO CARNEROS ENERGY, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(d) The Gotland Warrant Shares, if not issued by the Deposit
Withdrawal Agent Commission system, shall bear a legend which shall be
in substantially the following form until such shares are covered by an
effective registration statement filed with the Securities and Exchange
Commission:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO GOTLAND OIL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
17
6. COVENANTS OF THE COMPANIES. Each Company covenants and agrees with
the Purchaser as follows:
6.1 REPORTING REQUIREMENTS. Such 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
twenty (120) days after the end of each fiscal year of Parent, Parent's
audited financial statements with a report of independent certified
public accountants of recognized standing selected by Parent and
acceptable to the Purchaser (the "Accountants"), which annual financial
statements shall be without qualification and shall include Parent's
balance sheet as at the end of such fiscal year and the related
statements of Parent's income, retained earnings and cash flows for the
fiscal year then ended, prepared on a consolidating and consolidated
basis to include Parent and each 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 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 sixty (60)
days after the end of each fiscal quarter of Parent, an
unaudited/internal balance sheet and statements of income, retained
earnings and cash flows of Parent 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 Parent and each 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, but without footnotes and subject to year-end
adjustments and accompanied by a certificate of 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;
(c) As soon as available and in any event within fifteen (15)
days after the end of each calendar month, an unaudited/internal
balance sheet and statements of income, retained earnings and cash
flows of Parent as at the end of and for such month and for the year to
date period then ended, prepared on a consolidating and consolidated
basis to include Parent, each Company, each Subsidiary of each Company
18
and each of their respective affiliates, 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, but
without footnotes and subject to year-end adjustments and accompanied
by a certificate of 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
(d) Such Company shall deliver, or cause the applicable
Subsidiary of such Company to deliver, such other information as the
Purchaser shall reasonably request.
6.2 USE OF FUNDS. The Companies shall use the proceeds of the
sale of the Note and the Warrants solely for the following: (a) $20,375,000 for
the purpose of acquiring the oil and gas properties described in the Stock
Purchase Agreement, (b) $742,000 to fund the Closing Payment and (c) $125,000 to
fund the Purchaser's legal and due diligence expenses, plus such other amounts
as may be payable by the Companies to the Purchaser under the terms of the
Proposal Letter provided by the Purchaser to Carneros in connection with the
transactions contemplated hereby.
6.3 ACCESS TO FACILITIES. Each 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 such
Company or any Subsidiary (provided that no such prior notice shall be required
to be given and no such representative of such 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 such Company or
any of its Subsidiaries;
(b) examine the corporate and financial records of such
Company or any of its Subsidiaries (unless such examination is not
permitted by Applicable Law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of such Company
or any of its Subsidiaries with the directors, officers and independent
accountants of such Company or any of its Subsidiaries.
Notwithstanding the foregoing, no 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
applicable federal securities laws.
6.4 TAXES. Each 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 such Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
19
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 such Company or any of its Subsidiaries and (iii) if such 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 such
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.
6.5 INSURANCE. Each 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 such Company and its Subsidiaries; and such 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 such Company reasonably believes is customary for companies in
similar business similarly situated as such Company and its Subsidiaries and to
the extent available on commercially reasonable terms. Each 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 each Company's and each of its Subsidiaries' joint and
several cost and expense in amounts and with carriers reasonably acceptable to
the Purchaser, each 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 such 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 such 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 such 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 such 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 such 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 such Company or any Subsidiary
and the insurer will provide the Purchaser with at least thirty (30) days notice
prior to cancellation. Each Company and each of its Subsidiaries shall instruct
the insurance carriers that in the event of any loss thereunder, the carriers
shall make payment for such loss to such Company and/or the Subsidiary and the
20
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 event of
default with respect to this Agreement or any of the Related Agreements, then
such 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 each 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 each Company hereunder and under the Related
Agreements, in such order as the Purchaser may determine. Any surplus (following
satisfaction of each Company's obligations to the Purchaser) shall be paid by
the Purchaser to the Companies or applied as may be otherwise required by law.
Any deficiency thereon shall be jointly and severally paid by each Company and
its Subsidiaries, as applicable, to the Purchaser, on demand.
6.6 INTELLECTUAL PROPERTY. Each 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 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 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. No Company will, nor will it 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, each 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. Except as set forth on SCHEDULE 6.9,
no Company, without the prior written consent of the Purchaser, shall, nor shall
it permit any of its Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends,
other than dividends paid by Carneros to Holdings on the Closing Date
for the sole purpose of funding a portion of the purchase price
required to consummate the transactions contemplated by the Stock
Purchase Agreement, (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;
21
(b) liquidate, dissolve or effect a material reorganization
(it being understood that in no event shall any Company or any of its
Subsidiaries dissolve, liquidate or merge with any other person or
entity (unless, in the case of such a merger, any Company or, in the
case of merger not involving any 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 any 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;
(d) materially alter or change the scope of the business of
any Company and its Subsidiaries taken as a whole;
(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 any Company's and its Subsidiaries' assets)) whether
secured or unsecured other than (x) any 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 any 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 any 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/or
(f) create or acquire any Subsidiary after the date hereof
unless (i) such Subsidiary is a wholly-owned Subsidiary of any Company
and (ii) such Subsidiary becomes a party to the Master Security
Agreement, a 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, each Company will deliver
to the Purchaser an opinion acceptable to the Purchaser from such Company's
external legal counsel in the form of EXHIBIT C hereto. Each Company will
provide, at each Company's joint and several expense, such other legal opinions
in the future as are deemed reasonably necessary by the Purchaser (and
acceptable to the Purchaser) in connection with the exercise of any Warrant.
22
6.11 MARGIN STOCK. No Company will permit any of the proceeds
of the Note or any Warrant 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) Until such time as all indebtedness and/or monetary
obligations owing to the Purchaser in connection with the transactions
contemplated by this Agreement or any Related Agreement have been
indefeasibly paid in full, each Company hereby grants to the Purchaser
a right of first refusal to provide any Additional Financing (as
defined below) to be issued by such 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 issuance of any equity interests of any
Company or any of its Subsidiaries (an "Additional Financing"), the
applicable Company and/or any Subsidiary of such Company, as the case
may be, shall notify the Purchaser of its intention to enter into such
Additional Financing. In connection therewith, the applicable 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 applicable 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 applicable Company and/or such Subsidiary.
The Purchaser Term Sheet shall contain terms no less favorable to the
applicable 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 applicable Company and/or such Subsidiary, as the case
may be, as the provisions of the Proposed Term Sheet, the applicable
Company and/or such Subsidiary shall enter into and consummate the
Additional Financing transaction outlined in the Purchaser Term Sheet.
(b) No Company will, nor will it 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 any Company or any of its Subsidiaries.
6.13 AUTHORIZATION AND RESERVATION OF SHARES. (a) Carneros
shall at all times have authorized and reserved a sufficient number of shares of
Carneros Common Stock to provide for the exercise of the Carneros Warrant; (b)
Gotland shall at all times have authorized and reserved a sufficient number of
shares of Gotland Common Stock to provide for the exercise of the Gotland
Warrant.
23
6.14 SUMMARIES; REPORTS. Each of Carneros and Gotland shall
deliver to the Purchaser, between the 22nd and last day of each month, summaries
of its lease operating expenses and production relating to its oil and gas
properties as and for the immediately preceding month. Each of Carneros and
Gotland shall deliver to the Purchaser, between the 22nd and last day of each
month, or at such other time as the Purchaser shall request, an economic reserve
report with respect to each of Carneros and Gotland prepared by a registered
professional engineer acceptable to the Purchaser.
6.15 REGISTRATION RIGHTS. Not later than ten (10) business
days prior to Carneros' and/or Gotland's, as applicable, completion, if ever, of
an initial public offering of its securities or the publicly trading of
Carneros' and/or Gotland's, as applicable, securities (i.e. through a reverse
merger or otherwise), Carneros and Gotland, as applicable, shall execute in
favor of Laurus a Registration Rights Agreement containing, without limitation,
piggyback registration rights provisions reasonably satisfactory to Laurus, in
form and substance reasonably satisfactory to Laurus, with respect to the shares
underlying the Carneros Warrant or Gotland Warrant, as applicable, the
provisions of which shall be deemed incorporated herein by reference to the
extent necessary to effectuate the purpose and intent of this provision. The
provisions of this Section 6.15 shall not be subject to any cure or grace period
as may be applicable thereto under any Related Agreement.
7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with
the Companies as follows:
7.1 CONFIDENTIALITY. The Purchaser will not disclose, and will
not include in any public announcement, the name of any Company, unless
expressly agreed to by such Company or unless and until such disclosure is
required by Applicable Law or applicable regulation, and then only to the extent
of such requirement.
7.2 LIMITATION ON ACQUISITION OF COMMON STOCK OF ANY 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 any Company,
the Purchaser may not acquire stock in any 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 any 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 any 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 any Company upon the
existence of an Event of Default (as defined in the Note).
8. COVENANTS OF THE COMPANIES AND THE PURCHASER REGARDING
INDEMNIFICATION.
24
8.1 COMPANY INDEMNIFICATION. Each Company agrees to indemnify,
hold harmless, reimburse and defend, on a joint and several basis, 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 any Company
or any of its Subsidiaries or breach of any warranty by any 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 any Company or any of its Subsidiaries of any covenant or
undertaking to be performed by any Company or any of its Subsidiaries hereunder,
under any other Related Agreement or any other agreement entered into by any
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. ss.9601 et seq. and 40 CFR ss.302.1 et seq.), the Resource Conservation
and Recovery Act of 1976 (42 U.S.C. ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 et seq., and 40 CFR ss.116.1 et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et seq.) and the
regulations promulgated pursuant to said laws, all as amended and relating to or
affecting any Company and/or any Subsidiary of any Company and any Company's
and/or any Company's 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
any Company and/or any Subsidiary of any Company 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 each Company and each of such
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 such 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 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 such 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.
25
(b) EACH 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 SUCH 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 EACH 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. EACH
COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH
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 SUCH COMPANY AT THE ADDRESS SET FORTH IN
SECTION 9.8 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF SUCH 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,
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 ANY 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.
26
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 or
any Company 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 any Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by such 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 and shall
inure to the benefit of and be enforceable by each person or entity which shall
be a holder of the Securities from time to time, other than the holders of
common stock which has been sold by the Purchaser pursuant to Rule 144 or Rule
904 under the Securities Act or other resale restriction provisions of
applicable securities laws. The Purchaser shall not be permitted to assign its
rights hereunder or under any Related Agreement to a competitor of any 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 made by any Company shall be credited against
amounts owed by such Company to the Purchaser and thus refunded to such Company.
9.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Companies and the Purchaser.
27
(b) The obligations of each 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
Companies under this Agreement may be waived only with the written
consent of the Companies.
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 ANY COMPANY, TO: c/o Carneros Acquisition Corp.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, President
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
IF TO THE PURCHASER, TO: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
28
WITH A COPY TO:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
AND TO:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as any 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.
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
29
in the interpretation of this Agreement or any Related Agreement to favor any
party against the other.
9.14 JOINT AND SEVERAL OBLIGATIONS.
(a) All obligations and liabilities of each Company to the
Purchaser (the "Obligations") shall be joint and several, and such
obligations and liabilities on the part of the Companies shall in no
way be affected by any extensions, renewals and forbearance granted by
the Purchaser to any Company, failure of the Purchaser to give any
Company any notice, any failure of the Purchaser to pursue to preserve
its rights against any Company, the release by the Purchaser of any
collateral now or thereafter acquired from any Company, and such
agreement by any Company to pay upon any notice issued pursuant thereto
is unconditional and unaffected by prior recourse by the Purchaser to
any Company or any collateral for such Obligations or the lack thereof.
(b) Each Company expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any
other claim which such Company may now or hereafter have against the
other or other person or entity directly or contingently liable for the
Obligations, or against or with respect to any other's property
(including, without limitation, any property which is collateral for
the Obligations), arising from the existence or performance of this
Agreement, until all Obligations have been indefeasibly paid in full
and this Agreement has been irrevocably terminated.
(c) Each Company represents and warrants to the Purchaser that
(i) Companies have one or more common shareholders, directors and
officers, (ii) the businesses and corporate activities of Companies are
closely related to, and substantially benefit, the business and
corporate activities of Companies, (iii) the financial and other
operations of Companies are performed on a combined basis as if
Companies constituted a consolidated corporate group and (iv) Companies
will receive a substantial economic benefit from entering into this
Agreement and will receive a substantial economic benefit from all
amounts advanced by the Purchaser to each Company in connection with
the transactions contemplated hereby, in each case, whether or not such
amount is used directly by any Company.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
30
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANIES: PURCHASER:
CARNEROS ENERGY, INC. LAURUS MASTER FUND, LTD.
By: * By: /S/ ▇▇▇▇▇▇ Grin
------------------------ ---------------------------
Name: Name: ▇▇▇▇▇▇ Grin
------------------------ ---------------------------
Title: Title: Director
---------------------- -------------------------
CARNEROS ACQUISITION CORP.
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------
Title: President
----------------------
GOTLAND OIL, INC.
By: *
-----------------------
Name:
-----------------------
Title:
---------------------
* See Joinder and Amendment Agreement dated as of June 29, 2006 among the
Companies and the Purchaser pursuant to which Gotland and Carneros join the
Securities Purchase Agreement as companies.
31
